Attorneys

Outnumbered or Outrageous: Understanding Shareholder Oppression in New Jersey

Ansell Grimm July 8, 2024

The concept of majority rule is not only a defining characteristic of democracy but also the way decisions are made in a wide range of contexts every day. No matter the issue – whether choosing between candidates for public office or deciding what toppings to put on a pizza, those on the winning side will be happy with the result, while those in the minority may be disappointed or even angry about the outcome. This same dynamic applies in closely held New Jersey corporations every time shareholders have to make decisions involving their company.

Being a minority shareholder (i.e., one who owns less than half of a company’s voting shares or otherwise does not control the business’s operations) often means your views and preferences, while perhaps considered by the majority, will ultimately be set aside after votes are tallied.

While being in the minority may be undesirable, it isn’t inherently unfair. If agreed-upon rules are followed, and if votes and decisions are made in good faith and not with the intent or effect of harming minority shareholders or infringing upon their rights, that is just the way the chips fall. But when majority shareholders abuse their power and act in inappropriate, illegal, or “oppressive” ways, most jurisdictions, including New Jersey, provide minority shareholders with mechanisms to protect and remedies to vindicate their rights and shield themselves and the corporation from majority misconduct.

Understanding the difference between shareholder oppression and the simple frustration that comes with being outvoted can spare a company and its owners from disruptive and destructive litigation that can pose an existential threat to the business’ ongoing viability.

What Is Shareholder Oppression in New Jersey?

Under Section 14A:12-7(c) of the New Jersey Business Corporation Act (the “Act”), minority shareholder oppression in a closely held corporation (defined in that section as one with 25 or fewer shareholders) sufficient to justify court intervention occurs when the directors or those in control have acted “oppressively or unfairly toward one or more minority shareholders in their capacities as shareholders, directors, officers, or employees.”

Since the statute does not define the terms “oppressively” or “unfairly,” it is left to New Jersey courts to determine what exactly constitutes conduct that falls within those two terms. The seminal case in this regard is the 1993 New Jersey Supreme Court decision in Brenner v. Berkowitz. After noting that “Mere disagreement or discord between the shareholders is not sufficient for a violation of” Section 14A:12-7(c), the Court stated that “oppression has been defined as frustrating a shareholder’s reasonable expectations.”

“In determining whether a shareholder’s expectations are reasonable and whether the corporation or controlling shareholders or directors unreasonably thwarted them,” the Court went on to say that “courts should consider even non-monetary expectations of the shareholder.” In other words, oppression is not simply a matter of dollars and cents and can constitute a wide range of actions that can be “burdensome, harsh, or wrongful” to the minority shareholders.

Actions That Can Constitute Shareholder Oppression

Such actions that could warrant retaining legal counsel and triggering court intervention may include:

Forcing a minority shareholder to sell their shares at unfairly low prices.
Freezing out a shareholder, making their shares essentially worthless through corporate restructuring.
Locking a shareholder out of the company’s property.
Refusing to allow a shareholder to inspect the company’s books and business records.
Terminating a minority shareholder’s employment.
Creating a redemption plan for stock that only favors the majority shareholders.
Engaging in transaction(s) that cuts minority shareholders out of fair compensation.
Refusing to notify shareholders of official shareholder meetings.
Trying to alter minority shareholder terms to reduce their rights.
Falsifying company records or books.
Paying for personal expenses of majority shareholders with corporate funds.

Remedies for Shareholder Oppression

If a court determines that a majority shareholder is acting oppressively towards a minority shareholder in a closely held corporation, the Act provides several possible remedies to protect the minority’s rights and interests, including appointing a custodian or a provisional director to manage the corporation’s affairs, ordering a sale of the corporation’s stock, or entering a judgment dissolving the corporation.

While the Brennan court noted that “Most acts of misconduct or oppression will warrant some type of remedy,” it also stated that “only the most egregious cases will warrant the drastic remedies permitted by the statute.” Outside of statutory remedies, the Court held that the Chancery Court (where such matters are brought and heard) has broad discretion under its inherent powers of equity to fashion an appropriate remedy based on the nature of the conduct and harm inflicted as well as a consideration of all the surrounding facts and circumstances.

Thus, in addition to the remedies outlined in the act, the equitable remedies that a court may order in cases of shareholder oppression include:

Canceling or altering problematic provisions of the corporation’s articles of incorporation or the bylaws.
Canceling, altering, or enjoining any resolution or other act of the corporation.
Directing or prohibiting any act of the corporation or the shareholders, directors, officers, or other persons party to the action.
Providing for the sale of all the property and franchises of the corporation to a single purchaser.
Requiring dissolution at a future date, effective only if the parties do not resolve their differences before that time.
Appointing a receiver or special fiscal agent to continue the operation of the corporation for both majority and minority until differences are resolved or until oppressive conduct ceases.
Retaining jurisdiction for the protection of minority shareholders without the appointment of a custodian, receiver, or similar official.
Ordering an accounting or ordering access to corporate records.
Enjoining continuing acts of oppressive conduct, e.g., by reducing unjustified or excessive salary or bonus payments to controlling shareholders.
Requiring the declaration of a dividend.
Permitting minority shareholders to purchase additional shares.
Rescinding a corporate act that is unfair to the minority.
The performance, prohibition, alteration, or setting aside of any action of the corporation, its shareholders, directors, or officers of or any other party to the proceedings.

If you have questions or concerns about minority shareholder oppression and how to protect your interests when it occurs, please contact Ansell Grimm & Aaron Partner Seth M. Rosenstein.

Ansell.Law Secures Motion to Dismiss Avoiding Frivolous Litigation for Firm Client

Ansell Grimm June 5, 2024

In a land use dispute where a litigious neighbor filed a complaint seeking to effectively appeal zoning permits issued for construction that has long since been completed – some for more than a decade – Litigation Department attorneys Anthony J. D’Artiglio and Brian J. Ashnault, with assistance from Land Use Department Co-Chair Jennifer S. Krimko, successfully moved to have the Complaint dismissed in its entirety with prejudice.

The plaintiff filed a complaint against his neighbor and the Borough of West Long Branch, asserting claims of enforcement, writ of mandamus, and violation of the plaintiff’s substantive due process rights. At its core, the Complaint alleged that four permits issued to his neighbor should not have been issued, and the work performed in conjunction with the permits exceeded what was permitted.

On behalf of the defendant neighbor, the Ansell team filed a motion to dismiss the Complaint relying on arguments including that the plaintiff was actually seeking an out-of-time appeal of the permits, not enforcement of the Ordinance as plaintiff asserted. Regardless, the Ansell team argued that such claims were long out of time under the principle of laches, even if they were considered as enforcement claims. Additionally, the Ansell Team argued that the remaining counts were deficient for various reasons warranting dismissal.

Following oral arguments, the Court issued a lengthy oral decision dismissing the Complaint in its entirety with prejudice. The Judge addressed and accepted each of the Ansell team’s grounds to dismiss the Complaint for every count. Accordingly, the frivolous litigation filed by the plaintiff designed to harass his neighbor was disposed of at its earliest stage.

Anthony is a partner and litigation team leader in the Firm’s Woodland Park office. His varied practice includes commercial lease disputes, class actions, Consumer Fraud Act claims, corporate/shareholder disputes, employment disputes, secured property actions, and creditors’ rights in bankruptcy matters.

Jennifer co-chairs the Firm’s Land Use Department. She devotes her practice to all areas relating to real estate, representing a wide variety of clients — from individuals to large developers — in all phases of governmental approvals before municipal, county, and state agencies.

Brian’s practice spans a range of commercial and civil litigation matters including condemnation, land use, commercial lease disputes, breach of contract claims, and collections.

Bradley Beach Land Use Board Approves Revised Plan for the Movie Theater

Ansell Grimm May 29, 2024

Shareholder Jennifer Krimko recently led the team in securing amended approval from the Bradley Beach Land Use Board permitting the Firm’s client to operate a theater with a café and bar in Bradley Beach. The unanimous approval granted on May 16, 2024, allows for the renovation of the existing theater building into one larger theater with 186 seats and one smaller theater room with flexible seating for up to 39 people, along with cafés and bar areas.

Krimko emphasized the advantages of the amended plan, noting that “there could be interior renovations that would be less expensive to construct, would be equally as ADA accessible, and allow the site to continue to function in the same way.” Read more in the Star News Group article.

As co-chair of the Firm’s Land Use Department, Krimko devotes her practice to all real estate matters, representing a wide variety of clients — from individuals to large developers — in all phases of governmental approvals before municipal, county, and state agencies.

David Byrne and Nicole Miller To Speak at Cooperator Expo New Jersey

Ansell Grimm May 20, 2024

Nearly 2000 attendees will soon gather at the Meadowlands for the 2024 Cooperator Expo, New Jersey’s biggest condo, HOA, and apartment expo. The one-day event is on June 5, 2024.

Partners David J. Byrne and Nicole D. Miller are slated to speak with Corner Property Management’s CEO, Tony Nardone. Their program will address unpaid assessments and running elections – two significant issues that buildings and association boards routinely encounter. The speakers will provide practical management strategies boards can implement to handle these challenges.

Ansell.Law is a proud longtime sponsor of this key industry event and is one of 250 exhibitors. This must-attend expo is geared towards property managers, board members, apartment building owners, shareholders, and real estate professionals. Elysa D. Bergenfeld, Stacey R. Patterson, Anthony J. D’Artiglio, and Jonathan D. Sherman will also be in attendance.

The attorneys in our Community Association Law practice provide dynamic, creative, and effective representation to condominiums, community associations, cooperatives, and homeowners associations. We work with clients in New Jersey, New York, and Pennsylvania.

Andrea B. White Obtains Qualification To Conduct Economic Mediation in Matters with Domestic Violence

Ansell Grimm May 14, 2024

Ansell.Law is pleased to announce that partner Andrea B. White has been added to the New Jersey Judiciary Roster of Mediators for Economic Mediation in family matters. Specifically qualified to handle cases involving domestic violence, she is among a select group of attorneys in the state qualified by the New Jersey Supreme Court.

Andrea attained accreditation after completing specialized training tailored for these cases. All mediators on the Judiciary-approved roster have undergone 40 hours of comprehensive mediation training. Those with a domestic violence designation completed additional training that enables them to facilitate Economic Mediation in matters involving Domestic Violence.

A veteran family law attorney, Andrea cultivated her practice in the highly specialized discipline of divorce, custody, parenting time, child support, alimony, and domestic violence. In recognition of her many years of volunteer service, Andrea was recently appointed an emeritus member of the NJSBA’s Family Law Executive Committee.

New Flood Disclosures Required for New Jersey Residential and Commercial Property Sales and Leases

Ansell Grimm May 8, 2024

By Melanie J. Scroble and Jonathan D. Sherman

In addition to the many representations and warranties New Jersey property owners must provide when they seek to sell or lease their property, they will now need to make specific disclosures regarding the history of and potential for flooding on their land. As of March 20, 2024, P.L. 2023, c.93 requires all New Jersey residential and commercial property owners in the state to provide detailed disclosures regarding past flooding and existing and future flood risks when entering into new leases, lease renewals, sales, or exchanges involving their property. Failure to make these disclosures in any transaction entered into after March 20th can have severe and costly consequences for sellers and landlords.

Under the new law, property owners must make these disclosures in one of two amended disclosure forms, depending on whether the transaction involves a sale or a lease.

For flooding issues, the primary responsibility of owners entering into either type of transaction involves:

Disclosing whether the property has ever experienced flood damage, water seepage, or pooled water due to a natural flood event on the property, such as heavy rainfall, coastal storm surge, tidal inundation, or river overflow.
Determining and disclosing whether any or all of the property is located wholly or partially in the Special Flood Hazard Area (“100-year floodplain”) according to FEMA’s current flood insurance rate maps for the area or whether any or all of the property located wholly or partially in a Moderate Risk Flood Hazard Area (“500-year floodplain”) according to FEMA’s current flood insurance rate maps for the area. Owners can find this information in the New Jersey Department of Environmental Protection’s Flood Risk Database.

The form for sale transactions includes additional disclosures regarding flood insurance and claims, as well as disaster flood assistance.

Consequences of Non-Compliance

For landlords, failing to disclose that the leased property is located in a FEMA Special or Moderate Risk Flood Hazard Area gives the tenant the right to terminate the lease upon learning the property is, in fact, located in one of those hazard areas. Additionally, the landlord may be held liable for any damage to a tenant’s personal property, diminished habitability of the leased premises, or limited or denied access to the leased premises due to flooding.

Similarly, a seller’s failure to make the necessary disclosures will release the buyer from its obligations under the sale contract unless and until the seller complies with the law’s disclosure requirements.

If you have questions or concerns about these new required flood disclosures, please contact Melanie Scroble or Jonathan Sherman at Ansell.Law.

After a Hard-Fought Trial, Ansell.Law’s Lawrence H. Shapiro and Kelsey M. Barber Obtain $389,000 Judgment for Stepdad After Stepson Falsely Claimed Money Was a Gift, Not a Loan as Agreed.

Ansell Grimm May 3, 2024

When a stepson attempted to take advantage of his loving stepfather’s generosity by claiming that a $389,000 loan was actually a gift he did not have to repay, Lawrence H. Shapiro and Kelsey M. Barber of the Firm’s Litigation Department successfully vindicated the stepdad, obtaining a judgment in his favor for the entire loan amount, plus interest.

The heated dispute arose after the stepdad and his wife decided to downsize and sell the family home, where the adult stepson and his college student brother lived. As the stepson and his brother needed a new place to live, the stepdad kindly offered the stepson $389,000 to purchase a townhome.

At all times, the stepfather intended the money to be a loan, an arrangement that was repeatedly acknowledged by the stepson in contemporaneous emails and text messages in which he discussed repayment plans, asked for forbearance when money was tight, and offered to forward rent payments his brother was making to pay for his share of the townhome. Notwithstanding the clear agreement and understanding of the parties, the stepson refused to sign a note and mortgage at the closing of the townhome.

The suit came about after the stepfather and mother got divorced. The stepson used the end of their marriage as an excuse to renege on his obligations by claiming the loan was, in fact, a gift.

During the two-day trial, the Ansell team was able to conclusively demonstrate that the money was a loan through the contemporaneous documentation and by completely undermining the stepson’s credibility as a witness. Accordingly, the Court entered an Order for Judgment in favor of the stepfather for the full loan amount plus interest.

Your Business is Poised for Real Growth — Is Franchising Your Business Concept a Viable Option for You?

Ansell Grimm April 29, 2024

By Roy W. Hibberd

If you are a successful small business owner, you may know the feeling. Things are going well, and your concept seems to have drawn consumer interest and found traction. Your customer base and revenues are growing, and demand is exceeding your capacity to keep pace. All signs point towards expansion and scaling up. You start to consider your options for growth, and franchising seems like an attractive way to transform and grow your business to a regional or even national brand and presence.

And while you may generally know what a franchise is – you likely patronize and drive by multiple franchised businesses every day – you have only the haziest idea of what starting and operating a franchise involves. Even less clear is whether franchising makes sense for your business model and long-term goals or whether other paths may better suit your circumstances and objectives.

While the decision as to whether, when, and how to expand your business is one that you should only make in consultation with experienced counsel, here are some basic facts and considerations about franchising that can help guide your next steps.

What Does It Mean To Franchise a Business?

You started your business as an entrepreneur, and at its core, franchising is an approach that allows other entrepreneurs to follow in your footsteps and take the laboring oar in expanding your brand’s footprint. It is a symbiotic arrangement that offers benefits for both the franchisor/parent company (you) and the franchisee (the individual or entity buying the rights to operate under your brand).

While franchising, like any business model, comes with risks and is not necessarily appropriate for every enterprise, it is a well-established and widespread arrangement. According to the International Franchise Association, there were over 800,000 individual franchise establishments in the U.S. in 2023, employing approximately 8.7 million people and producing roughly $860 billion in economic output.

When a business is franchised, the franchisor grants the franchisee the right to use its trademarks, branding, and operational procedures. This includes everything from the products or services offered to the interior decor of a retail location and marketing materials. Franchisors provide extensive support to franchisees, including training programs, operational assistance, marketing support, and access to proprietary systems and resources.

However, while the franchisee gains access to these assets, they must comply with strict standards set forth by the franchisor to maintain consistency across all locations. Franchisors exert significant influence over various aspects of the franchisee’s business operations, including pricing, product offerings, branding, marketing strategies, and quality standards.

For the franchisor, a franchise arrangement is a means to rapidly expand its brand footprint with minimal capital investment and without bearing the full burden of establishing and managing each new location. The franchisor earns revenue through franchise fees, ongoing royalties, and possibly even sales of equipment or supplies to franchisees. Additionally, since franchisees are responsible for day-to-day operations, the franchisor can focus on core business activities such as innovation and brand development.

What Is the Difference Between Licensing a Brand and Franchising a Brand?

Owners looking to grow their brand and business may consider licensing rather than franchising. However, there are significant differences between these two models, primarily regarding the licensing company’s level of control and involvement with the licensee, — the entity receiving the right to use the brand and related processes and procedures.

Like franchising, licensing involves granting permission to use a brand’s name, logo, and intellectual property for specific products, services, or applications. In exchange, the licensee pays upfront licensing fees or ongoing royalties based on sales volume or brand usage.

Unlike franchising, a licensing arrangement does not involve providing the licensee with a complete business model or operational support. While licensors may offer limited support to licensees in terms of branding requirements, marketing materials, and quality control standards, licensees typically have far more decision-making autonomy than franchisees, which means licensors have far less control over quality or how their brand is being used than they would in a franchise arrangement.

Importantly, the legal and regulatory challenges involved in franchising are significantly more complex and burdensome than licensing. Franchises are heavily regulated and scrutinized and involve detailed and specific offering requirements for franchise disclosure documents, agreements, and operating manuals akin to those associated with offering securities. The Federal Trade Commission regulates franchising across the U.S., and 14 states have their own additional requirements. Franchisors must also provide ongoing support and guidance to franchisees to ensure compliance with all applicable laws and regulations regarding everything from employment to health and safety standards.

How To Look at Your Business When Considering Franchising

As noted, franchising may not be the optimal path for all expanding businesses. As you consider the suitability of franchising, consider these factors:

Established and Proven Concept: Your business should have already demonstrated success as an independent venture with a track record of profitability and a distinctive concept that offers a competitive advantage.
Registered Brand: Your brand/logo should be nationally registered, and as this process will take at least 12-18 months, this should be done early.
Scalability and Standardization: Your concept/model should be capable of having well-defined processes, systems, and operational procedures that can be easily replicated across different locations, markets, and economic conditions without losing the core essence that made it successful. Documented manuals, training programs, and support mechanisms will be essential for maintaining consistency and facilitating franchisee success.
Market Demand and Growth Potential: Carefully analyze the market demand for your product or service and evaluate the competitive environment to determine whether it is saturated or has room for sustainable growth.
Profitability and ROI: You can’t evaluate franchising without crunching the numbers and assessing your concept’s potential profitability and return on investment (ROI). Calculate the initial investment required, ongoing operational costs, and projected revenues.

In our next post, we will discuss the first practical steps to take when launching a franchise and how you and your attorney can position your business for sustained growth and success. If you would like to discuss franchising or other avenues for expanding your business, contact Roy Hibberd at Ansell Grimm & Aaron.

Recent Decision Finding CTA Unconstitutional Casts Doubt on Its Fate

Ansell Grimm April 10, 2024

By Nicole D. Miller

As we recently discussed in this blog post, homeowner and condominium associations (“Community Associations”), are subject to the detailed and complicated reporting requirements of the federal Corporate Transparency Act (CTA). The compliance deadlines for Community Associations to disclose their “beneficial ownership information” are approaching. However, a March 1 decision by a U.S. district court judge in Alabama, issued just 60 days after the CTA’s effective date, has called into question the ultimate enforceability and constitutionality of the law.

In National Small Business United v. Yellen, Judge Liles C. Burke granted summary judgment in favor of the plaintiffs, finding that “the CTA is unconstitutional because it ‘exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.'”

Critically, the court’s order enjoining enforcement of the CTA applies only to the plaintiffs, including the National Small Business Association (NSBA) and its approximately 60,000 members. While the decision is limited to the plaintiffs in the case, the decision is seen as a positive one from the perspective of Community Associations as it sets groundwork for other courts to follow suit concerning enforceability. Community Associations throughout the country have serious concerns about the intrusive reporting requirements of the CTA given that those who serve on the boards of associations are volunteer homeowners. The extensive and invasive reporting requirements of the CTA are likely to deter participation on Community Association boards. This decision provides some hope to Community Associations that the law will ultimately not be enforceable and/or will be amended as to those required to report.

Unsurprisingly, the U.S. Department of Justice and FinCEN, the government agency tasked with the CTA’s implementation and enforcement, quickly filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit. Whatever the appellate court decides, there is a decent chance that the CTA’s fate will wind up in the hands of the U.S. Supreme Court.

Until then, or there is an amendment to the CTA, Community Associations should presume they will need to report their beneficial ownership information to FinCEN by the dates outlined in our earlier blog post.

For further information and assistance with your Community Association’s CTA compliance, please contact Nicole Miller in Ansell.Law’s Community Association practice group.

Fighting Back Against Frivolous Lawsuits and Meritless Claims

Ansell Grimm April 10, 2024

By Seth M. Rosenstein

Businesses and individuals facing the prospect of litigation often ask legal counsel whether they can sue or be sued over a particular set of facts and circumstances, and the proper response is generally that “Anybody can file a lawsuit against anyone about anything.” That is not to say that every claim or suit has merit or should be pursued; far from it. But the reality is that the courthouse doors swing wide open for even the most absurd litigants asserting baseless and frivolous claims.

Want to sue your dentist for supposedly putting listening devices in your fillings? No one will stop you. Want to fight a lawsuit by alleging that the plaintiff’s true identity as an alien from a galaxy far, far away bars their claims? The court clerk will accept your filing with no questions. In both state and federal courts, the bar for filing a lawsuit or pleading is essentially non-existent.

However, once a frivolous lawsuit or claim is filed, those who must waste their time, money, and effort fighting back have powerful ways to hold such parties – and their attorneys – accountable for abusing the judicial process and help them recoup the fees and costs attendant to defending claims that lack any factual or legal merit. Court rules at the state and federal levels include provisions specifically designed to deter and address frivolous claims and provide remedies to the parties on the receiving end.

Aggressively Fighting Back Against Frivolous Claims

Our litigation practice group aggressively avails itself of those rules when a client is served with a meritless complaint, whether in New Jersey and New York state courts or in federal court. If we believe a suit was filed in bad faith, in violation of an attorney’s ethical obligations, or for improper purposes, we take all steps required to ensure that sanctions against the offending litigant and their attorneys can be sought to make our client whole. We have a solid track record of success fighting back against frivolous litigation, which, as noted, is all too easy to pursue, at least initially.

There is an important distinction, however, between a frivolous claim and a weak one. In every lawsuit that goes to trial, one party will prevail, and one party will lose. Just as the two contestants who lose on each episode of “Jeopardy!” can hardly be called dumb, a claim or defense will not automatically be deemed meritless simply because it was unsuccessful. To be considered frivolous, it must meet the definition of that term in the applicable court rule.

New Jersey’s Frivolous Litigation Act

New Jersey’s Frivolous Litigation Act (FCA) and Rule 1:4-8 of the state’s Rules of Court are prime tools that empower legal counsel and the courts to address meritless lawsuits and claims.

The FCA provides that a party who prevails in a civil action, either as plaintiff or defendant, may be awarded all of its reasonable litigation costs and attorney fees if the judge finds that a complaint, counterclaim, cross-claim, or defense of the non-prevailing person was frivolous.

For a claim or defense to be considered “frivolous” such that the filing party can be held liable for the other party’s attorneys’ fees and costs, the judge must find that:

The complaint, counterclaim, cross-claim, or defense was commenced, used, or continued in bad faith, solely for the purpose of harassment, delay, or malicious injury; or
The non-prevailing party knew or should have known that the complaint, counterclaim, cross-claim, or defense was without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification, or reversal of existing law.

Holding Attorneys Accountable

As “officers of the court,” attorneys have legal and ethical obligations to the judicial process. The rules that codify these obligations and the potential penalties for violating them are designed to ensure attorneys have “skin in the game” when they file a lawsuit.

Under Rule 1:4-8 of New Jersey’s Rules of Court, an attorney must ensure, based on their reasonable investigation, that any papers they sign and submit to the court have a plausible basis in fact and law and are not being presented for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.

When an attorney violates this obligation, a court can hold them accountable by imposing monetary penalties and other professional sanctions directly on them and their law firm.

New York Remedies For Meritless Lawsuits

New Jersey’s definition of frivolous litigation and the penalties a court can impose on parties and attorneys are similar to those detailed in Section 130-1.1 of New York’s court rules.

As is the case in New Jersey, a New York judge can make an award of costs or impose financial sanctions against an attorney and/or a party upon the motion of one of the parties, but can also decide to impose sanctions on its own without any such request. A judge in New York, at their discretion, can sanction an attorney or party for conduct that:

is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law;
is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or
asserts material factual statements that are false.

Federal Rule 11

Rule 11 of the Federal Rules of Civil Procedure provides the mechanism through which litigants in federal court, as well as the court itself, can hold parties and their lawyers accountable for abuses of court processes and the judicial system. If the judge does not entertain the possibility of sanctions on their own, an aggrieved litigant may file a motion for the entry of appropriate sanctions pursuant to Rule 11(c)(2) that describes the specific conduct that allegedly warrants such penalties.

As with its corresponding state court rules, Rule 11 is designed not only to address the misconduct at issue but also to put future litigants on notice that they face the same possible fate for filing frivolous matters. Specifically, the rule provides that sanction imposed “must be limited to what suffices to deter repetition of the conduct or comparable conduct by others similarly situated.” If imposed upon the motion of an aggrieved litigant and warranted for effective deterrence, sanctions can include directing payment to the movant of part or all of their reasonable attorney’s fees and other expenses directly resulting from the violation.

No matter the forum, a frivolous claim or lawsuit is a scourge upon the civil justice system that has real, tangible, and harmful impacts on the parties that must respond to such filings. Accordingly, we do not hesitate to put opposing parties on notice of frivolous claims and pursue all available remedies on behalf of clients needlessly drawn into a bogus lawsuit.

If you believe you or your business are the target of a frivolous lawsuit, please contact Ansell.Law Litigation Partner Seth M. Rosenstein.

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