Keep Your Companies Separate!

Keep Your Companies Separate!

Are your companies too close for comfort?

A recent New Jersey case illustrates the principle that New Jersey courts may have jurisdiction over business entities if they “lead a double life” in New Jersey. Consider the following…

The Case

The facts of the underlying case are simple enough. Tyler Bell (“Bell”) personally guaranteed a loan made by Investors Bank (“Investors”). As part of its collection efforts, Investors obtained a judgment against Bell as well as an order directing that a portion of Bell’s income be paid over to Investors to satisfy the judgment. Here’s where things get a bit unwieldy.

Bell, a Florida resident argued that his employer, National Cable and Internet, was a Florida limited liability company (“LLC”). Bell further argues that a New Jersey court could not compel a Florida employer to turn over Bell’s income to Investors. If the Florida company was registered to do business in New Jersey, the company would, presumably, be required to comply with the New Jersey court order. Whether or not the Florida company was registered in New Jersey appears to have been in dispute. However, the court found a different basis to compel the Florida company to comply with its order.

As it turned out, an officer of the Florida LLC formed an LLC named “National Cable and Internet” in New Jersey. Not only did the two LLCs have the same name, the officers and members of the two LLCs were similar (if not the same). As such, the court reasoned that the Florida LLC was doing business in New Jersey through its New Jersey “alter ego” and, accordingly, Bell’s employer was required to comply with the New Jersey court order to pay over a portion of Bell’s wages to Investors. Bell appealed the ruling, but the New Jersey Appellate Division agreed with the trial court and affirmed the decision.

Conclusion

The failure to sufficiently distinguish affiliated business entities can unexpectedly expose a company to the reach of courts in other states. Please feel free to contact me if you would like more information about the case, Investors Bank v. Travelers Cable TV, Inc. (A-2496-15T2, May 5, 2017).

DISCLAIMER: This BLOG post is provided solely for the general interest of the reader. It is not legal advice or opinion. Legal advice and opinion are provided by the firm only upon engagement with respect to specific factual situations.

5/25/2017