Law

Legitimacy of EDA Task Force questioned by lawyers representing George, Philip Norcross

A team of six top lawyers representing George Norcross, Philip Norcross and their business interests questioned the legitimacy of the task force Gov. Phil Murphy set up to look into allegations of abuse by the Economic Development Authority in the administration of the state’s tax incentive programs, in a six-page letter that was released late Monday.

The letter, which was sent by email and hand-delivered to the New York City offices of special counsel James Walden, questioned the authority of the task force and complained about the inability of “targets” of the hearings to provide a counterpoints or statements against witness and whistleblower statements. The letter registered complaints against Walden and the committee chair, Ronald Chen:

“On behalf of our respective clients, we write to object to the unlawful process you are conducting on behalf of the Task Force on the Economic Development Agency’s Tax Incentives. For the reasons set forth herein, the Task Force’s chair, Mr. Chen, lacks statutory authority over the Economic Development Agency, which is an independent authority not subject to the gubernatorial powers set forth in N.J.S.A. 52:15-7.

“Moreover, the arbitrary restrictions you imposed on our clients’ rights to respond to false accusations against them denies each of them the opportunity to exercise their First Amendment rights as well as their right to publicly confront accusers within the same public forum. Given your stated intention to publicly adduce ‘adverse’ evidence against our clients, these restrictions are particularly noxious. We therefore demand an opportunity to submit a public presentation to the Task Force at its next scheduled hearing.”

The letter was signed by Chris Porrino, Michael Critchley Sr., Herbert Stern, William Tambussi, Michael Chertoff and Kevin Marino.

The letter was in response to the most recent meeting of the task force, held last Thursday, when incentives given to companies that relocated to Camden were heavily criticized.

Jersey City-based World Business Lenders, which also was under scrutiny, previously complained about not being able to respond to allegations against it.

The letter cites a statute that allows the governor to investigate the management “by any state officer of the affairs of any department, board, bureau or commission of the state. It does not extend to independent authorities like the EDA.”

The EDA was created by statute in 1974, the letter said, and is in “but not of,” the Department of the Treasury.

Neither the Governor’s office nor the task force had an immediate response to the letter.

Earlier Monday, Chen responded to a similar line of questioning from Camden County officials about the validity of Chen running the task force since he, Chen, is a professor at Rutgers University, which has benefitted from the state’s tax incentives.

“The governor has full constitutional and statutory authority to investigate any entity within the Executive Branch, including the EDA, either by himself or through a delegate,” Chen said in a statement.

“If anyone wishes to challenge that authority, they should bring an appropriate action in court and we are ready to defend it vigorously.”

Last week, Critchley questioned the validity of Walden, a lawyer in New York, being appointed special counsel and practicing law in New Jersey.

See a copy of the letter, addressed to Walden, below.

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Ex-employee testifies financial firm used false info to obtain incentives

World Business Lenders recently made a splash in the New Jersey business sphere by aggressively pursuing legislation to govern its operations and creating a partnership with the Statewide Hispanic Chamber of Commerce of New Jersey to help minority small businesses overcome obstacles of access to capital.

But, on Thursday in Newark, WBL made headlines for a different reason: A former employee said the company used false information to obtain and then sell a Grow New Jersey tax credit — which rewards companies for creating and retaining jobs in New Jersey with tax credits ranging from $500 to $5,000 per job.

In her testimony at the second EDA Task Force hearing, Kerrie-Ann Murray said her company made a sudden move from New York City to Jersey City in 2016, and hired and fired about 80 people just to meet the requirements of the Grow NJ tax credit it was awarded for its move.

WBL, in a statement provided to ROI-NJ, vehemently denied Murray’s allegations, saying they came from a disgruntled former employee.

“Before today, World Business Lenders conveyed to the Task Force on the Economic Development Authority‘s tax incentives that there were numerous and serious reasons to believe Kerrie-Ann Murray would not testify truthfully,” the statement said.

“We are bitterly disappointed that the task force has, nevertheless, allowed Kerrie-Ann Murray to provide her biased and unreliable testimony without also allowing World Business Lenders the opportunity to have a witness testify. Kerrie-Ann Murray is a disgruntled former employee of WBL.”

Murray’s allegations are noteworthy.

Doug Naidus, center, is CEO of World Business Lenders.

When it was located in New York, WBL had 80 employees, and needed to hire 100 to 125 more in a two-month timespan, between May and July 2016, after the staff knew it was moving to Jersey City.

Murray said staff were instructed to create a relationship with the New Jersey Department of Labor & Workforce Development to fill the positions, and in that process also benefitted from DOL incentive programs to encourage hiring of individuals on welfare, who live in specific zones, or are veterans, and the company was also reimbursed for half of the hourly wage per employee it hired from a certain pool of unemployed individuals.

WBL then hired the more than 100 people, paid them $10 per hour and created a new department to cold-call small businesses to see if they were interested in and qualified for a loan.

“It wasn’t a role or positions that the company previously used,” Murray said.

“The company does subprime lending, if I can say that, so you would have to be very experienced in sales, experienced in selling, experienced in getting borrowers to actually borrow money at the high percentage rate.”

Murray also told the task force members that the company kept a monthly spread sheet, entitled Grow New Jersey, which tracked the number of employees. It included information such as employee names, positions, hours worked, annual salaries and earned pay per month.

If an employee didn’t meet the full-time hours, managers were asked for reasons. If no reason was provided, Murray said, the company would backfill the hours as paid time off, or PTO.

That went on for about six months, and, in January 2017, the entire department was eliminated.

When employees who were left asked why, they were told it was because the tax credit had been sold.

In a recent interview with ROI-NJ, WBL CEO Doug Naidus said there is a cold-calling department whose operations matched those described by Murray.

The statement also addressed the tax credit being sold, and the rehiring of the cold-calling department.

“In accordance with the Economic Opportunity Act, WBL voluntarily sold (and was not forced to sell) its tax credit for 2016,” according to the statement.

“Under the Act, this is a permissible practice employed by many companies across the state. The reasons for WBL’s decrease in payroll in 2017 is one that would be familiar to anyone who follows industry trends. In the second half of 2016, the fintech credit bubble began to deflate, which led to downsizing across the industry. WBL was forced to reduce its payroll count the following year, even as many of our competitors went out of business altogether. Since then, our industry has recovered and we have begun to hire again.”

But Murray also told the task force Thursday that other falsified information was used to boost the jobs numbers, such as keeping an employee on the payroll even though they had already been terminated while in New York, and the severance pay was kept on the books, just to help maintain the needed number of employees for the grant.

From July to December 2016, Murray said, staff were instructed to, despite constant turnover, maintain a minimum of 225 employees.

The statement from WBL does not address this claim. Instead, it claims Murray was responsible for falsifying information.

“During 2016, Ms. Murray reported incorrect employee headcount information to WBL’s chief financial officer, which was intended to be sent to the Economic Development Authority,” the statement said.

“Ms. Murray proceeded to argue her incorrect data was, in fact, correct despite being proven wrong by management employees. In the end, the numbers submitted to EDA for 2016 exactly match the payroll numbers from ADP, the company’s payroll provider. This well-documented data is clear, transparent and unimpeachable.”

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Task force could be preparing case against ‘special legislation,’ experts say

James Walden, a special counsel for the EDA Task Force, questioned several witnesses about special legislation in referencing changes made to a draft version of the 2013 Economic Opportunity Act at a hearing Thursday in Newark.

The hearing, the second held by the task force that is investigating the state’s Economic Development Authority over potential violations, focused heavily on the $1.1 billion in incentives that went to companies that relocated to Camden.

During the hearing, there were suggestions of falsified job numbers, phantom alternate sites and questions about the access a private lawyer had to the draft bill.

But whether Camden was able to take advantage of the legislation — or whether the legislation was written solely to benefit Camden — was one line of questioning Walden pursued.

Legal experts, speaking on the condition of anonymity, suggested to ROI-NJ that Walden could use the questioning as a basis for a future lawsuit.

Walden asked several questions about how or why lines added to the bill by Kevin Sheehan — a real estate attorney at Parker McCay, a firm run by Philip Norcross, the brother of South Jersey power broker George Norcross — were put in.

There were lines about the U.S. headquarters of an auto company, which Walden suggested pointed to Subaru, and specific requirements for a grocery store, which Walden suggested would match the project specifics of a Sheehan client.

Special legislation has to explicitly name or identify a company or group that it is benefiting and is not constitutional.

There are ways to avoid directly naming places or people.

For example, without naming Camden, a piece of legislation could describe it by its population size, demographics or location. Similarly, a type of business can be described but not named.

Walden raised the issue of special legislation to Tim Lizura, the former president and chief operating officer of the EDA — even though the EDA does not participate in the crafting of legislation.

Walden: Do you know whether or not this provision was added for a specific company?
Lizura: I do not.
Walden: Do you know what special purpose legislation is? Explain it for us, please.
Lizura: It’s a colloquial term that lawyers would use that would describe a certain kind of legislation.
Walden: Is it the kind of legislation that benefits a single purpose or company?
Lizura: That is what I … understand.

Lizura and the EDA, it should be noted, have no power to interpret any legislation that is given to them.

Avni Patel, a lawyer at Walden’s firm, Walden Macht & Haran, followed a similar line of questioning to Brandon McKoy, who recently was elevated to president of New Jersey Policy Perspective:

Patel: Historically, and generally, did the NJPP get called upon … for bill drafting?
McKoy: Yes, we provided comments and helped legislators.
Patel: From a policy perspective … what is your reaction of a private law firm having access to the draft language of a bill and the impact it would have?
McKoy: I don’t think it is uncommon for legislators to ask for outside expertise in crafting a bill. So, seeking that assistance and input is perfectly normal and proper. For an individual or entity to directly edit and write a bill, particularly if that individual has opportunity to benefit financially, I would consider that improper.

NJPP also did not participate in the drafting of the Economic Opportunity Act.

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EDA Task Force member opens incentives hearing by reiterating need for consistent requirements

Strong words from attorney Jim Walden began the second hearing on state tax incentives Thursday at Rutgers Law School in Newark.

Walden, a member of the EDA Task Force created by an executive order from Gov. Phil Murphy early this year, explained the requirements that needed to be met by Economic Development Authority tax incentive applicants who were threatening to move jobs out of the state.

“You only get the money if the application over the years is a net benefit to the state,” Walden said.

That meant moving within the state, which has regularly happened, can only be approved if there is a threat to move out of state — and proof of potentially making good on the threat, such as a site selection.

“For what it’s worth, on that last point on the net benefit test, we have found some evidence that at least one important consultant was giving the same advice to program applicants,” Walden said.

He read a February 2015 memo from Biggins Lacy Shapiro & Co., which explained that showing an out-of-state location is a material piece of evidence the EDA could use toward awarding a tax credit or grant.

“Qualifying and disqualifying requirements of a multibillion-dollar tax program should be clear,” Walden said.

“And they should be clear so that they can be properly understood by business and enforced by whatever authority is responsible for vetting the applications and enforcing the rules.

“If there was an ambiguity in the rules — and, by the way, we are not taking a position on that, we don’t necessarily agree that the statute is ambiguous on this — the EDA as the administering agency really should have one interpretation, not two.”

While the task force is not charged with understanding the lack of uniformity, it is searching for how the applications were certified and what processes were used.

“Applications are submitted under penalties,” Walden said.

If an application has false statements, the grants are subject to suspension, termination and recapturing of funding or credits, as well as potential criminal enforcement.

On the latter point, Walden warned that the task force is still at an early stage in the proceedings and it remains to be seen what can and will be done.

The task force is chaired by Ronald Chen, former New Jersey public advocate and dean of Rutgers School of Law-Newark. Thursday’s group also included Walden, Georgia Winston and Milton Williams of Walden, Macht and Haran LLP, and Pablo Quinones of Quinones Law PLC.

The hearing is ongoing Thursday and will include testimony from former EDA Chief Operating Officer Tim Lizura, as well as two other witnesses. The hearing began at 10 a.m. and resumed at 1 p.m. after a lunch break.

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Tax incentive task force makes first criminal referral

The special task force convened by Gov. Phil Murphy to investigate potential abuse of the tax incentives programs administered through the state Economic Development Authority made its first criminal referral Friday.

A letter by Chairman Ronald Chen refers to law enforcement evidence “of unregistered lobbying on behalf of special interests, which materially affected the legislation and regulations governing New Jersey’s tax incentives granted to businesses,” according to a statement from the task force.

“As we have said, we are going to follow the facts in a search for the truth,” Chen said in the statement. “Whether that means recertifying companies, seeking voluntary payments and terminations, or making referrals, we plan to be thorough, objective and efficient.”

The statement did not list specific details, and that did not sit well with state Senate President Stephen Sweeney (D-West Deptford), who issued a statement of his own.

“The announcement by the task force of alleged criminal activity regarding the state’s tax incentives is vague and incomplete,” Sweeney said. “Everyone agrees that the public should scrutinize state spending, which is why the task force must say who is being investigated, what law was broken, and which law enforcement agency was notified.

“This task force was asked to ‘follow the facts’ and ‘get to the truth.’ They should follow their own mandate and allow the public to see the truth.

“If any companies violated their agreements or defaulted on their promises to the EDA they should be identified. If anyone committed fraud, lied or cheated, they should be held accountable.”

In the task force’s statement, Special Counsel Jim Walden reiterated a message from its first hearing last month, encouraging businesses who may be out of compliance to come forward voluntarily.

“We are grateful to the many companies who promised cooperation from Day One, and we encourage more to come forward,” he said. “But we will also be diligent in ferreting out wrongdoing where we must, including by making referrals to other civil or criminal investigators when we find sufficient evidence.”

The task force’s next hearing will be on May 2 in Newark.

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Ex-AG Porrino says incentive task force still has long road ahead

While many were stunned by the shocking allegations from a whistleblower that a large corporation intentially failed to comply with state tax incentive rules, former New Jersey Attorney General Chris Porrino warns it is too early to draw any conclusions about how the ongoing Tax Incentive Task Force hearings will go.

His advice, put simply, is for businesses to check all their documentation and own up to any noncompliance with any of the tax incentive programs overseen by the Economic Development Authority.

“No good ever comes from the government finding it out for you,” Porrino, now chair of the Litigation Department at Lowenstein Sandler, said.

“Our clients have heeded it, and I hope other businesses do, too. I don’t think we can draw any definitive conclusions from the testimony of one person. I think the message the task force is sending is this is the kind of thing they are looking for.”

And how the task force is able to handle any findings, as well as who gets the blame, remains to be seen.

While Porrino couldn’t discuss what he saw during his time as AG, he did say that, previously, as a defense attorney, whistleblower cases like the one against tax preparation service Jackson Hewitt would come up from time to time.

“As a defense lawyer, I would see, occasionally, inquiries from the AG’s office of potential clawbacks and things like that, so I think that’s an undertaking that they had pursued from time to time, so I don’t think the concept is new,” he said. “Obviously, much more attention is being paid now.”

Porrino added that, while 20 lobbying firms have been identified by the task force, it is unclear what their level of exposure in the alleged fraud is.

One thing is for certain: The hearings are going to have the attention of the entire business community as they proceed.

“I can tell you from having been on both sides of an investigation, the one thing investigations are not is brief — they’re long and expensive,” Porrino said.

He estimates the results of the investigation by the task force may not be known for more than a year.

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Cannabis conundrums: Employment lawyers break down issues firms will face if recreational pot is legalized

The legalization of recreational marijuana is closer to reality in New Jersey as a bill awaits its journey through the legislative process in Trenton.

What will that finally mean for employers if the bill becomes law?

Some lawmakers have said it means business as usual — whoever wants to continue enforcing strict drug-free workplaces can, and whoever wants to allow recreational use after hours or during hours can, too.

One major underlying issue for some employers is the expanded medical use, and the reasonable accommodation rules that apply to disabilities in the workplace, according to David Rosen, an employment attorney at Sills Cummis & Gross.

When employers are testing for drugs, marijuana will show up, but determining if a person is high on the job or is using after hours is hard to determine, he said.

Comparisons have been drawn to the use of alcohol, but Rosen said the difference is you can easily spot someone who is drunk and slurring and walking unsteadily.

And Jason Redd, an employment attorney at Gibbons P.C., said the type of work that is being done may be an even bigger factor.

“There are some places where, if you are under the influence of marijuana, it’s a much bigger issue than others,” he said. “Employers can still have a strict no-weed policy and this bill is not going to change that.”

Rosen said other states already have had to deal with such issues, and New Jersey can learn from studying those cases in order to understand which workplace issues might arise.

Here are five points ROI-NJ gathered from discussions with several employment lawyers from around the state:

  1. Employers still have the upper hand.

Even though there will be confusion about how to address certain situations in the workplace, the bill gives employers the chance to handle any situation related to marijuana use on a “rational basis.” At least the bill isn’t forcing employers to fully accept marijuana users in the workplace.

“Those employers who are in industries that are extremely safety-sensitive,” Lindsay Dischley, an employment attorney at Chiesa Shahinian & Giantomasi, said. “I don’t see this as having that much of an impact because they are going to be able to maintain drug-free workplaces and have a zero tolerance.”

  1. There could be employees who understand the law differently than employers.

For instance, some employees may see the potential new law as giving them the right to use while on a break.

“I don’t think this bill is requiring that you have to allow people to go on a smoke break during the work day,” Dischley said. “I don’t see it going that far, or allowing people to bring marijuana into the workplace. The way I’m reading the legislation is, if someone is using marijuana off-duty, you can’t terminate them for using.”

Rosen said the issue is going to show a divide in old-school employer mentalities and new, as well as require some sort of education on the employer’s side of how to identify use versus abuse of the drug.

  1. The legal community is bracing for a flurry of activity around discrimination.

Whether it’s determining how to handle medical use or hiring based on drug testing, lawyers foresee a significant amount of legal activity as the law takes effect — if it’s passed in its current form. Documenting performance and deficiencies carefully will play a greater role in these types of cases.

“Employers are going to have to be very careful because, just like any discrimination, if someone is not hired or is terminated, and because they can’t imagine they are terrible at their job, they are going to say it’s because they use recreational marijuana,” Dischley said.

  1. It’s time to review the employee handbook.

Does your company define drugs by the federal definition of controlled substances? You might have to change that. Employers also will have to change the handbook to reflect that the company won’t discriminate based on prior marijuana criminal records or testing positive for the drug. In addition, the use of medical marijuana, and how employees who are prescribed it will be allowed to use it, continues to be an issue.

The issue also will be an interesting one for multistate corporations, which have either already dealt with the issue, or will now have to for the first time with New Jersey.

“Corporate clients want to have uniform personnel policies,” Rosen said. “More and more, it’s becoming difficult to do that.”

  1. People are high now, anyway.

A lot of the discussion around workplace issues ignores the fact that people do use the drug now — and likely are coming to work high or using it after hours. So, what really changes?

“(Some industries) have been shifting away from drug testing … and it’s just the nature of the workforce,” Dischley said. “If you want good labor, you can’t eliminate people who use marijuana because of the high rate of employees or prospective employees who are using recreationally, whether it’s legal or not.”

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Newark attorney to lead LeClairRyan’s Litigation Department

Photos courtesy LeClairRyan

Thomas C. Regan, based in LeClairRyan’s Newark office, has been named the firm’s Litigation Department head.

The law firm LeClairRyan has announced changes to its leadership team, including the promotion of an attorney in its Newark office.

Elizabeth K. Acee of LeClairRyan.

The national firm said member Thomas C. Regan has been named Litigation Department leader. Regan, who has been with the firm since 2008, has been leader of the firm’s largest practice group, Products Liability and Transportation, since 2015.

He is succeeding Elizabeth K. Acee, who has been promoted to president of the firm.

“Tom’s unflappable presence has earned him loyal clients across two decades of practice,” LeClairRyan CEO C. Erik Gustafson said in a prepared statement. “His drive to pursue new and innovative ways of doing business will serve the firm well in the coming years.”

In Acee’s new role, she will share senior executive duties with Gustafson, as part of a growing strategic alliance with UnitedLex ULX Partners, a law firm technology and innovation firm. Acee, based in New Haven, Connecticut, has led the Litigation Department since 2016, and been part of the labor and employment team since 2008.

“Lizz has been an essential partner and leader in helping address the changes being driven by shifts in the legal marketplace, particularly as we move toward a next-generation law firm model,” Gustafson said.

Latest Brennan-Alvarez hearing: Murphy transition counsel details hodgepodge of employment rules

There is no one-size-fits-all equal employment opportunity policy in the private sector, nor is there a uniform policy for all state agencies.

This and other issues have been uncovered in the ongoing hearings in Trenton by a joint legislative committee that is looking into accusations of sexual assault against a former member of Gov. Phil Murphy’s transition team.

Rajiv Parikh, a lawyer at Genova Burns who served as the chief counsel for Murphy’s transition team in 2017, was the only person testifying Friday at the sixth hearing of the committee.

He emphasized the point about the EEO policies, and shared some insight into how the state views transition team operations and funding.

The hearing focused on the ongoing questions surrounding the hiring of Al Alvarez, accused of sexual assault by current New Jersey Housing and Mortgage Financing Agency chief of staff Katie Brennan. Alvarez has now twice been cleared by two separate county prosecutor’s offices in the past 13 months.

The Middlesex County Prosecutor’s Office recently declined to pursue charges in the Alvarez-Brennan case, following in the steps of the Hudson County Prosecutor’s Office, which originally handled the investigation in 2017.

Rajiv Parikh at the committee hearing.

Parikh said that, in his role as counsel, he had no way of knowing how Alvarez was hired by the transition team, even though he played a role in conducting public records searches of potential hires.

Alvarez eventually became chief of staff in the Schools Development Authority, but resigned last October, prior to the publishing of a story in the Wall Street Journal detailing the alleged assault.

The case is one of interest for lawyers and businesses, as the human resources issue that has played out in offices around the state is being viewed through the lens of the political sphere, where there appear to be fewer protections, based on Parikh’s testimony Friday.

In an eight-page opening statement, Parikh suggested policies and laws that could prevent the Alvarez-Brennan conflict from being repeated in the future.

They include:

  • The Gubernatorial Transition Act be amended so that state EEO laws and policy are applicable to individuals working on the transition.
  • Each gubernatorial transition team be provided with a full-time, civil service-based human resources professional to serve as the transition’s EEO officer.
  • Funding provided for a set number of transition staff, to be hired as temporary government employees, outside of general appropriations allocations for transition — which has been the same for 30 years. (Previous testimony revealed that total is about $250,000.)
  • The committee should consider if both major party candidates should be provided funding for transition activity to commence at a designated point in advance of election day, so processes, structure and operations can be established ahead of time.

The cost of running the transition team has also been brought up in previous testimony, and, in fact, many of the paid transition members were paid by the state Democratic Committee, rather than by the pool of money provided by the state.

This, according to Parikh, played a role in the limited ability to screen applicants that were passed on to state agencies as potential hires.

The most thorough checks were done on the cabinet members, Parikh said, and those are costly background checks done by the New Jersey State Police.

In his testimony, Parikh also highlighted that transition employees, though paid by state money, aren’t covered by equal opportunity laws and policies.

State Sen. Loretta Weinberg (D-Teaneck) was surprised by that point, and said it was an important one to bring up.

“What about the part of the EEO policy that says this policy covers any applicants for positions in the state government or anyone doing business with the state of New Jersey?” Weinberg asked.

Parikh said that the policy does not cover anything more than the application process — ensuring that an applicant receives fair treatment in their pursuit of a job, but nothing beyond that. And the law governing transition committees specifically says that transition employees are not state employees, so any protections afforded to state employees does not apply.

The only state laws that apply to transition team members are rules regarding participating in the retirement system and conflict-of-interest laws, Parikh said.

“The state EEO policy does not apply to transition staff,” he said. “Usually, statute trumps policy, because it is the law.”

But Parikh also emphasized that he is not an employment lawyer and cannot opine in depth on the topic.

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