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Softpath Systems, Inc v. Business Intelligence Solutions


January 8, 2013


On appeal from Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-2787-10.

Per curiam.


Submitted December 10, 2012

Before Judges Parrillo and Maven.

Plaintiff Softpath Systems, Inc. (Softpath) appeals from the November 4, 2011 summary judgment dismissal of its fee collection action against defendant Business Intelligence Solutions, Inc. (BIS) based on Softpath's failure to comply with the registration or licensing requirements of the Private Employment Agency Act, N.J.S.A. 34:8-43 to -66 (Act).*fn1 BIS appeals from that portion of the final judgment dismissing Softpath's action without prejudice to refiling its complaint in the State of New York. We affirm.

The facts are not genuinely in dispute. Softpath is a computer software company that employs and subcontracts consultants competent in software development and support. The company is registered as a corporation in Delaware and as a foreign corporation in New York, where its offices are located. Sometime prior to May 11, 2009, a principal of BIS, a New Jersey corporation with offices in Princeton, contacted Softpath's president requesting resumes of Softpath employees to perform information technology consulting services for BIS. The principal also indicated that BIS would draft a contract stating BIS's requirements if satisfied that Softpath employees would meet its needs.

BIS did in fact prepare a proposed contract, and on May 11, 2009, the parties executed a "Master Services Agreement" (MSA) in New York City. Therein, Softpath agreed to provide BIS with certain of its employees for temporary work. The MSA characterized Softpath's relationship to BIS as that of an independent contractor, and provided that all "Resources shall be deemed to be employees of Softpath Systems, and Softpath Systems shall be solely responsible for the prompt and timely payment of all salary and other compensation and benefits due such Resources." Softpath was also required to comply "with all legal obligations of an employer with respect to [its employees], including without limitation all reporting, withholding, payroll taxes, workers' compensation and other legal requirements." All Softpath employees were "to follow all legitimate orders of [BIS's] and/or its Clients' supervisors as the case may be."

At Softpath's request, a draft of the agreement was revised to provide that disputes would be resolved in the courts of New York and in accordance with New York law. Thus, the final version expressly stated that the MSA shall be governed by and construed in accordance with the laws of the State of New York, U.S.A. Disputes relating to the interpretation, execution or enforcement of this MSA or arising from the dealings between [BIS] and [Softpath] under this MSA shall be dealt with under the exclusive jurisdiction and venue of the federal and state courts located in New York, New York, and the parties irrevocably submit for all purposes to the jurisdiction of each such court.

Subsequent to the execution of the MSA, Softpath provided employees to BIS at its Princeton location, and billed for services in accordance with the terms of the MSA. BIS accepted these services and made partial payment against Softpath's billing. However, BIS bounced two checks, leaving a balance due Softpath of $70,200, which it has to date failed to pay. BIS has not claimed erroneous billing or failure to deliver promised services. At the time the invoices for the services rendered by Softpath's employees became due from BIS, Softpath was not registered or licensed with the New Jersey Division of Consumer Affairs as a temporary help service firm or employment agency under the Act.

As a result of BIS's default in payments, Softpath sued BIS in the Law Division to collect the amount due. The parties then cross-moved for summary judgment, BIS contending that, as a consequence of failing to register as a temporary help service firm, N.J.S.A. 34:8-45(b), Softpath was unable to maintain a cause of action in the State for the collection of the amount due the company. The motion judge agreed with BIS and dismissed Softpath's complaint, but without prejudice to Softpath's pursuit of recovery in the State of New York.

As noted, Softpath appeals from the summary judgment dismissal of its action and BIS appeals from the "without prejudice" feature of that order.

I Softpath essentially contends that it does not meet the Act's definition of a "temporary help service firm" and thus its failure to comply with the registration requirements of N.J.S.A. 34:8-45 does not bar its cause of action in this State. Alternatively, Softpath argues that the application of New York law in accordance with the MSA relieved it of any obligation to register under the New Jersey statute. We disagree with both contentions.

The Act provides in pertinent part:

[a] person shall not bring or maintain an action in any court of this State for the collection of a fee, charge or commission for the performance of any of the activities regulated by this act without alleging and proving licensure or registration, as appropriate, at the time the alleged cause of action arose. [N.J.S.A. 34:8-45(b).]

The Act regulates employment agencies and temporary help service firms. N.J.S.A. 34:8-43. It applies "to any person engaging in any of the activities regulated by this [A]ct including persons whose residence or principal place of business is located outside of this State." N.J.S.A. 34:8-45(a); see also Accountemps Div. of Robert Half, Inc. v. Birch Tree Group, Ltd., 115 N.J. 614, 623 (1989).

A temporary help service firm is defined as any person who operates a business which consists of employing individuals directly or indirectly for the purpose of assigning the employed individuals to assist the firm's customers in the handling of the customers' temporary, excess or special work loads, and who, in addition to the payment of wages or salaries to the employed individuals, pays federal social security taxes and State and federal unemployment insurance; carries worker's compensation insurance as required by State law; and sustains responsibility for the actions of the employed individuals while they render services to the firm's customers. [N.J.S.A. 34:8-43.]

N.J.S.A. 34:8-43 requires temporary help service firms to comply with the requirements of N.J.S.A. 56:8-1.1, including annual registration with the Attorney General, N.J.S.A. 56:8-1.1(a). A litigant's "[f]ailure to comply with the licensing and registration requirements of the Act bar it from pursuing any claim for compensation, whether couched as fees in contract or damages in tort." Data Informatics, supra, 338 N.J. Super. at 80.

Based on the summary judgment record, Softpath indisputably meets the definition of a temporary help service firm under the Act. Softpath assigned its employees to work on a temporary basis for BIS. Those individuals at all times remained salaried employees of Softpath. Moreover, nothing in the record suggests that Softpath did not comply "with all legal obligations of an employer with respect to [its employees], including without limitation all reporting, withholding, payroll taxes, workers' compensation and other legal requirements[,]" as required by the MSA. The fact that the MSA did not, by its express terms, state that Softpath was subject to the Act is immaterial. The very nature of the parties' relationship leaves no doubt that Softpath was acting in a consulting capacity as a temporary help service firm within the meaning of the Act. Inasmuch as Softpath, by filing suit in New Jersey, was attempting to recover monetary sums allegedly due for services provided by its employees, Softpath fell within the Act's proscription barring an unregistered temporary help service firm from collecting any "fee, charge or commission for the performance of any of the activities regulated by this [A]ct." N.J.S.A. 34:8-45(b).

Alternatively, Softpath contends that New York law governs under the MSA, thereby rendering the Act inapplicable. Apart from the inherent incongruity of cherry picking certain provisions of the MSA (choice of law) and ignoring others (choice of forum), plaintiff's argument fails substantively.

"Ordinarily, when parties to a contract have agreed to be governed by the laws of a particular state, New Jersey courts will uphold the contractual choice if it does not violate New Jersey's public policy." Instructional Sys., Inc. v. Computer Curriculum Corp., 130 N.J. 324, 341 (1992). But New Jersey law will govern if

(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or

(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which . . . would be the state of the applicable law in the absence of an effective choice of law by the parties. [Id. at 341-42 (quoting Restatement (Second) of Conflicts of Laws § 187 (1969)).]

On this score, we have previously held that the Act's "employment agency requirements are not insignificant, and reflect a legislative scheme to insure that those engaged in the industry are well-qualified and of good moral character." Data Informatics, supra, 338 N.J. Super. at 73. In the context of deciding whether the Act applies to out-of-state entities, our Supreme Court stated that the Legislature's primary purpose in adopting the Private Employment Agency Act was to regulate the conduct of all employment agencies providing services to New Jersey employees and employers. It would frustrate that purpose to construe the Act to require agencies physically located in the State to be subject to comprehensive regulation, while allowing out-of-state agencies to carry on business in this State completely unregulated. [Accountemps, supra, 115 N.J. at 623.]

Clearly then, relieving Softpath of the registration requirements imposed by the Act would defeat its essential purpose and frustrate the important public policy embodied therein. This is especially so given the fact that Softpath freely invoked the jurisdiction of the courts of this State, whose regulation of its business activities herein Softpath now seeks to avoid. Thus, we conclude that Softpath's invocation of the MSA's choice-of-law provision would violate a "fundamental policy" of New Jersey, the State with a "materially greater interest" in the determination of the issues presented in Softpath's lawsuit.

Even if New York choice-of-law were applied, the result would likely be no different. In Fanning Technical Search v. 100% Girls Brand Inc., 740 N.Y.S.2d 28 (App. Div. 2002), the New York Appellate Division found that a plaintiff employment agency was required to meet the licensing requirements of the New Jersey Act because New Jersey had a more significant relationship to the parties' contract than New York. Id. at 301-02. The contract was prepared by the plaintiff in New York and negotiated by the parties from their respective offices in New York and New Jersey. Furthermore, the plaintiff conducted its search efforts for employees in New York. However, the court held "it is more significant that [plaintiff] sent the candidates it found to New Jersey. New York public policy does not require application of its law exempting employment agencies such as plaintiff from licensing requirements." Ibid.

Similarly here, Softpath and BIS presumably negotiated the contract from their respective offices in New York and New Jersey, and Softpath sent its employees to New Jersey to work for BIS. Although Softpath attempts to distinguish Fanning because the plaintiff there was an employment agency rather than a temporary help service firm, which conducted a search for defendant instead of providing its own employees, these differences are immaterial. Softpath offers no reason why New York would have a greater interest in exempting temporary help service firms, or firms that provide their own employees, from New Jersey licensing or registration requirements.

Lastly, on this same point, we do not interpret the language of the MSA's choice-of-law provision as extending to the question of jurisdiction, namely whether New Jersey's registration requirements must be fulfilled by a party bringing suit for breach of contract. The relevant portion of the MSA's "Law and Jurisdiction" provision states that "[t]his MSA shall be governed by and construed in accordance with the laws of the State of New York, U.S.A." This language evidently addresses only which State's laws shall apply to issues concerning the "interpretation, execution or enforcement" of the contract, and not whether Softpath has failed to abide by a threshold statutory registration requirement imposed on temporary help service firms. That question, after all, does not require an interpretation of the terms of the MSA or otherwise have any reference to the MSA. The question, rather, essentially presents a jurisdictional issue, as a person or entity that has failed to prove licensure or registration as required under the Act is prohibited from "bring[ing] or maintain[ing] an action in any court of this State." N.J.S.A. 34:8-45(b). The issue, we therefore conclude, is outside the scope of the MSA's choice-oflaw provision.


We further conclude that the argument raised on BIS's cross-appeal, namely that the court should have barred Softpath from thereafter suing in New York, is without sufficient merit to warrant discussion in this opinion. R. 2:11-3(e)(1)(E). Suffice it to say, BIS has offered no authority for a court's preemptive preclusion of a lawsuit in another State and we discern no bar to Softpath's pursuit of recovery against BIS in New York in accordance with the express terms of the parties' MSA. Presumably, BIS would be free to raise any defenses to Softpath's putative action in New York, including the waiver contention raised herein, and to have the New York court determine the validity of those claims. Accordingly, we have no quarrel with the Law Division's dismissal of plaintiff's complaint without prejudice to its institution of suit outside this State.


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