Attorneys

The Cost of Victory: What Business Owners Should Consider Before Filing a Lawsuit in a Commercial Dispute

Ansell Grimm January 17, 2024

A wise person once said, “Litigation is the basic legal right which guarantees every corporation its decade in court.” While likely said facetiously, the fact is that business litigation often comes at great expense to the company and individuals involved.

The costs of vindicating and protecting a company’s rights – in time, money, disruption, reputation, and commercial relationships – along with the inherent risk and uncertainty involved in all litigation, can lead even a victorious plaintiff to ask whether their victory was worth the destruction it wrought.

Undoubtedly, there are situations where litigation is a company’s best or only path forward in a commercial dispute, whether it is with a customer, competitor, or business partner. Sometimes, a lawsuit is the last resort after other attempts to reach a resolution have failed or the only way to bring the other side to the negotiating table. Other times, quick intervention by a judge is necessary to prevent irreparable harm to the business. In those situations, your company will want and need an experienced and strategic litigator who stands ready to vigorously pursue your claims.

But even after the dogs of litigation have been unleashed, most commercial lawsuits settle or are otherwise resolved before trial for many of the same reasons cited above – the expense, disruption, and risk involved in entrusting the outcome to a judge or jury.

That is why, regardless of the perceived strength and merit of their claims, business owners should think carefully and consider the possible negative implications of litigation before telling their attorney to run to the courthouse and file a lawsuit. Here are three things to factor into your decision-making before pursuing business litigation:

Even the Most Straightforward Lawsuit Can Take Your Business Down a Long and Winding (and Expensive) Road

Lawyers are sometimes accused of making simple matters needlessly complicated. But for attorneys representing defendants in business litigation, making things complicated is often a feature, not a bug. Part of the defense’s strategy, especially when faced with a strong or straightforward claim, can include using any means to make litigation as drawn-out, convoluted, costly, and painful as possible for the plaintiffs.

Unfortunately, the wheels of justice are extremely amenable to a commercial defendant who wants to slow a plaintiff’s roll. The system isn’t designed for speed to begin with, and even if your attorney does everything in their power to speed your case along, there are plenty of ways a defendant can stretch your simple case out for years.

They may file multiple motions regarding various issues, most of which will require the submission of briefs and the time needed to prepare them. A lengthy briefing schedule could be followed by a hearing or ruling even further into the future, all delaying the suit’s progress until the motions are resolved.

Discovery, the process of requesting and exchanging documents, gathering evidence, and taking witness depositions, also offers ample opportunity for delay and added costs. It can take a while and cost lots of money to produce a voluminous amount of material in response to a party’s request. Depositions may be held in distant locations and involve significant travel costs (including fees for the attorney’s travel time) and complicated scheduling conflicts. You may also need to retain paid experts to testify or prepare reports.

But it is more than fees, expenses, and delays that can make discovery costly for a business plaintiff. Owners, executives, and employees who would otherwise be doing their jobs may need to divert their time, effort, and productivity toward handling document requests or preparing and sitting for their depositions. These disruptions should be factored into your litigation calculations as well.

Of course, the end of your case may not be the end of your case if one side appeals the judgment, which can keep the attorney’s fees meter and litigation clock running and even lead to another trial.

There Are No “Slam Dunks” in Business Litigation

Just as there is no crying in baseball, there are no slam dunks in business litigation. When you put your fate in the hands of a judge or 12 random people sitting on a jury, there is no guarantee they will see your case the way you and your lawyer do. There is always – always – a risk of an adverse ruling, no matter how strong your case appears to be.

Not only may your company lose on its claims (while still being on the hook for attorney’s fees and costs), but it may be exposed to liability and a judgment if the defendant files and prevails on a counterclaim. And if a contract or statute provides that the losing side in litigation must pay the winning side’s attorney’s fees and costs, the monetary hole can be even deeper.

A Judgment Is Not a Check

For all the risk of losing that is inherent in litigation, there is an equally inherent likelihood your company will prevail on its claims and obtain a substantial monetary judgment against the defendant. But no matter how many zeros that judgment contains, it could ultimately be worth far less – or nothing at all.

First, subtract all the amounts your business paid its lawyers from your judgment. That could shave tens or hundreds of thousands of dollars off that top-line figure. And those fees may keep coming if your attorneys have to spend time and effort trying to collect the amounts due from the defendant. Judgment debtors can engage in plenty of moves and tricks to hide assets and make collection efforts as difficult as possible.

Of course, nothing makes collecting on a judgment more challenging than an insolvent judgment debtor. If the defendant is actually broke, even the most talented litigator cannot get blood from a stone.

Again, as noted, sometimes litigation is the right or only way to resolve a business dispute despite the risks and costs it may involve. But before shooting first, you should ask your lawyer questions about the best path forward for your company, which may include pre-litigation demands, negotiations and non-binding mediation.

If you are involved in or anticipate a business dispute, please contact Ansell Grimm & Aaron Litigation Partner Seth M. Rosenstein.

Recent Success Stories

Ansell Grimm January 17, 2024

Jennifer Krimko Secures Planning Board Approval of Client’s Plan for Monmouth Mall Redevelopment

On December 4, 2023, the Eatontown Planning Board granted preliminary and final site plan approval to Krimko’s client, Eatontown Monmouth Mall, LLC (Kushner Companies), paving the way for the redevelopment of the existing 1.5 million square foot Monmouth Mall in Eatontown. The proposed development, to be known as Monmouth Square, will consist of approximately one million square feet of commercial space along with 1,000 luxury apartments with a clubhouse and amenities for the residents, public open space, and related site improvements. Monmouth Square will be a pedestrian-friendly, true town center environment where people can live, dine, and shop all on one property.

Jason Klein Closes Financing and Acquisition of Over 75 Global Quick Service Restaurant Stores

In December, Ansell Grimm & Aaron’s Jason Klein consummated two major asset transactions on behalf of two separate purchasers of over 75 quick-serve restaurants. The purchasers are franchisees of a global quick-service restaurant behemoth.

In one transaction involving the acquisition of over 50 stores and three separate parcels of real estate, Klein spearheaded the negotiation of the purchase and sale agreements for both the assets and real property, the acquisition of the assets and the properties, and the loan transactions. In the other transaction, Klein’s efforts and direction resulted in his client’s successful acquisition of over 20 stores and the acquisition of one parcel of real property.

New Jersey Enacts Stringent New Inspection, Evaluation, and Maintenance Requirements for Condominium and Co-Op Buildings

Ansell Grimm January 11, 2024

By Elysa D. Bergenfeld and Nicole D. Miller

On January 8, 2024, New Jersey’s already-stringent building codes for residential construction became even more so when Gov. Phil Murphy signed S2760/A4384 into law. The sweeping legislation establishes additional requirements for the regular inspection, evaluation, and maintenance of certain types of condominiums and cooperative apartments in the state.

The new law was enacted in the wake of the 2021 condominium tragedy in Surfside, Florida, where 98 lives were lost due to structural issues that were not addressed. Accordingly, much of the law focuses on early detection of potential structural flaws and deficiencies.

Owners of property covered by the law must now ensure their buildings undergo routine structural inspections to ensure the safety and stability of the building. These inspections must be performed by licensed engineers and architects and adhere to industry best practices and standards. The law requires periodic reserve studies and allows for a ten-year “catch up” for reserves.

As outlined in the law, its requirements apply to any residential condominium or cooperative building with a primary load-bearing system comprised of a concrete, masonry, steel, or hybrid structure including, but not limited to, heavy timber and a building with podium decks, but not including an “excluded structure” as defined in the law.

All condo and co-op boards in New Jersey should consult with experienced community association counsel to determine whether the new law applies to their buildings and what to do to ensure compliance. If you have questions or concerns, please contact one of the attorneys in Ansell Grimm & Aaron’s Community Association Law practice group.

Ansell.Law Elevates Seth Rosenstein and Tara Walsh to Partners

Ansell Grimm January 2, 2024

Ansell.Law is pleased to announce that Seth M. Rosenstein and Tara K. Walsh have been elevated to partners.

Seth enjoys a diverse practice handling litigation, controlled substances and regulatory law, and residential real estate matters. A savvy negotiator, Seth appears in state and federal courts and before the American Arbitration Association (AAA) and Financial Industry Regulatory Authority (FINRA) arbitration panels. He is licensed in New Jersey, New York, and Pennsylvania.

Before Seth joined Ansell Grimm & Aaron, he practiced in the Manhattan office of a national litigation firm. He earned his Juris Doctor from Benjamin N. Cardozo School of Law and his Bachelor of Arts from American University.

Tara specializes in criminal defense and municipal court defense and has taken several cases through trial. She has also handled high-profile criminal cases before the Monmouth County Superior Court Criminal Division. Tara frequently speaks on municipal court defense and criminal defense developments.

Dedicated to serving the greater New Jersey legal community, Tara is on the Monmouth Bar Association’s Municipal Court Committee and is an Inns of Court barrister. She also devotes significant time as secretary and board member of the Associate Board of Court Appointed Special Advocates for Children. Tara earned her Juris Doctor from New York Law School and her Bachelor of Arts from Syracuse University.

Celebrating the Life of Peter S. Falvo, Jr.

Ansell Grimm December 19, 2023

We are deeply saddened to share that Peter S. Falvo, Jr., a Shareholder Emeritus of Ansell.Law and the former Chair of the Firm’s Land Use & Zoning Law Department, passed away on December 18, 2023.

Peter was a loyal friend and colleague whose legal career spanned more than 50 years. He joined Ansell.Law in 2001 after founding and growing his own law firm. Peter made an immediate positive impact at Ansell.Law. He added depth and expertise to our Commercial Real Estate, Land Use & Zoning Law, Residential Real Estate, and Wills, Trusts & Estates Departments and brought in many distinguished clients, many of whom we continue to serve.

“Peter was the consummate dapper gentleman with inimitable style and wit. Despite his many accomplishments, Peter was unassuming and humble all while handling significant and complex legal matters,” said President and Managing Shareholder Michael V. Benedetto. “I’m honored to have had the opportunity to call him my partner and friend. He will always be loved and missed by everyone at Ansell.Law, past and present.”

Peter’s practice and talents were multi-faceted. In addition to being a skilled counselor, he was instrumental in the growth of our Land Use Department and unofficially known as the “Dean of Land Use” in Central New Jersey. He was an important part of our culture and never failed to bring humor to every interaction he had.

Peter was also active in his community, serving on the boards of many professional and charitable organizations.

We will miss Peter and his many contributions to the Firm. As a mentor to a generation of Ansell.Law attorneys, his skills and influence will live on at the Firm for decades to come. On behalf of the entire Ansell Grimm & Aaron family, we extend our sincere condolences to Peter’s wife of almost 60 years, Chris, and their entire family.

Click here for visitation and mass information.

Tigger Stavola Foundation Honors Mitchell Ansell

Ansell Grimm December 11, 2023

Celebrating their 10th anniversary this year, the Tigger Stavola Foundation recently honored Shareholder Mitchell Ansell. Involved since the foundation’s 2013 inception, Mitchell was recognized for his unwavering support and efforts to increase awareness of opioid addiction’s tragic effects. Aside from his personal connection to the Stavola family, he vigorously defends parents and children affected by substance abuse when they face legal challenges. Mitchell has donated his time to educate students about underage drinking, DWI, and possession of controlled dangerous substances during prom season for nearly 20 years.

As chair of the Firm’s criminal defense department, Mitchell devotes his practice to criminal defense and municipal court defense. Over three decades of practice, he has worked with well-known clients on high-profile cases. Mitchell is a past president of the Monmouth Bar Association and actively gives his time to various local charities.

The Tigger Stavola Foundation is dedicated to combating the opioid epidemic and changing the stigma surrounding addiction. Following the devastating loss of Tigger to an accidental overdose, the Stavola family created the foundation to raise awareness and save lives in their Monmouth County community. Learn more about the organization here.

Zoning: Is Cannabis the New Alcohol in New York and New Jersey?

Ansell Grimm November 15, 2023

By Anthony Sango

On December 5, 1933, the United States rejected years of moral panic and repealed alcohol prohibition by passing the 21st Amendment. Just under 88 years later, on November 3, 2020, the people of New Jersey rejected decades of a similar moral panic by voting “Yes” on Public Question 1, legalizing recreational cannabis. Five months later, on March 30, 2021, New Jersey’s neighbor, New York, approved legislation to legalize recreational cannabis. These two states were part of a wave of legalization in late 2020 and early 2021, with six other states and various tribal nations reflecting what so many Americans already knew: cannabis is safe, commonplace, and ordinary to consume.

Though New Jersey and New York both legalized cannabis around the same time, the two states took different approaches on the path toward legalization and destigmatization. By regulating cannabis similarly to alcohol, New York seems to acknowledge the reality that cannabis is the second most commonly used recreational drug after alcohol. New Jersey, on the other hand, has chosen to treat cannabis differently than it treats alcohol, though there are threads of alcoholic beverage control in its cannabis regulations. These divergent regulatory approaches are reflected in how each state addresses the zoning and regulation of cannabis businesses.

New York: Following the Cannabis Golden Rule

New York abides by cannabis advocates’ Golden Rule: treat cannabis as you would want the state to treat alcohol. The Marihuana Regulation and Taxation Act (MRTA) repeatedly mentions maintaining equal or comparable regulations for the two substances. In fact, cannabis and alcohol are so intertwined that the state’s Office of Cannabis Management was established within the Division of Alcoholic Beverage Control.

Local Zoning and Fees

The MRTA and its regulations govern how a city or town can zone for and tax cannabis businesses. For example, a town or city can only impose fees on a dispensary or consumption lounge in a similar amount and manner as it would on a liquor store, bar, or club. The MRTA also prohibits special fees and taxes for cultivation, processing, manufacturing, and distribution businesses unless those special fees and taxes are also applied to similarly situated businesses. The best point of comparison is cultivation: a town or city can only impose a special fee or tax on a cannabis grower if that town or city imposes the same special fee or tax on a farm, plant nursery, or similar agricultural business.

Similarly, as with bars and liquor stores, dispensaries and consumption lounges are restricted from operating too close to houses of worship, schools, and public facilities used by youths. The distances range from 200 feet to 500 feet, measured from the center of the door of the cannabis business to the nearest entrance or structure of the restricted facility. What constitutes an “entrance” depends on the building’s specific use and design.

Consumption Lounges

No, your neighbor didn’t run over a skunk – that might be the new consumption lounge in town. Unlike their smoke-free, alcohol counterparts, consumption lounges emit the characteristic, potent, and familiar smell of cannabis, presenting a unique challenge for regulators.

To address this issue, New York borrowed from laws governing another commonly used recreational substance: tobacco. In New York, a town or city can impose ventilation and odor control laws on indoor consumption lounges only insofar as those laws apply to cigar lounges or any other business that permits smoking or vaping tobacco. In fact, the MRTA specifically invokes the Clean Indoor Air Act. Outdoor consumption lounges get more leeway – they only need to maintain a setback of 20 feet from a public walkway or road.

However, regulators borrowed the permitted hours of operation from bars and clubs in regulating consumption lounges. A consumption lounge – whether indoor or outdoor and regardless of the size of the city or town – must be closed between 4:00 a.m. and 8:00 a.m. This mirrors the restriction on bars and clubs, requiring them to have last call at 4:00 a.m. (or earlier if desired by the local government).

Overall, New York’s approach to regulating cannabis seems to acknowledge its legal status, widespread use, and acceptability in American life and society, just like alcohol, while maintaining comparable restrictions for the public’s health.

Lack of Guidance and Clarity in New Jersey Cannabis Zoning Regulation

New Jersey takes a different approach to cannabis zoning and regulation than the Empire State. With no explicit language instructing towns and cities to treat cannabis like alcohol (or at least not placing any unusual and onerous fees, taxes, and regulations on cannabis), New Jersey’s Cannabis Regulatory Enforcement Assistance and Marketplace Modernization Act (CREAMM Act) provides towns and cities – as well as courts – with a lot of leeway as to the interpretation of the law and regulation of cannabis.

The theme throughout the CREAMM Act is deference to the local government. For example, as in New York, the CREAMM Act allows towns and cities to require cannabis businesses to be set back from certain sensitive areas. Unlike the MRTA, however, the CREAMM Act provides no guidance regarding how to measure those setbacks. Effectively, towns and cities are left to decide for themselves how to do so. The CREAMM Act similarly provides almost no guidance on consumption lounges and instead leaves it up to local zoning boards to regulate these businesses.

Unfortunately, because part-time members run most local zoning boards, measurement guidelines and other minor but essential guidance are often treated as afterthoughts or left unaddressed. If zoning boards do not provide a clear method for measurement, some courts have turned to a “reasonable pedestrian” standard that measures the distance borrowed from cases involving the Alcoholic Beverage Control Board. But as anyone who has ever driven in our crowded cities and towns knows, otherwise reasonable people can become unreasonable pedestrians, jaywalking, cutting through parking lots, or even hopping over fences. Courts will strain to find some definition or guidance in the ordinance itself.

The CREAMM Act also fails to define what an entrance is – further complicating any setback measurements. Similarly, local ordinances often forget to define “entrance,” leading some courts to assume that any exterior door constitutes an entrance. Many cannabis businesses have faced challenges to their Resolutions of Support because their entrances were deemed too close to sensitive areas or because the board tried to reassign or redefine what an entrance is.

For example, challengers have claimed that a building’s “emergency exit” is, in fact, a regular entrance and that the “emergency” designation was just a way to circumvent a setback requirement. In other instances, cannabis businesses seeking to comply with a setback requirement have reassigned an emergency exit as the entrance with mixed results.

The situation for consumption lounges is no better. The only zoning requirement in the CREAMM Act for a consumption lounge is that a town or city issue an endorsement for a consumption area in or adjacent to a dispensary. Curiously, the CREAMM Act allows a dispensary-turned-consumption lounge to sell a customer as much cannabis as the customer is otherwise permitted to buy at a dispensary. This stands in contrast to bars, where a bartender would likely refuse to serve a patron several beers at once unless that patron had several friends with him. But just as bar patrons can’t walk out of the bar with a half-finished beer, the CREAMM Act prohibits consumption lounge patrons from leaving with leftover cannabis.

New Jersey cannabis businesses are left with generic ordinances that may mirror alcohol ordinances but lack the explicit instruction to treat cannabis like alcohol or to measure setbacks in specific ways. The patchwork of local cannabis regulations creates a maze of red tape for even the savviest cannabis business entrepreneur. As a result, New Jersey courts have been flooded with lawsuits challenging so-called Resolutions of Support for cannabis businesses that allegedly violate one local ordinance or another.

While New York has been more orderly in defining zoning considerations for the legal cannabis industry, New Jersey has been more hands-off, leaving it to the towns and cities – and the courts – to determine what it means to comply with the CREAMM Act.

If you have questions or concerns regarding zoning or other regulatory issues involving cannabis in New York or New Jersey, please contact Anthony Sango. Join Anthony and Kelsey Barber on December 18, 2023, as they present at the National Business Institute’s Marijuana Business Operations in New York program. Learn more about the full day continuing legal education seminar and register to attend.

Asbury Park Zest Profiles Michael Benedetto in Fall Green Life NJ Edition

Ansell Grimm November 15, 2023

President and Managing Shareholder Michael V. Benedetto is featured in the Fall/Holiday 2023 Green Life NJ edition, published by Asbury Park Zest. A prominent lifestyle publication, Asbury Park Zest was created to highlight one of the most unique oceanfront cities in America and the businesses and people who call it home.

In this issue, Michael sat down with the magazine to discuss the sprawling, diverse real estate landscape along New Jersey’s coastline. He shares his insights on recent trends, the importance of building trust with his clients, and what makes New Jersey such a special place. Read the interview here.

In addition to his Firm leadership role, Michael serves as co-chair of the Commercial Real Estate and Corporate, Finance & Banking Departments. He has built a distinguished practice working with clients throughout the northeast and across the country, focusing on complex commercial real estate, corporate and commercial matters, business organizations, and banking matters.

Early Endgames: What Is the Difference Between a Motion To Dismiss and a Motion for Summary Judgment in New Jersey Litigation?

Ansell Grimm November 13, 2023

By Nicole D. Miller

There is a big difference between a lawsuit and a trial. While tens of thousands of lawsuits are filed every year in state and federal courts here in New Jersey and across the country, only a small percentage of those cases ever reach the point where the parties present all their evidence and testimony in person before a judge or jury, ending in a judgment. While many cases end before trial because the litigants have reached a negotiated settlement, others conclude with a pretrial ruling by a judge. In New Jersey, most of these rulings come after one of the parties files either a motion to dismiss or a motion for summary judgment.

A judge granting either motion effectively ends a case – at least temporarily. That is why they are both called dispositive motions — the movant requests that the judge dispose of the case in their favor before trial. In state court, these motions follow the same 28-day schedule for filing moving papers, opposition, and reply, which was a recent amendment to N.J. Ct. R. 4:6-2, the rule governing motions to dismiss. But there are significant differences between a dismissal and summary judgment in terms of what the movant is asking the court to do, when such motions are filed, and the basis for granting or denying the motion.

Motion To Dismiss

No matter the subject – a commercial dispute, a personal injury case, or a divorce – all civil litigation begins with the plaintiff filing a complaint against a defendant. The primary purpose of a complaint is to inform the defendant – and the court – of three things:

The factual allegations that support the plaintiff’s legal claims against the defendant;
What those legal claims are; and
What the plaintiff is asking for in damages or other relief.

Every defendant served with a complaint must file a timely response with the court. That response can be an answer in which the defendant admits or denies the specific factual allegations in the complaint. But if the complaint doesn’t include essential elements of a valid legal claim – even if all the facts alleged are taken as true – a defendant can file a motion to dismiss for failure to state a claim upon which relief can be granted. As noted, motions to dismiss for failure to state a claim in New Jersey state court are governed by N.J. Ct. R. 4:6-2, while Fed. R Civ. P. 12(b)(6) forms the basis for such motions in federal court. Both rules are essentially the same, as is the analysis of a complaint’s legal sufficiency.

Motions to dismiss are usually filed early in the case as the defendant’s initial response to the complaint. That means the parties have yet to engage in discovery or develop evidence to either support or refute the plaintiff’s allegations. It also means a judge considering a motion to dismiss will only look at the allegations contained in the complaint when making their determination as to the complaint’s sufficiency. And to decide whether the complaint sets forth a cognizable legal claim, the judge will assume that each factual allegation is true. In the event the defendant includes facts or documents outside the complaint, the court is required to convert the motion to a motion for summary judgment.

A judge will grant a motion to dismiss if those facts don’t or couldn’t form the basis of a legal action, even if the complaint’s allegations were true. In effect, the judge looks at all the allegations and concludes, “So what?”

A dismissal can be either with or without prejudice. A dismissal without prejudice means the plaintiff may be able to fix the shortcomings of the initial complaint by filing an amended complaint, and the court is giving the plaintiff the chance to do just that. In most cases where a motion to dismiss is granted, the judge will grant it without prejudice. In entering a dismissal with prejudice, a judge has determined that the complaint’s flaws are insurmountable and conclusively dismisses the case with no opportunity for the plaintiff to refile.

Motion for Summary Judgment

While a motion to dismiss focuses on allegations, a motion for summary judgment is all about evidence. While a motion for summary judgment can be filed earlier, most often it is filed after the conclusion of discovery (when the parties produce and exchange documents, take depositions, and develop other evidence). A motion for summary judgment asks the court to look at the evidence and conclude there is no issue of material fact in dispute. In other words, the moving party argues there is no point in the case going to trial because all the relevant facts of the case, as reflected in the evidence, are undisputed. Since trials involve ascertaining the truth behind the parties’ claims and defenses, a trial is unnecessary if the truth is already apparent.

According to N.J. Ct. R. 4:46-2, a judge will grant summary judgment “if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law.” Importantly, the rule requires the moving party to submit a statement of facts as to which there is no genuine dispute. Each fact in this statement must be supported by citation to the record, i.e., documents produced, deposition transcripts, written discovery responses, etc.

An issue of fact is genuine only if “the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact.”

The entry of summary judgment in favor of the moving party conclusively ends the case at the trial court level. There is no second chance or do-over for the non-moving party as there often is when a court grants a motion to dismiss. However, in certain instances, a party may file a motion for reconsideration if the party believes the court overlooked something or erred, or requests that the court invoke its discretion in the interest of justice pursuant to R. 4:49-2 or R. 4:42-2(b). Nonetheless, motions for reconsideration are rarely granted.

When appropriate, filing a motion to dismiss or for summary judgment offers the movant the chance for an early resolution of a case without the cost, disruption, and risk of going to trial. Conversely, the party on the receiving end of such a motion faces the prospect of their lawsuit being thrown out or shut down without being given the opportunity to present their case at trial. Accordingly, these two motions are enormously consequential in New Jersey litigation.

If you have any questions about motions to dismiss or motions for summary judgment in New Jersey, please contact Nicole Miller.

Rite-Aid’s Shuttering of Numerous Stores Illustrates the Challenges Faced by Commercial Landlords When a Tenant Files for Bankruptcy

Ansell Grimm November 7, 2023

By Anthony J. D’Artiglio

Pharmacy giant Rite-Aid’s bankruptcy and proposed reorganization plans have had wide-ranging and cascading impacts from coast to coast. But perhaps the most immediate and acute effects of the company’s insolvency are felt by the commercial landlords that host the scores of leased locations that Rite-Aid intends to close as part of its restructuring strategy. This includes its planned sale of 78 Rite Aid and Bartell Drugs neighborhood pharmacy leases in free-standing buildings and retail shopping centers across nine states.

The challenges and uncertainty now faced by Rite-Aid’s lessors illustrate those regularly confronted by commercial landlords when a tenant’s bankruptcy or insolvency leaves them with unoccupied spaces and significantly diminished cash flow. As such, landlords must understand their options, rights, and remedies under the Bankruptcy Code to minimize the fallout and avoid inadvertent and costly mistakes when a tenant suddenly shutters its doors during a current lease term.

Assumption, Rejection, and Assignment of Lease Under Bankruptcy Code Section 365

Bankruptcy Code Section 365 governs the treatment of commercial leases in bankruptcy cases. Since the automatic stay, at least initially, limits the remedies and actions a landlord can take regarding the defaulting tenant, what happens next is largely up to the tenant.

A tenant typically has 120 days after filing its bankruptcy petition to either reject, assume, or assume and assign or sell the lease.

While a bankruptcy judge can extend the 120-day deadline for an additional 90 days for good cause without the lessor’s consent, the landlord’s assent is required for any further extension requests.

During this period, the tenant must continue to satisfy its ongoing lease obligations, including paying rent, with post-petition rent obligations prioritized as an administrative claim. Notably, the lessor must continue to comply with the lease’s terms during this time or risk running afoul of the automatic stay.

If the debtor does not assume or reject its lease within the applicable time, the court will consider the lease rejected, and the tenant must then immediately vacate the leased premises.

Option 1: Rejecting the Lease

If a debtor elects to reject the lease, it essentially defaults and, accordingly, must vacate the premises. Upon rejection, the lessor can assert a “rejection damage” claim, which is considered a prepetition unsecured claim—sharing pro rata with other general unsecured creditors. Unlike other rejection damage claims, however, Bankruptcy Code Section 502(b)(6) caps the lessor’s rejection claims to the greater of one year’s rent or 15% of the rent of the remaining term of the lease, capped at no more than three years of total rent.

Option 2: Assuming the Lease

If the lessee opts to assume the lease, it essentially agrees to continue the lease, comply with its terms going forward, and cure any defaults. The lessee will identify the defaults to be cured and afford the lessor the opportunity to object to the proposed cure if it is insufficient. The debtor must also compensate the lessor for “any actual pecuniary loss” caused by the debtor’s default and provide the lessor with “adequate assurance of future performance.”

Option 3: Assuming and Assigning (or Selling) the Lease

Notwithstanding any anti-assignment language in the lease or any landlord objections, the debtor can elect to assume the lease and assign or sell it to a third party, as Rite Aid seeks to do with several leases. As with all lease assumptions, the tenant (and its assignee) must cure any outstanding defaults and provide adequate assurances of the assignee’s future performance of its lease obligations.

Additional Protections and Assurances for Shopping Center Lessors

Many, if not most, of the leases Rite-Aid seeks to unload are in retail shopping centers. The Bankruptcy Code provides special protections for shopping center lessors when a debtor assumes and assigns its lease.

Specifically, Section 365(b) requires debtors and assignees to provide the landlord with “adequate assurance” that:

The source of rent and other consideration due under the lease and the financial condition and operating performance of the proposed assignee and its guarantors, if any, will be similar to the financial condition and operating performance of the debtor and its guarantors, if any, as of the time the debtor started its tenancy.
Any percentage of rent due under the lease will not decline substantially.
Assumption or assignment of such lease is subject to all lease provisions, including those relating to radius, location, use, or exclusivity, and the assignment will not breach any such provision contained in any other lease, financing agreement, or master agreement relating to the shopping center.
Assumption or assignment of the lease will not disrupt any tenant mix or balance in such shopping center.

Failure to deliver any such assurances can support a lessor’s objection to any proposed assumption or assignment of the lease.

If you have concerns about your options as a landlord regarding an insolvent or bankrupt tenant or need assistance protecting your rights in a pending bankruptcy proceeding, please contact Anthony D’Artiglio at Ansell.Law.

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