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Herten, Burstein, Sheridan, Cevasco,
Bottinelli, Litt, Toskos & Harz, LLC
REPORT FROM COUNSEL
FALL 2004 ISSUE
NEWS FROM HERTENBURSTEIN.COM
- It's a baby girl! Tom and Kathy Herten
announced the arrival of their first grandchild, Emma Katherine.
She was born on the 30th of July weighing 6 lbs. 2 oz. and 17
inches long.
- Our firm is going through a growth spurt. We
are proud to announce the hiring of Marina Hoppas, Tanja J. Fagan
and Damon T. Kamvosoulis. All three lawyers spent the last year
clerking for New Jersey Superior Court Judges. We would also like
to welcome to our office Daniel Y. Gielchinsky. Mr. Gielchinsky is
a seasoned lawyer who brings years of experience to the firm.
- On August 19th Al Burstein received the
Community Spirit Award from Hudson Community Enterprises. This is
a non-profit organization whose goal is to help handicapped
individuals. Many years ago Al was instrumental in founding the
organization.
- The firm wants to thank our law clerks for
their hard work this summer: Anthony S. Bocchi from Seton Hall
University School of Law, Mark A. Fantin from New York Law School,
Chris Karounos from Rutgers University School of Law, Michele
Maman from Benjamin N. Cardozo School of Law and Lauren Ricigliano
from Seton Hall University School of Law. Their efforts were
greatly appreciated and we wish them continued success in school.
- Jason Shafron has been named as a member of the
Board of Trustees of the newly created UJA Federation of Northern
New Jersey, which serves all of Bergen County and parts of
Passaic, Hudson and Morris Counties. Jason has also been elected
Chairman of the Personnel Committee for the Northwest Bergen
County Utilities Authority.
- Nilufer DeScherer recently obtained an
important victory for municipalities in litigation involving the
Mahwah Affordable Housing Council. The Honorable Marguerite Simon
ruled in her favor in a case of first impression in a decision
which allows municipalities to preserve affordable housing units
that were at risk of being lost by foreclosure actions.
- For your driving to work entertainment we would
like to recommend Nilufer DeScherer's husband, Robert DeScherer,
who can be heard every Friday morning from 6 a.m. to 9 a.m. on
WFDU, 89.1 FM. His radio program includes a mixture of blues, R &
B, zydeco and Cajun music. Rob has been on the air for 14 years.
- Our office manager, David Polizzotto, has
plenty of reason to be proud of his son, Matthew David Polizzotto.
Dave and his wife Helen recently announced the marriage of Matthew
to Jessica Ensuar on July 23, 2004. Matthew was also named to the
Hopatcong High School Hall of Fame.
- The Bergen County Bar Association continues to
make use of the resources of our firm. Andy Cevasco was named
Co-Chairman of the Elder Law Committee, Steven Harz was named
Co-Chairman of the Labor Law Committee and a Contributing Editor
to the Bergen Barrister, Tom Herten was named Chairman of the
Judicial Appointments Committee, while Manny Toskos was named
Chairman of the Land Use Law Committee.
- The prestigious Commerce & Industry Association
of New Jersey will be making use of the employment and labor law
expertise of Steven Harz. The Association has recently named him a
member of its CEO Roundtable.
- Manny Toskos has been reappointed Township
Municipal Attorney and Head of the Department of Law for the
Township of Mahwah on July 1, 2004 at the Township's Annual
Reorganization Meeting.
- Finally, on a sad note we have to report the
passing of Eleanore Barnes. Having worked for the firm for 19
years she was a beloved fixture. Although she was 87 years old she
never slowed down. Eleanore personally made sure that her snack
baskets were always filled with candies, cookies and other
goodies. Fiercely loyal and professional she came to work on
Friday, July 30th, shopped for her goodies over the weekend and
sadly passed away on Monday, August 2. She will be greatly missed.
TECHNOLOGY AND THE LAW
Lost Database Is Not Insured
"If you can't reach out and touch it, it is not
insured." That was the gist of a court's ruling in a lawsuit brought
by a company that lost a large amount of electronically stored data
when an employee inadvertently pressed the "delete" key on a
keyboard. The company looked to its insurer to cover the expenses
for restoring the data and to recover lost income caused by the
disruption. The insurer denied coverage on the basis of policy
language that limited coverage to a "direct physical loss of or
damage to" covered property.
The language from the policy was meant to be
interpreted in its ordinary and popular sense. Thus, "physical"
means "tangible" or capable of being touched. The information in a
computerized database, in and of itself, has no material or tangible
existence, unlike a storage medium for information, such as a disk,
tape, or even papers in a file cabinet. The court concluded that
when the employee sent the data into thin air with an unintended
keystroke, there was no direct physical loss within the meaning of
the insurance policy. (The court distinguished this case from
another case in which the loss of a computer tape and the data on it
were covered under a policy covering "physical injury or destruction
of tangible property.")
Recognizing that the dictionary was not on its
side, the company that lost its data also argued that public policy
should weigh heavily in favor of insurance coverage. After all, loss
of information in the same manner as occurred in this case is
common, and our economy unquestionably is highly dependent on
computers and the intangible information that they contain. However,
the court declined to use public policy as an "interpretive aid."
There are plenty of useful legal principles for construing insurance
contracts, but using public policy to redefine the scope of coverage
agreed to by parties to a contract is not one of them. The lesson:
Questions of insurance coverage are to be answered solely in the
language of the policies and, therefore, careful drafting of policy
language is critical.
Got a Gripe? Start a Website
Joseph was planning to buy a new house from a
builder until he came to the conclusion that the builder's sales
representative had misled him about the availability of a particular
model. In an earlier time, he might have been content to vent to a
sympathetic neighbor across his backyard fence, but this is the age
of cyberspace. Joseph registered an Internet name that was very
similar to that of the builder and then created a website as a forum
for relating the reasons for his frustration with the builder. He
included a disclaimer making it clear that visitors were not on the
builder's website. There was no charge to access the site and the
site contained no paid advertisements. Once in a while, an e-mail
intended for the builder came to Joseph's site, but he promptly
forwarded it to the builder.
Also on the website was something Joseph called
the "Treasure Chest," a place where readers could exchange
information about contractors and tradespeople who had done good
work. During the entire time the site was up and running, only one
person was mentioned in the Treasure Chest. Although it was nearly
empty, the Treasure Chest prompted the builder to sue Joseph under
the federal Anti-Cybersquatting Consumer Protection Act (ACPA).
The ACPA only applies to someone who, with "a
bad-faith intent to profit," registers or uses a domain name that is
identical or confusingly similar to that owned by someone else.
Everyone agreed that the part of Joseph's website in which he aired
his own complaints against the builder had no profit motive or
commercial aspects, but the builder tried to argue that the Treasure
Chest was a mingling of commercial activities with personal gripes.
A federal court ruled in favor of Joseph. The
facts of the case did not amount to the conduct that the ACPA was
meant to address, that is, setting up a business whose sole purpose
is to register domain names that closely resemble the names of
established businesses, and then attempting to sell the names to
those businesses. The fact that Joseph meant to use the Treasure
Chest to draw more people to his site to read his story did not
convert the site into a commercial undertaking. He took no money
either for being listed on the site or for viewing it, and the
absence of paid advertising or links to other sites belied any
profit motive. The website, especially with its very similar name,
was no doubt a source of annoyance to the builder, but it was not a
source of damages under the ACPA.
IRS GETS TOUGH ON ESTATE TAX FRAUD
Prosecutions for filing a false Form 706, the
federal estate tax return, have been rare. Recently, a federal
prosecutor announced a guilty plea by an individual charged with
estate tax fraud. The guilty plea may well be a harbinger of a new
"get tough" policy by the IRS in an area that up until now has not
had a reputation for vigorous criminal enforcement.
The defendant in this case was the executor of her
mother's estate. She admitted that she intentionally filed a Form
706 that omitted assets worth about $400,000 that should have been
included in the estate. The executor could face a term of
imprisonment, followed by a term of supervised release, and a large
fine.
Individuals who stand to be affected by the new
emphasis from the IRS on using a carrot and a stick include
executors, tax return preparers, and essentially anyone responsible
for the completeness and accuracy of an estate tax return. It is
important to remember that old income tax returns and other
documents that the IRS can obtain in an audit often will allow it to
discover assets that have gone unreported. The recently publicized
guilty plea by an executor is a not-very-subtle warning by the IRS
that estate tax fraud can have consequences beyond dollars and
cents.
WITHDRAWAL RULES FOR INHERITED IRAS
The IRS has established rules for determining the
minimum amount that must be withdrawn each year from an inherited
traditional IRA. When an individual inherits an IRA, the rules
differ somewhat depending on whether the individual was the
decedent's spouse. In any case, there is a substantial incentive for
following the rules, because the failure to take minimum withdrawals
results in a stiff penalty equal to 50% of the shortage. Since
complying with the rules can be a convoluted process and a mistake
could be costly, it makes sense to be guided by professional advice.
Surviving Spouses
The starting point is the general requirement that
minimum withdrawals must begin at the age of 70 1/2. If an IRA owner
dies before April 1 of the year after he or she turned 70 1/2, or at
any earlier time, the surviving spouse can handle the IRA in any of
three different ways. First, the spouse can transfer the account to
his or her own name, so that it is treated as if it always belonged
to the survivor. If the survivor is substantially younger than 70
1/2, this has the benefit of putting off mandatory withdrawals for
years, during which time there will be more tax-deferred growth in
the IRA. This choice also has the benefit of using a longer joint
life expectancy figure in calculating the minimum withdrawals,
meaning less is taken out and taxes are reduced.
Second, the surviving spouse simply can leave the
IRA in the deceased spouse's name and begin taking minimum
withdrawals when the deceased spouse would have been able to do so.
The third approach is to invoke the "five-year rule," which allows
the surviving spouse to do whatever he or she wants with the account
until December 31 of the fifth year after the year in which the
other spouse died. By that date, however, the account must be
emptied and the resulting taxes must be paid. The five-year approach
is not available if the deceased spouse died on or after April 1 of
the year after turning 70 1/2.
Other Individual Heirs
If the deceased individual named a nonspouse
beneficiary for the IRA, the beneficiary must begin taking minimum
withdrawals over his or her own life expectancy, starting by
December 31 of the year after the year in which the account owner
died. Additional withdrawals must be taken by December 31 of each
successive year. To calculate the minimum amount to be withdrawn,
the beneficiary must divide the account balance for the previous
year by his or her life expectancy, as given in tables published by
the IRS.
As with surviving spouses, an heir can use the
five-year rule to liquidate the inherited account by the end of the
fifth year after the original owner died, before which time the heir
can withdraw as little or as much as desired. Also as with surviving
spouses, the five-year rule is not available if the IRA owner died
on or after April 1 of the year after turning 70 1/2.
BUSINESS ALERT: NEW OVERTIME REGULATIONS
The Department of Labor recently issued sweeping
new regulations on the eligibility of workers, especially
"white-collar" employees, for overtime pay. Federal law requires
that overtime be paid for nonexempt employees at a rate of one and
one-half of regular pay for all hours worked over 40 hours in a
week. To be "exempt" is to be ineligible for overtime. Employers
should update their employee handbooks to reflect the new law on
overtime pay.
Salary Tests
Since 1975, workers paid a salary of less than
$155 per week ($8,060 per year) have been eligible for overtime,
regardless of their job duties or how they are paid. Now that
threshold has been raised considerably, to $455 per week ($23,660
per year). The "highly compensated employee" test will make workers
with an annual salary of at least $100,000 exempt, if they perform
office or nonmanual work and "customarily and regularly" perform one
of the duties of either an exempt executive, administrative, or
professional employee. The exempt duty need not be the employee's
"primary duty."
Manual laborers, other blue-collar workers,
licensed practical nurses, and "first responders," such as police
officers and firefighters, will be eligible for overtime regardless
of salary.
Executive Exemption
In the middle ground of compensation, between
$23,660 and $100,000 per year, individuals will be exempt as
executives if their primary duty is management of the enterprise or
one of its departments or subdivisions, and if they "customarily and
regularly" direct the work of at least two full-time employees. A
new requirement is that would-be executives must either have the
power to hire and fire or at least their recommendations in such
matters must be given "particular weight." This tighter focus on
hiring and firing is a change from the former regulations in which
employees could fall within an executive exemption because of their
general managerial authority. The term "particular weight" invites
differing interpretations, but courts can be expected to look at
factors such as whether hiring and firing recommendations are part
of an employee's regular job duties and how frequently such
recommendations are made. An employee who owns at least 20% of a
business and is actively engaged in managing it will also be exempt,
without regard to salary thresholds.
Administrative Exemption
For employees in the same mid-range of
compensation used for the executive exemption, but whose primary
duty is "the performance of office or nonmanual work directly
related to the management of the general business operations of the
employer or [its] customers," the administrative exemption will
apply. The employee's primary duty must also include work that
involves the "exercise of discretion and independent judgment with
respect to matters of significance." These criteria are too broad to
allow an exhaustive list of "administrative" positions, but some
examples from the new regulations include insurance claims
adjusters, financial service employees, policymaking human resource
managers, and team leaders for major projects.
Professional Exemption
"Learned professionals" earning between $23,660
and $100,000 will continue to be exempt from overtime as long as
their primary duty is the performance of work requiring advanced
knowledge in a field of science or learning that is customarily
acquired by a "prolonged course of specialized intellectual
instruction." The learned professional's work must include work
"requiring the consistent exercise of discretion and judgment," as
opposed to routine mental, manual, mechanical, or physical work.
Safe Harbor
Coming into compliance with the new regulations
could be a daunting task, given their length, complexity, and lack
of specific terminology. Ironclad advice that applies across the
board is also in short supply because applying the new rules
correctly is highly dependent on the facts and circumstances of each
case. But balancing the difficulty of compliance is some leniency in
enforcement. A "safe harbor" in the new regulations protects
employers who make improper salary deductions. Employers with clear
policies and procedures for addressing salary deduction errors will
not lose an exemption for a class of employees unless the employer
continues to make improper deductions after receiving complaints.
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