On appeal from Morris County Court.
Matthews, Crane and Antell. The opinion of the court was delivered by Antell, J.A.D. Crane, J.A.D., concurring.
Defendant Charles H. Pritchard, Jr., successfully moved in the Law Division to dismiss 39 counts of an 111-count indictment. Dismissal was ordered on the ground that insufficient evidence had been presented to the grand jury to sustain the charges of fraudulently misusing corporate property, N.J.S.A. 2A:102-3. The State made no objection to the procedure followed and the defendant's motion was granted on the basis of undisputed facts. This appeal is before us by our leave granted on the State's application. R. 2:2-4.
N.J.S.A. 2A:102-3 provides:
Any director, member or officer of any corporation or association who fraudulently takes, misapplies or misuses any money or property of the corporation or association, is guilty of a misdemeanor.
Charles H. Pritchard, Jr. and codefendant William G. Pritchard, his brother, were the sole stockholders, serving respectively as president and vice-president, of Pritchard & Baird Intermediaries Corporation, a New York corporation authorized to do business in New Jersey. The business of the corporation involved distributing percentages of risk under large insurance policies from primary insurers (ceding companies) to secondary insurers (assuming companies). Included among the company's obligations was the duty to distribute proportionately among the assuming companies the commission moneys which were paid to Pritchard & Baird by the ceding companies for this purpose.
The violations alleged in the 39 dismissed counts consist of cash withdrawals made by defendant which were shown as loans on the books of Pritchard & Baird, and the State is prepared to prove that these impaired the corporation's ability to pay out the commissions. The Law Division judge granted the motion on the reasoning that since the withdrawals were made with the knowledge and consent of the sole stockholders of the corporation the "intent to defraud
the said corporation" alleged in the indictment was negatived as a matter of law.
Central to a fraudulent conversion are the concepts of breach of trust and reliance by the injured party. State v. Palumbo , 137 N.J. Super. 13, 17 (App. Div. 1975); State v. Croland , 54 N.J. Super. 594, 602 (App. Div. 1959), aff'd 31 N.J. 380 (1960); 26 Am. Jur. 2d, Embezzlement , §§ 1, 16 (1966). Here the capacity of defendant to defraud his own corporation is supported by nothing other than the fiction of the separate corporate entity. We are shown no deceitful or faithless conduct by defendant which induced Pritchard & Baird to part with its money or by which the conversion thereof was accomplished. The withdrawals, in fact, were openly recorded on the books of the company. Furthermore, there can be no reliance in any meaningful sense of the word where the corporate mind is indistinguishable from that of the alleged embezzler and with full knowledge of the facts consents to the use of its money. "In other words, he [defendant] merely took the funds from himself under a different name." Davis v. United States , 226 F.2d 331, 335 (6 Cir. 1955), cert. den. 350 U.S. 965, 76 S. Ct. 432, 100 L. Ed. 838, reh. den. 351 U.S. 915, 76 S. Ct. 693, 100 L. Ed. 1449 (1956).
We conclude only that defendant's conduct is not encompassed by the particular criminal statute under which these counts of the indictment were returned. We do not intend to imply that he is free of all criminal accountability. If, as the State argues, he is criminally answerable for the financial loss sustained by the ceding companies, this issue has been presented for consideration by other counts of the indictment charging him with the embezzlement of those moneys under N.J.S.A. 2A:102-5.
The result here reached is in accord with views elsewhere expressed. State v. Croland, supra; United States v. Goldberg , 206 F. Supp. 394, 405 (E.D. Pa. 1962), aff'd 330 F.2d 30 (3 Cir. ...