My colleagues Daniel J. Sheridan, Rachel Lilienthal Stark and I have collectively authored an important client alert about an upcoming law deadline that could impact all limited liability companies in the state of New Jersey. The New Jersey Revised Uniform Limited Liability Company Act (RULLCA) takes full effect on March 1, 2014 and it considerably changes many of the legal principles underlying the organization, governance and operation of limited liability companies.

If you know somebody that owns a limited liability company in the state of New Jersey, their business may be impacted by this new act and they should be directed to the full article here.

The Pennsylvania Superior Court recently relaxed the Pennsylvania Courts’ trend of scrupulously constraining the use of warrants of attorney, also known as “confession of judgment” clauses in non-consumer credit transactions.  In Graystones Bank v. Grove Estates, LP., 2012 Pa.Super. 274 (2012), affirmed at 2013 Pa. LEXIS 2855 (Pa. 2013) a debtor made a Promissory Note in favor of the creditor, which contained a warrant of attorney. After some time, the debtor began to have trouble making payments under the Note. The creditor then required the debtor to establish an interest reserve and pledge additional real property as collateral, and to enter a “Change in Terms Agreement.” The Change in Terms Agreement did not itself include a warrant of attorney.

Following entry of a confessed judgment, the debtor filed a Petition to Strike and Open the judgment, claiming as grounds, inter alia, that the warrant did not bear a relationship to the debtor’s signature as it did not appear on the same page as the warrant. The debtor further argued that because the Change in Terms Agreement did not contain the warrant, a confession upon the Note and Change in Terms Agreement was void and should be stricken.  The Superior Court cited the trial Court’s reasoning approvingly, affirming its conclusions of law as to these issues:

Nor was the complete absence of the cognovit from the Change of Terms Agreement fatal, the court continued, deeming the agreement nothing more than an extension of the original Promissory Note’s maturity date and not, as Appellants argued, a new, comprehensive agreement setting new burdens and benefits upon the parties. As such, the Change of Terms Agreement was distinguishable from a lease renewal, which must contain its own warrant of attorney under our jurisprudence given its status as a novation expressing all rights and responsibilities between the parties from a new start date to end date. In contrast, the Change of Terms Agreement changed only the maturity date and, given the limits of its scope, did not purport to relieve Appellants from the remaining conditions set forth in the original Promissory Note. The court, therefore, found no defect or irregularity with the absence of a warrant of attorney from the Change of Terms Agreement.

Graystones Bank, at 1280.  Until the Superior Court decided Graystones Bank, earlier authorities applied a scrupulous test requiring that a debtor’s signature must “directly relate” to the warrant of attorney.  A line of cases were read to provide that the debtor’s signature must appear on the same page as the warrant of attorney, and that where the original agreement has been amended, the warrant of attorney must be restated or specifically incorporated into the amendment.  Graystones Bank has relaxed that requirement, holding that a signature need not necessarily appear on the same page as the warrant to “directly relate” to it.  The Graystones Bank Court further held that where an agreement containing a warrant has been amended, the amendment need not restate the warrant or specifically incorporate the warrant if the amendment does not constitute a novation – in essence, if the amendment is a modification of the existing agreement but does not replace the parties’ respective rights and duties with a new agreement, the original warrant of attorney will stand and confession entered upon it will be valid.  The Superior Court approvingly quoted the trial court, which distinguished extensions of leases (which have generally been considered new contracts requiring that the warrant of attorney be restated) from mere amendments in arriving at its holding.  The best practice, however, is at the time of loan origination to continue the custom of having the debtor sign the warrant on the same page, as well as to restate the warrant of attorney in any amendment of a credit agreement in order to remove the prospect that a debtor would raise these defenses – which are fact and circumstance intensive – to the entry of a confessed judgment. Of note is that the opinion in Graystones Bank was penned by the Honorable Correale Stevens, then President Judge of the Superior Court, who was subsequently nominated to the Pennsylvania Supreme Court, which affirmed his opinion Per Curiam. The now Justice Stevens did not participate in the consideration or decision of the Graystones Bank case before the Pennsylvania Supreme Court.

Many commercial credit agreements contain Confession of Judgment or “Warrant of Attorney Clauses.” In general terms, a Warrant of Attorney permits a creditor to enter judgment against a debtor without first giving notice and an opportunity to defend the case against him. Usually, the debtor will first become aware that judgment has already been entered against him by receipt of a notice.

A recently reported opinion of the Pennsylvania Superior Court interpreting a standard Warrant of Attorney Clause in a commercial credit transaction has held that proceedings to confess judgment are not subject to the venue rules applicable to most other actions.  See Midwest Financial Acceptance Corporation v. Lopez, 2013 Pa.Super. 239 (2013). In practice, what this means is that a creditor can enter a judgment by confession against a debtor in a venue convenient to the creditor and with which the debtor has had no contact, and then move the judgment to the debtor’s home County to execute upon the judgment.

A standard Warrant of Attorney will often state that the debtor “authorizes and empowers any attorney or the Prothonotary or Clerk of any court in the Commonwealth of Pennsylvania, or elsewhere  .  .  .” to enter judgment against him after a default under the instrument.  The Superior Court found that the Warrant is, itself, as enforceable as any forum selection clause between commercial parties with which authorization under a Warrant of Attorney to confess judgment in “any Court of the Commonwealth of Pennsylvania” is clear and unambiguous. Therefore, the entry of judgment by confession in any Court in Pennsylvania, where an action would be permitted by an otherwise enforceable forum selection clause between the parties, should not be disturbed on the grounds that it does not comply with the general Rules as to Venue.

The practical effect of this holding will be that debtors may have a judgment by confession entered against them in a remote County – perhaps several hours away from where they are resident and conduct business – and will be forced to assert whatever grounds the debtor has to strike off, or open the judgment in that remote Court. This could lead to increased burden and expense to debtors that they may not be contemplating when executing commercial credit instruments. For lenders with defaulted commercial debtors, this holding will grant them great flexibility in making a strategic choice as to where to confess judgment prior to moving the judgment for execution against the debtor.

After getting a judgment, clients and the public will ask how long it is “good for.”  Other times, clients will assume that a judgment exists forever.  The answer, however, is somewhat complex.

First, as a general matter, unless discharged in a Bankruptcy proceeding, the execution upon a judgment may issue against personal property within 20 years of the judgment’s entry.  42 Pa.C.S. § 5529  In practical effect, this means that a judgment creditor may direct a Sheriff to seize and sell the personal property of a debtor such as cash, jewelry, automobiles, etc. to satisfy his judgment within twenty years from entry.  After 20 years, and absent some extenuating circumstances such as a Bankruptcy proceeding that stays collection of a debt but does not discharge it, or absence from the Commonwealth or concealment of the debtor’s identity by use of a false name to defraud creditors, a judgment becomes ineffective after twenty years.

That seems simple enough, but for substantial judgments it is often the case that the debtor doesn’t have personal property worth the cost of selling, but the debtor may have real property (real estate) with significant value.  In order for a judgment to have effect against real property, it must be entered in the dockets and indexed against the real property in the records of the county in which the real property is situate.  For example, if a creditor has a judgment against a debtor in Montgomery County, and the debtor owns real property in Chester and Lehigh Counties but none in Montgomery County, the judgment will only attach as a lien to the debtor’s real property when it is transferred from Montgomery County and docketed in Chester and/or Lehigh Counties.  When the judgment is entered in a County in which the debtor has real property, it attaches as a lien against the real property for a term of five (5) years from the date of entry.  If the creditor does not execute upon the judgment as against the real property within five (5) years, execution against the property may not issue unless and until the judgment creditor successfully completes a proceeding to revive the judgment.  If the creditor does not revive the judgment against real property and the lien of judgment lapses, the debtor can sell or borrow against the real property without satisfying the creditor’s judgment, thus thwarting the effect of the  creditor’s judgment.

Are you a minority, woman, veteran or service-disabled veteran starting or currently running a business in Pennsylvania?  If so, your business may be eligible for classification as a Minority Business Enterprise (MBE), Women Business Enterprise (WBE), Veteran Business Enterprise (VBE), or Service-Disabled Veteran Business Enterprise (SDVBE).  Classification as one of these types of business enterprises allows a company to receive assistance from the State of Pennsylvania in the procurement of Commonwealth projects.  In addition, your company will become a part of the existing and growing network of minority, women, and veteran owned businesses.

In order to receive these and other benefits, your company must apply to register with the Commonwealth.  The application process can be daunting – it requires applicants to submit a substantial amount of information, including supporting documentation, related to the business and each of its owners, members, or shareholders.  If you’re thinking about registering as a MBE, WBE, VBE or SDVBE, and need assistance preparing and filing your application, do not hesitate to contact the experienced attorneys at Stark & Stark for a consultation.

Bianca A. Roberto is an Associate in Stark & Stark’s Business & Corporate Group in its Yardley, PA office. For questions, or additional information, please contact Ms. Roberto.

The Fair Labor Standards Act (FLSA) establishes certain minimum standards for private sector, local, state and Federal government workers including a 40-hour work week, minimum wages, and overtime pay.  Compliance with the FLSA is not only mandatory for employers, but necessary to protect their employees and their pockets. 

In recent years, many employers have been faced with large class action lawsuits related to disputes over employees’ and independent contractors’ wages and overtime pay.  In 2012, after many years of costly litigation, Rite Aid Corporation settled a class action lawsuit brought against it by 6,100 current and former employees for $20.9 million.  The suit arose out of the retail giant’s failure to pay its employees for overtime worked.  Rite Aid claimed the employees were not entitled to overtime payment based on their employment status as exempt employees under FLSA.  The court disagreed, finding the employees were improperly categorized as exempt under the law.  In 2007, the first of two class action lawsuits was filed against Wal-Mart by current and former employees who were denied overtime payment and breaks.  Philadelphia Common Pleas Judge Mark Bernstein found against Wal-Mart and awarded the employees a total of $140.8 million in damages. 

Employers should keep in mind that it doesn’t matter whether your company is big or small, the same rules apply and you could easily be faced with claims for violations of the FLSA.  Adhering to the standards set forth in the FLSA will not only allow you to avoid expensive litigation and potentially large damage awards or settlements, it will also help to prevent your company, and its reputation, from coming under scrutiny.  If a claim has been brought against your company under the FLSA, or you want to learn more about protecting your company and its employees by following the standards set forth in the FLSA, please contact the experienced attorneys at Stark & Stark to discuss your legal rights.

Bianca A. Roberto is an Associate in Stark & Stark’s Business & Corporate Group in its Yardley, PA office. For questions, or additional information, please contact Ms. Roberto.

Have you ever filed a pleading, motion or other legal document and had it sent back to you for a procedural error and you can’t quite figure out why?  More often than not, it’s because you didn’t follow a local, state or federal rule of court when you made your filing.  All too often pro se parties, and even attorneys, make the mistake of not referencing the procedural rules prior to filing an action or during the pendency of an action.  Not only could this be detrimental to your case, cause additional costs and unreasonable delay, but it could bar you from having your case heard at all.

Most of the counties in Pennsylvania have different rules for each type of filing, and those rules are different in civil, criminal and family court.  It is in your best interest to have an experienced attorney who knows these local rules, and knows how to use them to your advantage.  Avoid unnecessary costs and delay, and the very real risk of losing your opportunity to have your day in court, and consult with one of the experienced attorneys at Stark & Stark.

Bianca A. Roberto is an Associate in Stark & Stark’s Business & Corporate Group in its Yardley, PA office. For questions, or additional information, please contact Ms. Roberto.

 

Pennsylvania’s Act 129 of 2012 which went into effect in August amends the Pennsylvania Landlord and Tenant Act to give landlords guidance on dealing with personal property left behind by tenants who vacate a rental property.

Before Act 129, no clear statutory or regulatory guidance for landlords and tenants regarding their respective rights and duties after the tenant vacates existed.  Act 129 requires tenants to remove their personal property at the time that they relinquish possession of the property.  A tenant is deemed to have relinquished the premises if there is an order of possession and execution in favor of the landlord, or if the tenant has physically vacated the premises; removed substantially all personal property and has provided a forwarding address or written notice that the tenant has vacated the premises.

If a tenant’s personal property remains after relinquishment of the premises, the landlord may send notice under Act 129 to the tenant that the property has been left behind.  The tenant then has 10 days from the notice to contact the landlord and state whether the tenant intends to retrieve the property.  If the tenant does not contact the landlord within the ten-day period, the landlord may dispose of the property.  However, if the tenant contacts the landlord within the 10 day window and advises the landlord that the tenant’s intent is to retrieve the property, the landlord must store the property for 30 days at a site of the landlord’s choosing.  Property retrieved within 10 days by a tenant may not incur storage charges from a landlord, however property retrieved after the 10 day window may incur a reasonable storage fee.

While helpful to both landlords and tenants, the Act does impose statutory notice requirements, and savvy landlords should have their standard leases reviewed and updated by counsel in light of Act 129’s amendment of the Landlord and Tenant Act.

Kenneth Ferris is a member of Stark & Stark’s Yardley, PA office, concentrating in Business & Corporate Law. For more information, please contact Mr. Ferris.

 “I have a judgment from the small claims court.  Now what?”

One call that we receive quite often follows a lay person’s successful prosecution of a case in small claims Court – formally called either the Magisterial District Justice Courts or the Philadelphia Municipal Court.  The caller will have organized all of the documents and witnesses, and made a convincing case before the Judge, and gotten a judgment against another person or business.  Contrary to popular beliefs and expectations, the defendant isn’t required to write a check on the spot to satisfy the judgment.

First, a small claims judgment itself doesn’t become executable until thirty (30) days after its entry.  During this time, the defendant can either file a Petition to Open the judgment if it was entered by default, or appeal to the Court of Common Pleas de novo.  A de novo appeal means that in essence, whatever happened at the small claims level will have no bearing on the case in the Court of Common Pleas.  In other words, a plaintiff has to start all over from the beginning by filing a proper Complaint in the Court of Common Pleas within twenty (20) days of the appeal.

Assuming, however, that the judgment is entered and no appeal is taken within the thirty (30) day deadline, the plaintiff essentially has two options. 

The first is to proceed with execution through the small claims court by the Constable.  The Constable’s means and methods are limited, however, and largely confined to the jurisdictional area of the small claims Court itself.

The better practice is to transfer the judgment from the small claims court to the Court of Common Pleas.  The advantage of this process is that when properly completed, you ensure that the judgment attaches as a lien against all real property owned by the defendant in the County.  Without docketing in the Court of Common Pleas, a small claims judgment may not appear in a title search and therefore its effect can be thwarted.  The other main advantage of docketing the judgment in the Court of Common Pleas is that execution can easily issue through the Sheriff’s Office, which has a much broader compliment of means to enforce a judgment.  Additionally, if further legal relief is needed to enforce a judgment –  for example, Court authorization for the Sheriff to break into the debtor’s premises to seize property – such relief can only be entertained in the Court of Common Pleas.  However, certain Rules and formalities must be observed in transferring the judgment to the Court of Common Pleas, or a creditor risks the judgment being stricken from the dockets. 

The Pennsylvania Senate approved legislation on Tuesday, May 24, 2011 that would require contractors and subcontractors to verify legal employment status for all employees working on public building projects.

Senate Bill 637, which passed 47-7, makes use of the federal E-Verify system, operated by the Department of Homeland Security, mandatory to confirm that all employees are eligible to work in the U.S.

Employers would be required to submit employment verification statements to the Pennsylvania Department of Labor and Industry prior to beginning work on any public contract.  The Secretary of Labor and Industry will provide the form of the verification.  Additionally, Contractors will be required to provide to the public entity with the verification statement before it can commence work for the public entity.  Any subcontractor will be required to provide a verification statement to the Contractor prior to commencing work on a public building project and the Contractor will provide a verification statement to the public entity for all subcontractors it uses or intends to use on the public building project.  The verification statements will contain a certification signed by the Contractor or Subcontractor, as the case may be, that the information in the verification is true and correct and that submission of false or misleading information shall subjection the person signing the verification to sanctions.

The following constitutes a violation of this provision:

  1. Employment of an employee on a public works project whose eligibility has not been verified through the federal E-Verify system.
  2. Use by a Contractor of a Subcontractor on a public works project prior to the submission by the Subcontractor of a verification statement.
  3. Commencement of work by a Subcontractor on a public works project prior to the submission by the subcontractor of the verification statement.
  4. Making a false statement or misrepresentation in a verification statement.

Penalties for violation of this provision can be a fine, cancellation of the contract and possible debarment or suspension for one year. A Contractor will be immune from sanctions if it in good faith relies upon the federal E-Verify system and was provided with incorrect information.

We will follow this legislation and advise of any amendments and if the Governor signs this legislation into law.