Practice Areas

Most Commercial Property-Owning Entities and HOAs Must Now Report Ownership Information to the Federal Government Under the Corporate Transparency Act

Ansell Grimm February 13, 2024

By Nicole D. Miller and Melanie J. Scroble

Most entities that own commercial property, as well as homeowner and condominium associations (“Community Associations”), are among the over 36 million other American businesses and organizations that must now provide the federal government with detailed information about their ownership and controlling interests.

That is because the Corporate Transparency Act (CTA), which became effective on January 1, 2024, mandates that all “Reporting Companies” covered by the law disclose “Beneficial Ownership Information” (BOI) to the Financial Crimes Enforcement Network (FinCEN) division of the U.S. Treasury Department.

With an effective date of January 1, 2024, and with mandatory reporting deadlines approaching, commercial property owners and Community Associations need to understand what obligations, if any, they have under the CTA, whether they are a covered “Reporting Company,” and what information they need to provide FinCEN by the applicable deadline.

What Is the Corporate Transparency Act?

Signed into law in 2021, the CTA is part of an expansive federal government effort to crack down on illegal money laundering and “the use of shell and front companies by illicit actors who use them to obfuscate their identities and launder ill-gotten gains through the United States.” Unlike most federal regulatory schemes that primarily apply to larger companies, the CTA targets “smaller, more lightly regulated entities,” according to FinCEN. This focus on small entities is one reason FinCEN estimated that 90% of businesses and organizations in the U.S. are subject to the CTA’s disclosure requirements.

Almost All Property Owning-Entities and HOAs Are Covered “Reporting Companies”

Subject to significant exceptions, as discussed below, a “Reporting Company” that must comply with the CTA is any corporation, limited liability company, or any other entity created by filing a document (e.g., Articles of Incorporation) with a secretary of state or equivalent agency. Entities like general partnerships or sole proprietorships that can be established without such filings are not subject to the CTA’s disclosure and reporting requirements.

Accordingly, individuals and general partnerships that own commercial property have no obligations under the act. But, unless they fall within one of the listed exceptions, all other property-owning entities will need to provide their BOI to FinCEN.

Most Community Associations are “Reporting Companies” under the act since they are usually organized by filing articles of incorporation with a secretary of state. Their tax-exempt status under Section 528 of the Internal Revenue Code does not spare Community Associations from their reporting obligations. While the CTA specifically exempts 501(c) non-profit organizations from reporting requirements, it does not exempt Section 528 organizations.

Entities Excluded From the CTA’s Reporting Requirements

Most entities excluded from the CTA’s reporting requirements are already subject to beneficial ownership reporting and disclosure obligations under other laws, so filing such disclosures under the CTA would be redundant.

As stated in Section(a)(11)(B) of the CTA, these entities do not have to comply with the CTA’s BOI reporting requirements:

Banks.
Bank holding companies.
Credit unions.
Insurance companies.
Issuers of securities registered under Section 12 of the Securities Exchange Act of 1934 or that must file supplementary and periodic information under Section 15(d) of the 1934 Act.
Brokers, dealers, and any other entities registered with the SEC under the 1934 Act.
Registered investment advisors under the Investment Advisers Act of 1940.
Public accounting firms.
Companies employing more than 20 people full-time in the U.S. or that filed a federal income tax return in the prior year showing more than $5 million in gross sales or receipts and have an operating presence in the U.S.
Any entity that:
- Has existed for over one year.
- Has not sent or received funds over $1,000 or experienced an ownership change in the previous 12 months.
- Is not actively engaged in business.
- Is not owned by a foreign individual.

and

Does not otherwise hold any assets, including ownership interests, in any corporation, limited liability company, or other entity.

Disclosures Required About “Company Applicants” and “Beneficial Owners”

In addition to basic corporate information such as name, address, and tax ID number, Reporting Companies must provide FinCEN with BOI about two groups of individuals: “Company Applicants” and “Beneficial Owners.”

As defined in the Final Rule, a “company applicant” is “the individual who directly files the document that first creates the domestic reporting company” and “the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document.” Effectively, the person who filed the documents required to create the entity will be considered the “Company Applicant,” whose BOI must be reported.

Notably, the reporting of applicant information only applies to Reporting Companies created from and after January 1, 2024. Such new Reporting Companies need not provide FinCEN with updates regarding Company Applicant information after their initial disclosure.

“Beneficial Owner” = 25% Ownership OR “Substantial Control” Over Entity

All Reporting Companies must disclose information about their “Beneficial Owners.” As defined in the Final Rule, a “Beneficial Owner” is any person who, directly or indirectly, either:

Owns or controls at least 25% of a reporting company’s ownership interests; or
Exercises substantial control over a reporting company.

Importantly, ownership interests through intermediary entities qualify as ownership of a Reporting Company. As specified in the Final Rule, a person may be deemed a beneficial owner “through ownership or control of one or more intermediary entities, or ownership or control of the ownership interests of any such entities, that separately or collectively own or control ownership interests of the reporting company.”

“Substantial Control”

Determining whether a person exercises “substantial control” over an entity so they are considered a “Beneficial Owner” involves an analysis of the person’s actual authority and the actions they are empowered to take on behalf of an entity. Under the Final Rule, an individual has “Substantial Control” over an entity if they:

Serve as a senior officer of the entity.
Have authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body) of the entity or
Direct, determine, or have substantial influence over important decisions made by the entity, such as:
- Entry into and termination of contracts.
- Acquisition, sale, or lease of the company’s principal assets.
- Reorganization, dissolution, or merger.
- Selection or termination of business lines or venture.
- Amendment of any governance documents of the reporting company.

For Community Associations, this means that the voluntary members of the board of directors or board of trustees will be considered individuals with “substantial control” over the covered entity, i.e. the association.

Information That Must Be Reported to FinCEN

Non-exempt Reporting Companies must provide FinCEN with the following information regarding individuals who qualify as Company Applicants or Beneficial Owners:

Full legal name.
Date of birth.
Street addresses (identified as a current residential or business street address).
Non-expired state identification document or passport.

Reporting Deadlines

As noted, the CTA’s compliance deadlines largely depend on when the “Reporting Company” was formed.

Entities Formed in Calendar Year 2024: Covered Reporting Companies created or registered on or after January 1, 2024, and before January 1, 2025, must submit their BOI report within 90 days after the date of the entity’s formation (i.e., the filing date of its Articles or Certificate).
Entities Formed Before January 1, 2024: Covered Reporting Companies formed before 2024 must report their BOI on or before January 1, 2025.
Entities Formed on or After January 1, 2025: Covered Reporting Companies formed after 2024 must file their BOI within 30 days after its date of formation.

Penalties for Non-Compliance

Commercial property owners and Community Associations that fail to comply with the CTA’s reporting requirements face significant penalties. Any entity or person that “willfully provides, or attempts to provide, false or fraudulent information or willfully fails to report when required” faces civil penalties of $500 per day, criminal fines of up to $250,000, and a maximum of five years in federal prison.

Given the complexities in determining an entity’s beneficial ownership and non-compliance consequences, property-owning entities and Community Associations should consult with experienced counsel to ensure they satisfy any reporting obligations under the CTA. For further information and assistance with your entity’s CTA compliance, please contact one of the attorneys in Ansell Grimm & Aaron’s Commercial Real Estate or Community Association practice groups.

New Jersey CRC Adopts Consumption Lounge Regulations

Ansell Grimm February 1, 2024

By Anthony Sango

On January 17, 2024, New Jersey’s Cannabis Regulatory Commission (CRC) adopted new regulations allowing cannabis consumption areas, commonly called consumption lounges. The regulations present a unique opportunity only seen in a few other legal states, including California and Colorado, the flagship states of cannabis legalization.

The new regulations allow the CRC to issue consumption lounge endorsements to both medical and recreational dispensary licensees and cannabis retailers, who may then host consumers in a casual setting to try their goods. The lounges can be either indoor and structurally enclosed or in an exterior structure. The CRC provides numerous requirements for indoor lounges, such as physically separating the lounge from the dispensary. For outdoor lounges, other CRC requirements apply, such as blocking the view from nearby sidewalks. Additional requirements apply to both indoor and outdoor lounges, but most importantly, the consumption lounge must be on the same premises as the dispensary that holds the license.

Other restrictions apply to consumption lounge endorsements, including their inability to serve food. The CRC did not explain why food sales are excluded at lounges, especially since cannabis enthusiasts are historically known for their appetites. Similarly, consumption lounges will not be permitted to serve alcohol – even if the licensee holds a separate liquor license. Interestingly, though, the new regulations also allow hotels, motels, and other lodging facilities to permit cannabis consumption in smoker guest rooms.

Much like cannabis licenses, the CRC gives local governments a great deal of authority to adopt ordinances or regulations that restrict or outright ban consumption lounges. However, the ordinances cannot conflict with the CREAMM Act. We can expect the same or greater setbacks and minimum distance requirements from consumption lounges and sensitive places, like schools, daycare centers, playgrounds, and houses of worship.

Local governments also have an opportunity to review consumption lounge applicants – even if the town or city allows consumption lounges. After a consumption lounge application is submitted to the CRC, the town or city determines whether the application complies with local ordinances and regulations. Then, the town or city can notify the CRC of its position. If the local government does not take a favorable position and denies the request for an endorsement, the applicant can demand a hearing and plead their case.

Our Controlled Substances and Regulatory Practice attorneys understand the complex laws related to the production, sale, use, regulation, and legalization of controlled substances, including hemp, cannabis, and psychedelics. A multifaceted area of the law with conflicting regulations from different governing bodies, we help our clients navigate all aspects of this emerging field. Contact us if you have questions about this evolving area of law.

We Congratulate Our Client for Securing Its Latest New Jersey Cannabis License

Ansell Grimm January 19, 2024

Ansell.Law is delighted to congratulate its client, Mule Extracts LLC, on securing a cannabis license from the New Jersey Cannabis Regulatory Commission. Previously awarded a Conditional Class Two Manufacturer License, Mule Extracts recently obtained its Class Two Annual Manufacturer License, allowing it to operate in New Jersey. A highly nuanced and multi-step process, we guided Mule Extracts in obtaining both its early licenses and submitting the Conversion Application.

Our Controlled Substances and Regulatory Practice attorneys understand the complex laws related to the production, sale, use, regulation, and legalization of controlled substances, including hemp, cannabis, and psychedelics. A multifaceted area of the law with conflicting regulations from different governing bodies, we help our clients navigate all aspects of this emerging field. Contact Kelsey Barber if you have questions about this evolving area of law.

The Cost of Victory: What Business Owners Should Consider Before Filing a Lawsuit in a Commercial Dispute

Ansell Grimm January 17, 2024

By Seth M. Rosenstein

A wise person once said, “Litigation is the basic legal right which guarantees every corporation its decade in court.” While likely said facetiously, the fact is that business litigation often comes at great expense to the company and individuals involved.

The costs of vindicating and protecting a company’s rights – in time, money, disruption, reputation, and commercial relationships – along with the inherent risk and uncertainty involved in all litigation, can lead even a victorious plaintiff to ask whether their victory was worth the destruction it wrought.

Undoubtedly, there are situations where litigation is a company’s best or only path forward in a commercial dispute, whether it is with a customer, competitor, or business partner. Sometimes, a lawsuit is the last resort after other attempts to reach a resolution have failed or the only way to bring the other side to the negotiating table. Other times, quick intervention by a judge is necessary to prevent irreparable harm to the business. In those situations, your company will want and need an experienced and strategic litigator who stands ready to vigorously pursue your claims.

But even after the dogs of litigation have been unleashed, most commercial lawsuits settle or are otherwise resolved before trial for many of the same reasons cited above – the expense, disruption, and risk involved in entrusting the outcome to a judge or jury.

That is why, regardless of the perceived strength and merit of their claims, business owners should think carefully and consider the possible negative implications of litigation before telling their attorney to run to the courthouse and file a lawsuit. Here are three things to factor into your decision-making before pursuing business litigation:

Even the Most Straightforward Lawsuit Can Take Your Business Down a Long and Winding (and Expensive) Road

Lawyers are sometimes accused of making simple matters needlessly complicated. But for attorneys representing defendants in business litigation, making things complicated is often a feature, not a bug. Part of the defense’s strategy, especially when faced with a strong or straightforward claim, can include using any means to make litigation as drawn-out, convoluted, costly, and painful as possible for the plaintiffs.

Unfortunately, the wheels of justice are extremely amenable to a commercial defendant who wants to slow a plaintiff’s roll. The system isn’t designed for speed to begin with, and even if your attorney does everything in their power to speed your case along, there are plenty of ways a defendant can stretch your simple case out for years.

They may file multiple motions regarding various issues, most of which will require the submission of briefs and the time needed to prepare them. A lengthy briefing schedule could be followed by a hearing or ruling even further into the future, all delaying the suit’s progress until the motions are resolved.

Discovery, the process of requesting and exchanging documents, gathering evidence, and taking witness depositions, also offers ample opportunity for delay and added costs. It can take a while and cost lots of money to produce a voluminous amount of material in response to a party’s request. Depositions may be held in distant locations and involve significant travel costs (including fees for the attorney’s travel time) and complicated scheduling conflicts. You may also need to retain paid experts to testify or prepare reports.

But it is more than fees, expenses, and delays that can make discovery costly for a business plaintiff. Owners, executives, and employees who would otherwise be doing their jobs may need to divert their time, effort, and productivity toward handling document requests or preparing and sitting for their depositions. These disruptions should be factored into your litigation calculations as well.

Of course, the end of your case may not be the end of your case if one side appeals the judgment, which can keep the attorney’s fees meter and litigation clock running and even lead to another trial.

There Are No “Slam Dunks” in Business Litigation

Just as there is no crying in baseball, there are no slam dunks in business litigation. When you put your fate in the hands of a judge or 12 random people sitting on a jury, there is no guarantee they will see your case the way you and your lawyer do. There is always – always – a risk of an adverse ruling, no matter how strong your case appears to be.

Not only may your company lose on its claims (while still being on the hook for attorney’s fees and costs), but it may be exposed to liability and a judgment if the defendant files and prevails on a counterclaim. And if a contract or statute provides that the losing side in litigation must pay the winning side’s attorney’s fees and costs, the monetary hole can be even deeper.

A Judgment Is Not a Check

For all the risk of losing that is inherent in litigation, there is an equally inherent likelihood your company will prevail on its claims and obtain a substantial monetary judgment against the defendant. But no matter how many zeros that judgment contains, it could ultimately be worth far less – or nothing at all.

First, subtract all the amounts your business paid its lawyers from your judgment. That could shave tens or hundreds of thousands of dollars off that top-line figure. And those fees may keep coming if your attorneys have to spend time and effort trying to collect the amounts due from the defendant. Judgment debtors can engage in plenty of moves and tricks to hide assets and make collection efforts as difficult as possible.

Of course, nothing makes collecting on a judgment more challenging than an insolvent judgment debtor. If the defendant is actually broke, even the most talented litigator cannot get blood from a stone.

Again, as noted, sometimes litigation is the right or only way to resolve a business dispute despite the risks and costs it may involve. But before shooting first, you should ask your lawyer questions about the best path forward for your company, which may include pre-litigation demands, negotiations and non-binding mediation.

If you are involved in or anticipate a business dispute, please contact Ansell Grimm & Aaron Litigation Partner Seth M. Rosenstein.

Recent Success Stories

Ansell Grimm January 17, 2024

Jennifer Krimko Secures Planning Board Approval of Client’s Plan for Monmouth Mall Redevelopment

On December 4, 2023, the Eatontown Planning Board granted preliminary and final site plan approval to Krimko’s client, Eatontown Monmouth Mall, LLC (Kushner Companies), paving the way for the redevelopment of the existing 1.5 million square foot Monmouth Mall in Eatontown. The proposed development, to be known as Monmouth Square, will consist of approximately one million square feet of commercial space along with 1,000 luxury apartments with a clubhouse and amenities for the residents, public open space, and related site improvements. Monmouth Square will be a pedestrian-friendly, true town center environment where people can live, dine, and shop all on one property.

Jason Klein Closes Financing and Acquisition of Over 75 Global Quick Service Restaurant Stores

In December, Ansell Grimm & Aaron’s Jason Klein consummated two major asset transactions on behalf of two separate purchasers of over 75 quick-serve restaurants. The purchasers are franchisees of a global quick-service restaurant behemoth.

In one transaction involving the acquisition of over 50 stores and three separate parcels of real estate, Klein spearheaded the negotiation of the purchase and sale agreements for both the assets and real property, the acquisition of the assets and the properties, and the loan transactions. In the other transaction, Klein’s efforts and direction resulted in his client’s successful acquisition of over 20 stores and the acquisition of one parcel of real property.

New Jersey Enacts Stringent New Inspection, Evaluation, and Maintenance Requirements for Condominium and Co-Op Buildings

Ansell Grimm January 11, 2024

By Elysa D. Bergenfeld and Nicole D. Miller

On January 8, 2024, New Jersey’s already-stringent building codes for residential construction became even more so when Gov. Phil Murphy signed S2760/A4384 into law. The sweeping legislation establishes additional requirements for the regular inspection, evaluation, and maintenance of certain types of condominiums and cooperative apartments in the state.

The new law was enacted in the wake of the 2021 condominium tragedy in Surfside, Florida, where 98 lives were lost due to structural issues that were not addressed. Accordingly, much of the law focuses on early detection of potential structural flaws and deficiencies.

Owners of property covered by the law must now ensure their buildings undergo routine structural inspections to ensure the safety and stability of the building. These inspections must be performed by licensed engineers and architects and adhere to industry best practices and standards. The law requires periodic reserve studies and allows for a ten-year “catch up” for reserves.

As outlined in the law, its requirements apply to any residential condominium or cooperative building with a primary load-bearing system comprised of a concrete, masonry, steel, or hybrid structure including, but not limited to, heavy timber and a building with podium decks, but not including an “excluded structure” as defined in the law.

All condo and co-op boards in New Jersey should consult with experienced community association counsel to determine whether the new law applies to their buildings and what to do to ensure compliance. If you have questions or concerns, please contact one of the attorneys in Ansell Grimm & Aaron’s Community Association Law practice group.

Ansell.Law Elevates Seth Rosenstein and Tara Walsh to Partners

Ansell Grimm January 2, 2024

Ansell.Law is pleased to announce that Seth M. Rosenstein and Tara K. Walsh have been elevated to partners.

Seth enjoys a diverse practice handling litigation, controlled substances and regulatory law, and residential real estate matters. A savvy negotiator, Seth appears in state and federal courts and before the American Arbitration Association (AAA) and Financial Industry Regulatory Authority (FINRA) arbitration panels. He is licensed in New Jersey, New York, and Pennsylvania.

Before Seth joined Ansell Grimm & Aaron, he practiced in the Manhattan office of a national litigation firm. He earned his Juris Doctor from Benjamin N. Cardozo School of Law and his Bachelor of Arts from American University.

Tara specializes in criminal defense and municipal court defense and has taken several cases through trial. She has also handled high-profile criminal cases before the Monmouth County Superior Court Criminal Division. Tara frequently speaks on municipal court defense and criminal defense developments.

Dedicated to serving the greater New Jersey legal community, Tara is on the Monmouth Bar Association’s Municipal Court Committee and is an Inns of Court barrister. She also devotes significant time as secretary and board member of the Associate Board of Court Appointed Special Advocates for Children. Tara earned her Juris Doctor from New York Law School and her Bachelor of Arts from Syracuse University.

A Well-Crafted Medical Partnership Agreement Can Reduce the Likelihood of Disputes and Maximize the Benefits for Physicians

Ansell Grimm December 7, 2023

By Layne A. Feldman

Many elements go into building a successful medical practice. First is assembling a team of exceptional physicians with complementary talents and a shared vision and practice philosophy. But no matter how in sync the doctors who form a medical partnership may be at the outset, there is no guarantee they will remain on the same page. Differences of opinion on issues big and small can poison the partners’ relationship and result in costly litigation that poses an existential threat to the practice’s ongoing viability.

Minimizing the chances of such destructive disputes – and having clear mechanisms for resolving them – can be the key to an enduring and rewarding practice. Those are but two of the many purposes and benefits of a comprehensive and well-crafted medical partnership agreement. This foundational document outlines and governs the relationship between the physician-partners, clarifies their respective rights, roles, and responsibilities, and fills in many blanks that could otherwise create confusion or lead to disputes.

Physicians forming a medical partnership should work with experienced counsel at the outset of their professional endeavor to prepare a partnership agreement that proactively addresses all the critical issues likely to arise during the course of the partnership. Some of the essential provisions of a medical partnership agreement include, but are not limited to:

Establishing the Partnership’s Structure and Purpose

The agreement should clearly outline the legal structure of the entity being formed, whether it is a general partnership, limited partnership, or another legal entity. Additionally, it should articulate the purpose of the partnership and specify the medical services it aims to provide and the scope of its business activities.

Defining Partners’ Roles and Responsibilities

Clear delineation of the scope and limits of each partner’s responsibilities and obligations can keep physicians from stepping on each other’s toes – or bruising each other’s egos. This section should outline each partner’s specific duties, including clinical responsibilities, administrative tasks, and any specializations or areas of focus.

Financial Arrangements

As with all businesses, disputes and litigation between medical partners often revolve around financial matters, making provisions that address contributions and liabilities among the most critical elements of a partnership agreement. This includes details about each partner’s initial capital contributions, profit and loss allocation, and mechanisms for resolving financial disputes. The agreement should also address how expenses will be shared, whether a salary structure is used, and how the partners will handle financial decisions, such as investments in new equipment and facilities or mergers and acquisitions of other practices.

Decision-Making Processes

A clearly defined decision-making framework is essential to ensure a smooth operational workflow. A medical partnership agreement should specify who has the authority to make decisions, what decisions they are empowered to make, and how and when they can delegate decision-making authority. The agreement may also stipulate that certain, more significant management decisions require the approval of all or the majority of the partners.

Admission of New Physician-Partners

The agreement should detail the procedures and eligibility criteria for admitting new physician-partners to the practice. Such provisions may include establishing a minimum capital contribution before a new physician joins the partnership and requiring representations by the prospective partner as to their licensure status and history, claims and malpractice suits, and other professional matters. The document should also address any voting mechanisms or thresholds required for admitting new partners. Similarly, it should outline the circumstances under which a partner may withdraw from the partnership, whether due to retirement, disability, or other reasons. This ensures a transparent and fair process for changes in the partnership’s composition.

Dispute and Deadlock Resolution Mechanisms

While litigation is sometimes necessary or inevitable, it is rarely the optimal way to resolve disputes between business partners. Establishing alternative mechanisms for addressing conflicts or deadlocks when they arise can spare the partners and their practice from the inherent costs and disruption associated with lawsuits.

Mandatory mediation or arbitration (either binding or non-binding) provisions can facilitate early resolutions and minimize acrimony between partners. Similarly, the document should include mechanisms for resolving deadlocks.

Termination and Dissolution of Partnership

In the unfortunate event the medical partnership needs to be dissolved, the agreement should outline the procedures for doing so. This includes addressing issues such as the distribution of assets and liabilities and handling ongoing patient care. Having a well-defined process for termination and dissolution helps minimize disruptions and ensures an orderly winding down of the practice.

Insurance and Liability

Outlining the insurance requirements for the partnership and its individual members is crucial. This includes malpractice insurance, general liability coverage, and any other relevant policies. Clearly defined provisions regarding the allocation of liability among partners contribute to a secure and stable working environment.

A well-crafted medical partnership agreement is essential for the success and sustainability of a collaborative healthcare practice. While no document can guarantee a medical partnership will survive in perpetuity, a medical partnership agreement can go a long way toward minimizing the chance of litigation and maximizing the potential for a long and lucrative professional relationship.

If you are considering entering a partnership with one or more of your fellow physicians, you should work with an attorney who has specific experience with physicians and small medical practices. If you need assistance preparing a partnership agreement or if you are currently involved in a dispute with your physician-partners, please contact one of the attorneys in Ansell Grimm & Aaron’s Corporate or Litigation practice groups.

Asbury Park Zest Profiles Michael Benedetto in Fall Green Life NJ Edition

Ansell Grimm November 15, 2023

President and Managing Shareholder Michael V. Benedetto is featured in the Fall/Holiday 2023 Green Life NJ edition, published by Asbury Park Zest. A prominent lifestyle publication, Asbury Park Zest was created to highlight one of the most unique oceanfront cities in America and the businesses and people who call it home.

In this issue, Michael sat down with the magazine to discuss the sprawling, diverse real estate landscape along New Jersey’s coastline. He shares his insights on recent trends, the importance of building trust with his clients, and what makes New Jersey such a special place. Read the interview here.

In addition to his Firm leadership role, Michael serves as co-chair of the Commercial Real Estate and Corporate, Finance & Banking Departments. He has built a distinguished practice working with clients throughout the northeast and across the country, focusing on complex commercial real estate, corporate and commercial matters, business organizations, and banking matters.

Early Endgames: What Is the Difference Between a Motion To Dismiss and a Motion for Summary Judgment in New Jersey Litigation?

Ansell Grimm November 13, 2023

By Nicole D. Miller

There is a big difference between a lawsuit and a trial. While tens of thousands of lawsuits are filed every year in state and federal courts here in New Jersey and across the country, only a small percentage of those cases ever reach the point where the parties present all their evidence and testimony in person before a judge or jury, ending in a judgment. While many cases end before trial because the litigants have reached a negotiated settlement, others conclude with a pretrial ruling by a judge. In New Jersey, most of these rulings come after one of the parties files either a motion to dismiss or a motion for summary judgment.

A judge granting either motion effectively ends a case – at least temporarily. That is why they are both called dispositive motions — the movant requests that the judge dispose of the case in their favor before trial. In state court, these motions follow the same 28-day schedule for filing moving papers, opposition, and reply, which was a recent amendment to N.J. Ct. R. 4:6-2, the rule governing motions to dismiss. But there are significant differences between a dismissal and summary judgment in terms of what the movant is asking the court to do, when such motions are filed, and the basis for granting or denying the motion.

Motion To Dismiss

No matter the subject – a commercial dispute, a personal injury case, or a divorce – all civil litigation begins with the plaintiff filing a complaint against a defendant. The primary purpose of a complaint is to inform the defendant – and the court – of three things:

The factual allegations that support the plaintiff’s legal claims against the defendant;
What those legal claims are; and
What the plaintiff is asking for in damages or other relief.

Every defendant served with a complaint must file a timely response with the court. That response can be an answer in which the defendant admits or denies the specific factual allegations in the complaint. But if the complaint doesn’t include essential elements of a valid legal claim – even if all the facts alleged are taken as true – a defendant can file a motion to dismiss for failure to state a claim upon which relief can be granted. As noted, motions to dismiss for failure to state a claim in New Jersey state court are governed by N.J. Ct. R. 4:6-2, while Fed. R Civ. P. 12(b)(6) forms the basis for such motions in federal court. Both rules are essentially the same, as is the analysis of a complaint’s legal sufficiency.

Motions to dismiss are usually filed early in the case as the defendant’s initial response to the complaint. That means the parties have yet to engage in discovery or develop evidence to either support or refute the plaintiff’s allegations. It also means a judge considering a motion to dismiss will only look at the allegations contained in the complaint when making their determination as to the complaint’s sufficiency. And to decide whether the complaint sets forth a cognizable legal claim, the judge will assume that each factual allegation is true. In the event the defendant includes facts or documents outside the complaint, the court is required to convert the motion to a motion for summary judgment.

A judge will grant a motion to dismiss if those facts don’t or couldn’t form the basis of a legal action, even if the complaint’s allegations were true. In effect, the judge looks at all the allegations and concludes, “So what?”

A dismissal can be either with or without prejudice. A dismissal without prejudice means the plaintiff may be able to fix the shortcomings of the initial complaint by filing an amended complaint, and the court is giving the plaintiff the chance to do just that. In most cases where a motion to dismiss is granted, the judge will grant it without prejudice. In entering a dismissal with prejudice, a judge has determined that the complaint’s flaws are insurmountable and conclusively dismisses the case with no opportunity for the plaintiff to refile.

Motion for Summary Judgment

While a motion to dismiss focuses on allegations, a motion for summary judgment is all about evidence. While a motion for summary judgment can be filed earlier, most often it is filed after the conclusion of discovery (when the parties produce and exchange documents, take depositions, and develop other evidence). A motion for summary judgment asks the court to look at the evidence and conclude there is no issue of material fact in dispute. In other words, the moving party argues there is no point in the case going to trial because all the relevant facts of the case, as reflected in the evidence, are undisputed. Since trials involve ascertaining the truth behind the parties’ claims and defenses, a trial is unnecessary if the truth is already apparent.

According to N.J. Ct. R. 4:46-2, a judge will grant summary judgment “if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law.” Importantly, the rule requires the moving party to submit a statement of facts as to which there is no genuine dispute. Each fact in this statement must be supported by citation to the record, i.e., documents produced, deposition transcripts, written discovery responses, etc.

An issue of fact is genuine only if “the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact.”

The entry of summary judgment in favor of the moving party conclusively ends the case at the trial court level. There is no second chance or do-over for the non-moving party as there often is when a court grants a motion to dismiss. However, in certain instances, a party may file a motion for reconsideration if the party believes the court overlooked something or erred, or requests that the court invoke its discretion in the interest of justice pursuant to R. 4:49-2 or R. 4:42-2(b). Nonetheless, motions for reconsideration are rarely granted.

When appropriate, filing a motion to dismiss or for summary judgment offers the movant the chance for an early resolution of a case without the cost, disruption, and risk of going to trial. Conversely, the party on the receiving end of such a motion faces the prospect of their lawsuit being thrown out or shut down without being given the opportunity to present their case at trial. Accordingly, these two motions are enormously consequential in New Jersey litigation.

If you have any questions about motions to dismiss or motions for summary judgment in New Jersey, please contact Nicole Miller.

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