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  • A court may immecdiately grant the plaintiff a restraining order or preliminary injunction when there is a valid trade secret claim and the plaintiff may suffer irreparable harm without it.

  • Courts make the determination whether an injunction is necessary based on the evidence presented by the plaintiff at an initial application at the start of the case.

In a misappropriation of trade secrets lawsuit, one of the first actions taken by the court is to determine if an injunction will be available to protect the trade secret from use or disclosure pending a final resolution of the case.

Whether an injunction will be granted at the outset of the case pendente lite, or while the lawsuit is pending, is a critical must-win for both plaintiff and defendant. It will not only color the way the matter is handled, but in many cases reflects the ultimate outcome of the case.

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  • An equitable accounting is a cause of action that requires those in control of the finances of a closely held business to account for their  use of the money.

  • An accounting a two-stage process.  First the controlling party must render an account of how it used the assets of the business.  Then there is a proceeding for the minority to object to the accounting.

  • When a court finds that the party in control has misappropriate or misued the assets of the company, it can order repayment.

  • A minority member should demand an accounting before seeking the accounting in court and be prepared to support the request with plausible claims of misconduct.

For many minority owners of closely held businesses, the finances are sometimes a black box.  There is a result, but where that result came from is unknown.  The cause of action for an equitable accounting is a tool that gives the owners who don’t have day-to-day management roles a look inside the black box of the closely held company’s finances.

More Questions? Learn More.  You can call me at 973-602-3915 or use our Contact form to reach me by email.

The term black box comes from engineering and describes devices or systems that give a result from a set of inputs, but the process inside is a mystery.  This lack of transparency makes it challenging to troubleshoot issues or make modifications to the black box without specialized knowledge or access to its internal components.

The same may be true of the finances of the closely held corporation, limited liability company, or partnership, particularly when there are questions about the majority’s behavior. Where, for example, there is a question about the misuse of an LLC’s assets, the minority may be able to sue and hire its own forensic accountants to reconstruct the workings of the black box.  But if they can prevail in a cause of action for an equitable accounting, they shift the responsibility for the process to those in charge of the books.Equitable Accounting Provides Transparency in Finances for LLC, closely held corporations

There is a significant difference between putting the responsibility to explain the use of the assets of the LLC and pay back what was improperly taken and simply getting access to records.  That has been the central point of a number of cases involving claims for equitable accounting.  We examine some of those cases here under New York and New Jersey law, including a very recent decision from a federal court in the Southern District of New York applying state law.

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  • There is no statutory right to receive a distribution of profits from a limited liability company before it dissolves and winds up its affairs.  Distributions before then are discretionary.

  • Profit distributions are in the discretion of the majority members or commonly in the discretion of the managers of the limited liability company.

  • A minority member who is not receiving distributions may have a claim under the operating agreement or as an oppressed minority member if the majority refuses to make profit distributions.

Profit distributions are a frequent source of dispute among the members of a limited liability company.  The fundamental question of who decides when distributions are made, how much is made, and how to deal with the tax issues related to distributions, profits and losses can all be the source of conflict.

More Questions? Learn More.  You can call me at 973-602-3915 or use our Contact form to reach me by email.

The short answer to the question of when a limited liability company must distribute profits is that ‘it depends.’  And many minority owners of LLC interests are frustrated to learn that they have less control over the process than they anticipated.New Jersey minority oppressed LLC member attorney

Limited Liability Companies Often Do Not Have Operating Agreements

Entrepreneurs choose limited liability companies as the form of a new business far more often than corporations or partnerships.  They are cheap and easy to form and do not require the type of documentation and formalities that you generally see associated with other entities, corporations in particular. Continue reading

  • Statutes that protect the rights of the owners of trade secrets protect against ‘misappropriation’ of confidential information, which requires a defendant to take or use the trade secret without permission.

  • The inevitable disclosure doctrine can prevent an employee from working for another when the new job would inevitably require the use of the trade secrets of the former employ.  Intent to misappropriate the information is not an element.

  • A party seeking to prevent disclosure of a trade secret under the inevitable disclosure doctrine will probably not be able to pursue the remedies available under the federal Defend Trade Secrets Act or the state Uniform Trade Secrets Act.

When a key executive with access to key data leaves an information-intensive position to start a competing business, does the fact that inevitably the former employee will make use of sensitive state a claim under federal law? Quite possibly not.

The federal Defend Trade Secrets Act (DTSA ) and the uniform state law on which it is modelled turns on the concept of misappropriation and without it, there may be no basis.  Inevitable disclosure is a common-law doctrine and in itself may not create a right to sue under the these trade secret statutes.Trade Secret Attorneys | New Jersey | New York

More Questions? Learn More.  You can call me at 973-602-3915 or use our Contact form to reach me by email.

The inevitable disclosure doctrine is legal principle in trade secret law that enables a former employer to prevent a former employee from accepting a new position with a rival if the new position’s responsibilities will unavoidably cause the person to divulge the trade secrets of the former employer. The doctrine may apply even if fthe former employer lacks concrete evidence that the employee has actually taken trade secrets or threatened to do so.

The Difference Between the DTSA and the Inevitable Disclosure Doctrine

In a federal court action, Paro Inc., a Delaware corporation, unsuccessfully sought an emergency temporary restraining order against former employee Luke Kohan, a New York resident, and his newly founded company, FirmKey Solutions LLC, claiming Kohan was in breach of a restrictive covenant and had misappropriated trade secrets. Paro, an artificial intelligence-powered marketplace, provides various finance and accounting solutions to businesses through its AI-powered platform. Continue reading

  • Enterprise goodwill is the expectation that a business has in the continued patronage by its customers, regardless of the individuals involved. Personal goodwill is the expectation of continued patronage because of an individual’s continued participation in the business.

  • Personal goodwill is not an asset owned by a business, but it may be acquired through contractual arrangements including employment contracts and agreements not to compete with the business after employment.

  • As post-employment restrictive covenants become more difficult to enforce, the equity value of small, service-oriented businesses will be lowered.

  • Whether the closely held business is the owner of the goodwill that produces its revenue is a critical issue when valuing the entity.

Lawyers who are prohibited by the rules of professional ethics from any restriction on competition.  A real estate management company where the principals each work their own book of business.  A design-build firm in which a single principle generates the vast majority of the business.  An outside sales organization in which the owners divide profits based on origination.

All of these examples raise the thorny issue of who owns the goodwill that is responsible for the future earnings capacity of the business.  Does the reputation of the business belong to the business, or to the individuals?  As one commentator put, does the goodwill of the business go home for dinner every night?

More Questions? Learn More.  You can call me at 973-602-3915 or use our Contact form to reach me by email.

The issue of who owns the goodwill — the enterprise or the individuals— is likely to become even more important as the general sentiment is turning away from enforcing agreement not to compete and various states and federal agencies are taking steps restrict the imposition of agreements that restrict competition after employment. Continue reading

  • The ‘Internal Affairs Doctrine’ requires that a court apply the law from the state in which a business was organized to disputes among the shareolders or LLC members.

  • The ‘Single Enterprise Theory’ permits a court to treat multiple entities with common ownership as though they were one.

  • In disputes involving entities from different states, when the Internal Affairs Doctrine is applied, the remedies available will vary based on the state of organization.

usa-35713_1920-1024x581In the not-so-distant past, we represented a family business organized as multiple separate entities operating in multiple states under a single administrative structure.  Not surprisingly, each of the entities was organized under the law of the state in which it had its principle operations.

When it all went South and a dispute over the control of the businesses divided the family members involved,we were faced with the conundrum of where to file.  The remedies and the reach of the authority of the courts in the different jurisdiction created a clear conflict of laws. It’s not common to have such a complicated, but it is not a rarity either.

Closely Held Businesses: The Single Enterprise Theory

Our approach has been to argue that – at least as the claims among the principals are concerned – they are a single entity: a single organization that should be treated as such.  The  concept has gained some acceptance under a few different theories.  If they are treated as one entity, then what law applies?

More Questions? Learn More.  You can call me at 973-602-3915 or use our Contact form to reach me by email.

The choice of law issue is difficult when there is a single entity organized under foreign law that is involved in the suit. Now suppose that this organization is comprised on entities organized under New York, New Jersey and Pennsylvania law.  The internal affairs doctrine holds that the law of each state applies to claims between ifs owners, officers and directors.

The First Department of the Appellate Division of New York Supreme Court recently reaffirmed the applicability of the doctrine in Ezrasons, Inc. v. Rudd, a derivative action seeking recover in a derivative action involving Barclays PLC.  In dismissing the case, the First Department said that the internal affairs doctrine dictates that claims concerning the relationship between the corporation, its directors, and a shareholder are governed by the state or country of incorporation.

New York Adheres to Internal Affairs Doctrine

Barclays was an English corporation and the English Companies Act requires a derivative plaintiff to be a member of the company.  Ezrasons was not a member and therefore lacked standing. New York’s Business Corporations Law (BCL) gives the court jurisdiction to hear derivative claims involving foregin companies, but the substantive law applicable to its internal affairs is always that of the state of organization.

In New Jersey, however, an unreported decision of the Appellate Division recently reversed and remanded a derivative claim involving a Delaware limited liability company, holding that a traditional choice of law analysis was applicable.  The first step of that process, the Appellate Division held was to ascertain if there was an actual conflict between the state in which the action was being heard and the state where it was was organized.

New Jersey Conflict of Laws Analysis May Trump Internal Affairs Doctrine

The Appellate Division found between New York and New Jersey law and applied the law of New Jersey to the derivative claims at issue.  We wrote about that decision recently.  (New Jersey Court Rejects Choice of Delaware Law Under RULLCA)  Even though New Jersey has adopted a statutory application of the internal affairs doctrine, the court used the traditional analysis.

Derivative claims are an example of the problems that can arise.  New Jersey allows a party to plead demand futility, as does New York, but in New Jersey a trial judge has discretion to disregard the rules concerning derivative liability in some circumstances.  Pennsylvania has a general hard rule prohibiting futility pleading and requires the business to have an opportunity to have the claims investigated by an independent committee.

New Jersey and Pennsylvania permit the expulsion of limited liability company  members, known as involuntary dissociation, while New York does not.  In Pennsylvania the claim for involuntary dissociation can be brought by a member or the company.  In New Jersey, only by the company.

New Jersey has no minimum ownership requirement for oppressed shareholder actions involving corporations.  In New York,  the plaintiff in an oppressed shareholder action must own at least 20 percent of the shares. The New York corporation can exercise a right to purchase the shares of the plaintiff for fair value, converting the oppression claim into a claim over the value of the shares that the plaintiff must now sell.

Amalgamation Avoids Conflict of Laws Issue

That brings us to the issue of what to do with multiple business entities organized under the law of multiple states.  The idea of a “single business entity” or an “amalgamation” has been explicitly addressed only by the courts of South Carolina and Texas.  The underlying theory behind the South Carolina Supreme Court has been a combination of a piercing the veil theory and conflicts of law analysis.

The seminal decision, Petruis v. Front Roe Restaurants, involved a South Caroling entity at the hub of the enterprise and a South Carolina plaintiff claiming that he had been wronged.  The Supreme Court was willing to look beyond the black letter rule, noting that veil piercing cases involve disputes that “reach beyond the confines of the corporation.”

[T]his threshold amalgamation issue is not as much a question of the inner-workings of foreign corporations as it is an assessment of whether these entities actually operate as a single business enterprise, and thus should be treated as a single entity. Further, one of the three corporate entities, Front Roe, is a South Carolina corporation; much of the conduct at issue occurred, at least in part, in South Carolina; and Pertuis, the minority shareholder, is a South Carolina resident. Accordingly, we conclude the application of South Carolina law is appropriate and that the internal affairs doctrine does not bar our review of this issue.

Where does that leave the parties in a multi-jurisidictional, multi- entity dispute.  The amalgamation theory may be the only viable pathway to relief. New York courts, for example, will not grant relief that implicates the sovereignty of another.  New Jersey seems as though it has a more liberal approach to choice of law analysis.  The outcome is simply uncertain at this point.


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  • A ‘passive’ member with no rights or responsibilities in the management of a limited liability company cannot be held liable for refusing to participate in a PPP loan application.

  • Dissociated LLC members with no management rights can withhold their voluntary consent to proposed actions.

  • The waiver of fiduciary duties in an operating agreement is enforceable under New Jersey law if it is not manifestly unreasonable.


Jeanne Qin Lamme was a “passive” owner in the businesses owned by her late husband, Joseph Lamme.  Her status was as a dissociated member under New Jersey’s Revised Limited Liability Company Act meant that she had no management rights in the business.New Jersey dissociated LLC member may refuse to cooperate | New Jersey LLC disputes attorney

So when Jean Lamme refused to assist the business in securing a federal Paycheck Protection Program (PPP) loan during the Covid pandemic, did she set herself up for a lawsuit and damages? Not if she had no duty to cooperate.

Widow of Owner Refuse Request for PPP Loan Application

That’s the holding in an Appellate Division opinion in Lamme v. Client Instant Access, a lawsuit between Lamme and her late husband’s business associate, Joseph Vacarella.  It’s worth considering the decision because members of small businesses say “no” – frequently to the detriment of the business – simply because they can. Continue reading

  • The Internal Affairs doctrine requires a court to apply the law of the state where a business was formed, or organized, to disputes between the owners regardless of the circumstances.

  • New Jersey courts have applied a more traditional analysis of conflict of laws issues and may refuse to apply the law of another state if the parties or the issues have no connection to the state of formation.

  • The Revised Uniform Limited Liability Company Act provides that the law of the state of organization governs the rights of members and their liability to third parties.


A New Jersey need not necessarily honor a Delaware choice of law provision in an operating agreement if the company has no substantial relationship to the state where it was organized, the Appellate Division holds in a case involving a Delaware limited liability company and an Israeli corporation.

courthouse-gf011b4688_1280-300x287This holding in which the appellate court reversed and remanded a trial court’s decision rejected the per se application of the “internal affairs” doctrine in which courts apply the law of the state where a business was organized to internal disputes without regard to the other principles that often govern choices about which state’s law applies to a lawsuit.

The Importance of Choice of Law Decisions

This is a technical issue, but an important one that has some very practical decisions.  Business entities are formed under the laws of individual states, but have the right to do business in any state.  That means as a practical matter that corporations and limited liability companies often do business in states, or even countries, other than whether they were formed.  When a dispute arises in one state among the owners of a business formed in another state, the choice of law and authority of the court to act can be a thorny  issue. Continue reading

  • A New Jersey Court conducing the valuation of a business may use any technique or method generally acceptable in the financial community.

  • The application of a minority discount is a question of law, but likely will be based on the factual determinations of the court about the culpability of the litigants.

  • Business divorces cases are commonly heard in the Chancery Division, a court of equity in which principles of fairness and justice may be applied in addition to any statutory cause of action.

  • New Jersey’s statutory cause of action for oppression of a minority shareholder does not prevent the court from providing equitable remedies available outside the statute as a matter of common law.

New Jersey Business Valuation ATORNEYIn Sipko v. Kroger, the New Jersey Supreme Court declined to apply a minority discount in valuing the interest of a minority shareholder.

There was no real surprise there.  New Jersey courts are reluctant to apply a minority discount in the valuation of closely held businesses, which reduces the value of the minority interest.  Those discounts, which can signicantly lower the value of an interest — often by a third, or more — tend to reward wrongdoers. Continue reading

  • The touchstone of a trade secret is that it provides the owner of the information with a competitive advantage in their market.

  • Courts look at the cost of development, the difficulty in duplicating  and measurable benefits to ascertain whether a bona fide trade secret exists.

  • The first step in the defense of a trade secret is to examine whether there is real economic value to keeping the information secret.

Trade secret laws, much like other types of intellectual property law, always have the potential to limit competition and restrict employee mobility.  The result is that trade secret law can be used as a means to try to carve out a market space.  Those cases, however, may involve benign information that is difficult to classify as a trade secret.

The first issue in the defense of any claim for misappropriation of a trade secret is to figure out if there is really a trade secret at issue, whether the claim is brought under the federal Defend Trade Secrets Act (DTSA), a state Uniform Trade Secrets Act (UTSA) (from which the DTSA was derived) or state common law.

The UTSA has now been enacted every state except New York and Virginia, as well as the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Continue reading

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