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PHARMACEUTICAL SALES AND CON. v. J.W.S. DELAVAU CO.

July 9, 1999

PHARMACEUTICAL SALES AND CONSULTING CORPORATION, PLAINTIFF,
v.
J.W.S. DELAVAU CO., INC., DEFENDANT.



The opinion of the court was delivered by: Cooper, District Judge.

MEMORANDUM OPINION

This matter comes before the Court on defendant's motion for leave to file a second amended answer. For the reasons stated, the motion is granted.

BACKGROUND

The background facts have been set forth in this Court's May 13, 1999 Memorandum Opinion and in the interest of brevity are incorporated by reference herein. Briefly, plaintiff Pharmaceutical Sales and Consulting Corporation ("PSCC") and defendant J.W.S. Delavau, Inc. ("Delavau") entered into a Sales, Consulting and Confidential Disclosure Agreement ("the Agreement") which was executed by the parties on July 1, 1992. The Agreement provided that Delavau was to pay PSCC a commission for sales PSCC brought to Delavau from Lederle Laboratories, Inc. The Agreement was signed by John Sadlon, as president of PSCC, and on its behalf. PSCC brought this action for breach of contract, alleging that defendant Delavau failed to pay commissions due and owing to PSCC pursuant to the Agreement.

Our prior Opinion addressed the question of whether defendant was entitled to dismissal of the instant lawsuit brought by PSCC based upon the fact that PSCC was neither a de facto nor de jure corporation at the time of the parties' July 1, 1992 Agreement. Defendant's position was that PSCC could not sue for breach of contract if it did not have the capacity to enter into the contract as of the date of the execution of the Agreement, July 1, 1992. In response, plaintiff maintained that PSCC could sue on the Agreement, based upon the fact that it was a de facto corporation, or alternatively by virtue of the doctrine of corporation by estoppel.

The parties having agreed that PSCC was not a de jure corporation at the time of the Agreement, we focused our attention on whether PSCC could establish de facto status and thus avoid dismissal on that basis. The Court held that assuming arguendo that the doctrine of de facto corporation was still viable under New Jersey law after the enactment of New Jersey's Model Business Corporation Act ("the Act") in 1968, the facts of this case demonstrated that PSCC was not a de facto corporation at the time of the Agreement. We reached that conclusion based upon the undisputed fact that Sadlon did not attempt to incorporate PSCC until August 14, 1992, which was approximately 1 1/2 months after the parties entered into the Agreement.

Despite this finding, we determined that defendant was not entitled to dismissal of this lawsuit on that basis. Instead, we applied the doctrine of corporation by estoppel such that defendant would be estopped from relying upon plaintiff's defective corporate status as a basis for dismissal of this lawsuit. Accordingly, we denied defendant's motion to dismiss.

The instant motion asks us to address a different, albeit related question to that presented by the prior motion to dismiss. Specifically, now that we have determined that defendant is not entitled to dismissal of the lawsuit against it solely based upon PSCC's lack of corporate status, we must decide whether defendant may add two individuals, namely Jack Sadlon and Laura Micelli, as counterclaim defendants in this suit. Defendant , seeks to add these additional defendants because such an amendment would permit Delavau to recover from PSCC and/or the individuals should the Court conclude that PSCC is liable to Delavau for the misconduct alleged in Delavau's counterclaims.

Delavau's proposed counterclaims which seek money damages are premised upon allegations of (1) breach of contract; (2) negligent misrepresentation; and (3) intentional misrepresentation and fraud.*fn1 (See Prop. Sec. Am. Answer, Affirmative Defenses and Counterclaim.) The thrust of defendant's argument is that if the Court has determined that at least as of the date of the Agreement, July 1, 1992, PSCC was not a de facto corporation, then Delavau should be entitled to recover damages from PSCC, Sadlon or Micelli on the counterclaims. Defendant's argument is based upon three premises, each of which must be examined.

First, because our prior Memorandum Opinion found that there was no de facto corporation as of the date of the parties' July 1, 1992 Agreement, Delavau believes that our holding would apply equally to Delavau's counterclaims, such that Sadlon and Micelli could not hide behind PSCC's nonexistent corporate status and avoid potential personal liability on the counterclaims. Delavau makes this argument despite the fact that the counterclaims are premised in part upon conduct which occurred after August 14, 1992, the date that Sadlon has certified that he attempted to incorporate PSCC. (See Certif. of John Sadlon in Opp'n to Mot. to Dismiss ¶ 2.)

Second, assuming that Delavau's first premise is correct and the Court determines that Sadlon and Micelli are not entitled to rely upon PSCC's corporate status as of the date of the conduct which forms the basis of the counterclaims, Delavau's argument is that the Court would then be required to treat PSCC as a partnership. Under New Jersey's Uniform Partnership Law, N.J.S.A. § 42:1-15(a), the Court would be required to impose joint and several liability upon all partners to the partnership.

From this second premise, Delavau reaches its conclusion that both Sadlon and Micelli could be individually liable as partners of PSCC if the Court awards damages on Delavau's counterclaims. In particular, as to the liability of Micelli, Delavau argues that she shared in the profits of PSCC and is therefore considered a partner under New Jersey law, even if she was never so designated. Moreover, under this theory of individual liability, the fact that she was not a purported shareholder of PSCC is irrelevant.*fn2

Putting these arguments and assumptions in context, defendant argues that the liberal standard pertaining to the amendment of pleadings should apply so that defendant may amend its answer to assert counterclaims against Micelli and Sadlon individually. Defendant maintains that there has been no undue delay, and that any prejudice which results from the amendment is through the fault of the plaintiff, Micelli and Sadlon rather than defendant.

PSCC argues in opposition to the motion that this Court's discussion of the contours of the corporation by estoppel concept applies equally to defendant's ability to amend the counterclaim at this juncture. (See Pl.'s Ltr. Br. in Opp'n.) PSCC maintains that it would be unfair to impose personal liability upon Micelli and Sadlon because Delavau believed at all times that it was dealing with a bonafide corporation. (Id.) Moreover, PSCC points out that if we were to permit ...


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