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Joe Campolo, Managing Partner at Campolo, Middleton & McCormick, LLP talks with LI News Radio 103.9 FM host Jay Oliver about the importance of customer service and corporate culture.

New York business owners, take note: loopholes offering the potential to avoid personal liability for unpaid wages to employees have been recently eliminated.  Prior to these changes, owners of New York limited liability companies, as well as owners of LLCs and corporations created outside of New York (for example, Delaware), were not personally liable for paying wages to their New York employees.  Now, owners of New York corporations and LLCs, as well as owners of corporations and LLCs created outside of New York, could be personally liable for failure to pay wages.

An amendment to the law on limited liability companies (Limited Liability Company law) was modified, effective February 15, 2015, so that the 10 LLC members with the largest percentage ownership interest are personally liable, jointly and severally, “for all debts, wages or salaries due and owing to any of its laborers, servants or employees, for services performed by them for such limited liability company.”  This imposition of liability on the 10 largest LLC members creates an exception to the general shielding of an LLC member for claims made against the LLC.  The definition of “wages or salaries” includes all compensation and benefits payable by an employer to an employee, such as overtime, vacation, holiday and severance pay, employer contributions to pension funds, and insurance payments.  To hold the 10 largest LLC members personally liable for non-payment of such benefits, an employee must notify the member(s) in writing within 180 days of termination of employment of his or her intention to do so.

This amendment closely mirrors an already existing provision of New York’s law on corporations (Business Corporation Law) that holds the 10 largest shareholders of a corporation jointly and severally liable “for all debts, wages or salaries due and owing to any of its laborers, servants or employees…for services performed by them for such corporation” and also requires notice to such shareholders.  BCL § 630.  Therefore, by expanding personal liability for LLC members, the amendment removes one of the distinctions between corporations and LLCs in New York.  (There remain other differences, such as the relative flexibility of LLC governance and structure, that may still make the LLC an attractive option to business owners.)

Effective January 19, 2016, New York further expanded unpaid wage liability when Governor Cuomo signed an amendment to the BCL expanding this liability to foreign corporations that operate and have employees in New York State.  In removing the domestic incorporation limitation on personal shareholder liability for unpaid wages, the law allows employees of out-of-state corporations to seek payment of wages from the 10 largest shareholders.

These pro-employee amendments push New York further from the mainstream view in other states that a corporate owner is typically personally liable for the debts of his or her entity only in cases of the shareholder’s wrongdoing.  Importantly, the BCL and LLC Law do not distinguish among owners by any basis other than percentage of ownership, such as responsibility for incurring the debt in the first place.  The changes therefore underscore the importance for business owners to review their wage and hour payment practices and ensure compliance with these policies.

By Marc Alessi

Network.  Find a mentor.  Take risks.  From bookstores to blogs, the market is saturated with advice and how-to books on how to achieve success with a new business venture.  While those tips can be invaluable, I also think there’s something to be said for learning what not to do.  From my own entrepreneurial endeavors  to my work with the creative minds powering Long Island’s entrepreneurial ecosystem, I’ve made and seen mistakes that I now know belong in the “avoid” category.

Sageworks chairman and co-founder Brian Hamilton recently published his own “don’t do this” list on Entrepreneur.com, appropriately entitled “6 Ways to Kill Your Startup.”  If you’re an entrepreneur, I share his advice with you here as a starting point for a conversation I’d love to have with you one-on-one as you navigate through the early stages of your startup.

6 Ways to Kill Your Startup
By Brian Hamilton
http://www.entrepreneur.com/article/269792

Sometimes the best way to learn how to do something is to understand how NOT to do something—to think of things in reverse. Ben Stein (of Ferris Bueller fame) achieved this with great effect with his book, How to Ruin Your Life. Buried in the book’s tongue-in-cheek humor and masked by its sardonic tone were some life lessons that I’ve actually found to be quite valuable.

In homage to Ben, I’m hoping to take a similar approach in my advice to entrepreneurs in the early stages of their businesses. Below is a list of seven ways to ruin your startup. I hope that, by doing the exact opposite of the points below, you’ll find some valuable lessons on running and starting a business effectively.

1. Borrow money early. 

As an entrepreneur, one thing that you definitely want to have is structured payments that are due regularly stacked against cash flow that is unpredictable and unreliable. By the way, be sure to borrow money when a bank will lend it to you. If a banker is willing to make a loan, you should assume that you, by default, have the ability to pay it back. Borrow as much as you can and be sure to do it early in the business’ life.

2. Hire as many people as quickly as you can. 

The key here is to have a very high overhead rate so that you have to keep making more and more sales. You also want to hire people when your business model is not truly proven so that you have fixed salaries to pay with uneven sales.

3. Focus on doing a business plan. 

Now what you really want to do in the first few years in business is think globally. Focus your energy on creating a dynamic, MBA-style business plan; revenue and customers can wait.  What you need is a fully-fleshed out plan of attack that would place highly in a competition held by Wharton. The most important thing you can do in a startup is plan heavily. Business is about planning, not execution. Operate under the assumption that a good plan will automatically lead to sales. On that note, be sure to have a good looking website and nice office space from day one.

4. Get a management team in place.

Be sure you have a CFO, COO, CTO, CIO and CMO from your company’s inception. It is important to have a full management team when you are starting and building a business. A full management team provides structure in the business and, more importantly, an impressive “Executives” page on your website. The added benefit of having C-level executives in a startup is that they’re very expensive, so you will ensure that your overhead costs are very high.

5. Focus on perception. 

Spend a lot of resources on an accounting system, HR technology, office furniture, insurance and ping pong tables and games. What you want are the trappings of success, not tangible things like customers, revenue and profits. Image is important. Look at other companies like Apple and Google and compare yourself to those companies. Use them as benchmarks. You have to spend money to make money, so spend as much as you can. Customers and revenue can wait, but you only get one chance to make a first impression.

6. Spend a lot of time seeking venture capital and private equity money. 

VC firms fund about one percent of the deals that they look at, which represents a good risk vs. return ratio for you. Don’t worry about the quality of the product/service you offer. Assume that will take care of itself. Because the market is efficient and customers tend to make intelligent choices, you don’t need to worry about the quality of your product or service when you are growing your company. Customers should be honored that you are willing to provide them with your product or service.  Your time is better spent on planning and thinking and having a lot of meetings with your employees. Preferably, link venture capital money with a poor product and service, and assume that lots of capital and a bad product will really escalate your results.

This is (hopefully) the worst advice you’ll ever receive on starting and running a business. For guidance that you actually should follow, see The 5 Best Pieces of Advice I’ve Ever Received. 

What happens when an attorney represents a corporate entity in the formation of that entity and then represents one of the shareholders in a corporate dissolution proceeding?  Should the attorney be disqualified because of the knowledge he/she obtained while forming the corporation?  Will that attorney be considered a necessary witness?  The Commercial Division in Suffolk County recently ruled on these issues deciding that, at least in this instance, the attorney should not be disqualified and would not be a witness.

In Altungeyik v. Ayknat, et al. (J. Pines), Plaintiff shareholder commenced a shareholder’s derivative action/dissolution proceeding against the other shareholder of the corporation and the corporation.  The matter proceeded to trial for the sole purpose of determining the value of the corporation – Euro Planet, Inc. (“Euro Planet”).  Once the matter had been set for trial, Plaintiff obtained new counsel who then sought to have Defendant’s counsel, Walter Drobenko, Esq., (“Drobenko”) disqualified on a number of grounds, specifically: (a) Drobenko previously represented the Plaintiff in the preparation of the shareholder’s agreement for Euro Planet; (b) Drobenko previously represented the Plaintiff in the preparation of a pre-nuptial agreement and an immigration application; and (c) Plaintiff and Drobenko negotiated to be partners in a new restaurant venture together.  Plaintiff claimed that Drobenko obtained personal and private information about Plaintiff while representing him and that the Drobenko would be a necessary witness in determining the value of Euro Planet because he drafted the shareholder’s agreement and determined the value of the shares.

In opposition to the disqualification motion, Drobenko stated that he only represented Euro Planet, not the Plaintiff or Defendant when the corporation was formed.  Additionally, although he acknowledged assisting the Plaintiff with a pre-nuptial agreement and immigration application, he argued that neither of those matters are substantially similar to the determining the valuation of Euro Planet. He also stated that he never discussed partnering with the Plaintiff in the purchase of a restaurant.  Drobenko further argued that he had no personal knowledge of the value of Euro Planet and would not be a necessary witness.  Lastly, Drobenko argued that Plaintiff’s disqualification motion was untimely because it was made after the commencement of trial.

In its decision, the Court noted that the party seeking to disqualify an attorney carries a heavy burden because every party has the right to be represented “by counsel of its own choosing” which is “a valued right which should not be abridged absent a clear showing that disqualification is warranted.”  Mediaceja v. Davidov, 119 A.D.3d 911 (2d Dep’t 2014).  To obtain disqualification of an adversary’s attorney, the moving party must prove: “(1) the existence of a prior attorney-client relationship between the moving party and opposing counsel, (2) that the matters involved in both representations are substantially related, and (3) that the interests of the present client and former client are materially adverse.”  Tekni-Plex, Inc. v. Meyer & Landis, 89 N.Y.2d 123, 131 (1996).  Rule 1.18(c) of the Rules of Professional Conduct also prohibits a lawyer from representing “a client with interests materially adverse to those of a prospective client in the same or a substantially related matter if the lawyer received information from the prospective client that could be significantly harmful to that person in that matter.”

Ultimately, the Court here decided that Drobenko should not be disqualified from representing the Defendant.  With respect to his prior representation of Euro Planet in the formation of the corporation, the Court noted that the Second Department has rejected Plaintiff’s exact argument and that Drobenko should not be disqualified in a valuation proceeding simply because of his prior representation.  The Court also noted that Plaintiff failed to show that Drobenko’s prior representation of the corporation concerned any confidential information regarding the value of the corporation.

The Court also held that Drobenko’s prior representation of Plaintiff with a pre-nuptial agreement and immigration application, as well as discussions about partnering in the purchase of a restaurant (if it was true), had no relation to the corporate valuation of Euro Planet. The Court also took issue with Plaintiff waiting as long as he did to make the disqualification motion which delayed the trial of what was intended to be an expedited matter.  Lastly, the Court found that Drobenko’s testimony would not be necessary as a witness because there was no evidence that he had any first-hand knowledge of the value of Euro Planet.

It is important to note that a Court’s analysis of whether to disqualify a particular adversary’s attorney will be a very fact-specific inquiry.  However, it appears, based on this decision at least, that the Courts are not going to disqualify an attorney unless the moving party can truly show that the matter is substantially related to prior representation and that the attorney learned information that could be harmful to the prior client.  Here, the Court agreed with Drobenko that he only represented the corporation, not the individual shareholders, when he assisted with the formation of the company and he is neither a witness nor should he be disqualified based upon such representation.

By Patrick McCormick

The Appellate Courts have been busy this fall rendering significant decisions involving landlord/tenant law.  Two decisions of interest are discussed below.

The first is a decision by the Appellate Term, Second Department[1] involving a landlord who engaged in self-help to regain possession of the commercial demised premises at issue.  The tenant commenced an unlawful entry and detainer summary proceeding under RPAPL §713(10), and apparently the landlord engaged in self-help to regain possession of the demised premises after commencement of the proceeding.

The court recognized a landlord’s right to engage in self-help, provided such is authorized by the parties’ lease.  Here, the landlord engaged in self-help—as authorized by the commercial lease—upon the tenant’s alleged breach of the lease after the notice called for therein.  The Appellate Term dismissed the tenant’s petition, not because the landlord improperly engaged in self-help, but because the tenant’s pleadings failed “to contain any allegations establishing that tenants were not in breach of a condition of the lease, that landlord had not complied with the lease provisions requiring notice, or that reentry by landlord was not accomplished peaceably.”

While achieving an apparent victory, the landlord was, in fact, not so lucky.  The Appellate Term affirmed the denial of the landlord’s request for possession and for use and occupancy.  The court recognized that RPAPL §743 permits the assertion of legal counterclaims on a summary proceeding.  The court emphasized that RPAPL §743 “does not allow a respondent to circumvent the requirements of RPAPL article seven for the maintenance of a summary proceeding to obtain a judgment of possession” (citations omitted).  When the tenants resumed possession, they did so—if landlord’s position was accepted—as squatters, the lease having been terminated, and no 10-day notice was served as is required to obtain a final judgment pursuant to RPAPL §713(4) (citation omitted).  Moreover, the landlord had not pleaded the elements of a Civil Court ejectment action.

Thus, although the tenant had reentered the premises, the court determined that the landlord was, nevertheless, obligated to comply with the notice requirements of the RPAPL prior to initiating a claim for possession.  Indeed, the Court chastised the landlord, holding “while the landlord may now be faced with additional litigation, this was brought about by landlord’s resort to self-help.  The court was available for landlord to seek an award of possession, but, having chosen to act on its own, landlord cannot now complain of being denied the opportunity to short circuit the procedural requirements of a summary proceeding, by way of counterclaim.”  Therefore, engaging in self-help may not result in expeditiously obtaining possession of the demised premises, and caution should be used before engaging in such.

The second case, from the Appellate Division, First Department,[2] involves a tenant’s claim that the landlord was improperly charging tenant an assessment for a façade restoration.  In affirming the lower court’s ruling that the tenant was not obligated to pay any part of the façade restoration assessment, the court looked to the unambiguous language of the parties’ lease.  The court recognized that the lease specifically provided that after the condominium conversion, “‘and in lieu of CAM [common area maintenance] Costs described in paragraph (B)(1) above,’ ‘Tenant shall pay…[its] Proportionate Share of [the] monthly Common Charges levied against the Commercial Unit; and other special or regular assessments against the Commercial Unit.’”  The court went on to recognize that the lease specifically provided that “‘costs for capital improvements, to the extent that same are not in furtherance of reasonable or necessary maintenance of the building,’ ‘shall not be included as CAM Costs.’”  The court rejected the defendant/landlord’s argument that the obligation to pay “other special or regular assessments against the Commercial Unit” required the tenant to pay a proportionate share of the façade assessment.  While the court did not go into detail in explaining its reasoning, the decision serves as a cautionary tale to both landlords and tenants that, whenever possible, the obligation to pay certain costs must be specifically detailed in the parties’ lease.

[1] Martinez v. Ulloa, 2015 WL 5775821(App.Term 2d Dep’t 2015)

[2] Rogan LLC v. YHD Bowery Commercial Unit LLC, 2015 WL 6510726 (1^st Dep’t 2015)

By Scott Middleton

Many of our clients own commercial buildings or multifamily residential buildings and may not be aware of their legal exposure when having construction, renovation, or repair work performed on these buildings.

Labor Law sections 240 and 241 apply to these types of buildings and can be devastating to the unknowing owner. If any worker falls from height, or has an accident involving a gravity-related risk while the work is being performed, the owner and general contractor are absolutely liable.

To adequately protect owners, first and foremost, only reputable contractors should be hired. In the contract between the owner and contractor, the parties must agree that the contractor and any subcontractor will indemnify and hold the owner harmless for all losses arising out of the work to be performed. It is imperative that the owner be named as an additional insured on all policies of insurance and that the policies be reviewed to ensure they contain the proper language.

Assuming all of the foregoing is done and an accident occurs, what happens immediately after the accident is very important. Do not rely upon the contractor or subcontractor to do what is right. As the owner, get involved or have your attorney or other representative become involved in the investigation immediately. This initial investigation is of paramount importance in terms of preparing a defense.

The steps to take immediately are: prepare an accident report, secure and preserve any equipment involved, photograph the area, obtain statements from all involved parties and witnesses, make copies of all contracts and insurance policies (as well as certificates of insurance), and notify all primary and excess insurance carriers.

For large projects, the burden of the investigation is usually shifted to a general contractor or construction manager. For small projects, the owner should have a simple and clear policy for doing its own initial investigation. Of course, our office can always assist in this process.

All incidents involving gravity-related risks or industrial code violations resulting in injuries to construction workers must be considered serious. This is true no matter how minor or inconsequential an accident seems. Even minor injuries can develop into career-ending injuries, thereby exposing property owners to astronomical damages.

February 10, 2016

Labor & Employment Update for 2016
Our next East End Executive Breakfast event will feature an interactive panel of Long Island professionals discussing important legal and practical updates on a wide range of Labor and Employment topics for business owners, CEOs, managers, in-house counsel, and human resources professionals. Join us as we host Irv Miljoner, Director of the Long Island District Office, U.S. Department of Labor’s Wage & Hour Division, together with Markowitz, Fenelon & Bank as we address employment law issues that impact our business community.

February 10, 2016
8:00 am to 10:00 am

Sea Star Ballroom
431 East Main Street, Riverhead, NY 11901

CMM Managing Partner, Joe Campolo
will moderate our panelists as they discuss:

• Independent Contractor Classification
• Overtime Exemptions
• Differences between Federal and NY State Labor Law
• Shared Work Program
• Individual Liability
• Private Lawsuits

The event is complimentary but reservations are required.

PANELISTS:

Arthur Yermash advises business owners, executives, and general counsel on legal and business strategies in his role as Senior Associate at Campolo, Middleton & McCormick, LLP. He has drafted and negotiated hundreds of contracts for various business-related matters including employment, non-competition, non-disclosure, licensing, supply, and distribution agreements.

Arthur’s practice also includes the representation of clients in investigations by regulatory and government agencies including the New York State Department of Labor, the United States Department of Labor, the New York State Attorney General’s Office, and the Equal Employment Opportunity Commission. 

MODERATOR:
Joe Campolo, Esq.
Managing Partner, Campolo, Middleton & McCormick, LLP

Joseph N. Campolo is the Managing Partner of Campolo, Middleton & McCormick, LLP.  With broad experience in both commercial litigation and transactions, Joe advises business owners, executives, and Board members on legal and business strategies.

By Christine Malafi

It’s that time of the year again! Many employers are hosting holiday parties, where employees, and sometimes clients and customers as well, get a chance to relax, socialize, and take a break from the work to celebrate the holiday season. Raising employee morale during the holiday season is a good way to say thank you for their work all year, but despite the fun of a party, there are potential legal issues which could quickly make you forget the fun. To avoid problems from arising, it is advisable to act before the party to minimize potential headaches after the party.

Serving alcohol is always a risk–the potential for accidents and injuries, as well as inappropriate behavior, and lawsuits. Risk can be reduced by advanced planning. While liability generally does not attach to “social hosts” for accidents or injuries suffered off-premises by third parties as a result of alcohol served by the host, at least in New York, if an employee leaves a holiday party, and travels directly to another state, New York law may not prevent liability. Additionally, no one under the age of 21 years may be served alcohol at a holiday party, or liability will result if someone is injured by that underage holiday party drinker. The safest way to prevent potential liability relative to physical injuries involving alcohol use at a holiday party is to hire bartenders to serve the alcohol and make sure alcohol is not served to underage party guests.

Another risk associated with alcohol consumption is the level of “celebration.” As an employer, you do not want managers and/or supervisors acting inappropriately or provocatively, or flirting, with your staff. Some people tend to exude an excessive amount of cheer during the holiday season. The same workplace standards of a non-hostile work environment and non-harassing conduct apply to and should be enforced at holiday parties.

If the party will have music, employers should check the song list, and gift-giving should have limits. Joking and teasing, while permissible, should be without the bounds of a work setting. You don’t want to start the New Year with a humiliated employee commencing a hostile work environment or discrimination lawsuit.

Additionally, it is probable that a court will find that employees’ attendance at a holiday party relates to their employment, even if attendance is voluntary, potentially triggering workers’ compensation benefits for injuries sustained during the party (and potentially afterwards). Employers must take reasonable steps to protect their employees (and guests) from injury, whether at the workplace or an off-site location where the holiday party is held.

Finally, to avoid potential wage claims, if attendance at the party is required, the party should be held during normal work hours.

To help set your mind at ease before your holiday party, consider doing the following:

• Have transportation to and from the party available;
• Hire a professional bartender or caterer with sufficient liability insurance;
• Provide non-alcoholic drinks;
• Serve food, not only snacks;
• Have management/supervisors at the party on the lookout for excessive drinking and/or inappropriate behavior;
• Have a holiday lunch instead of a dinner;
• Invite employees’ family members to participate in the party;
• Make sure employees know that they do not have to attend the party if they chose not to; and
• Do not focus on one religion or holiday to the exclusion of any employee’s beliefs or observances.

A little advance planning can go a long way to help the success of your holiday party!

If you have any questions about your holiday party, please feel free to contact us.

Happy Holidays!