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Saltiel v. GSI Consultants

January 23, 2002

JAN SALTIEL D/B/A EDGEWATER DESIGN ASSOCIATES, PLAINTIFF-RESPONDENT
v.
GSI CONSULTANTS, INC., JOHN DOES 1-5 AND ABC CORPORATIONS 1-10, DEFENDANTS, AND HENRY INDYK AND RICHARD G. CATON D/B/A TURFCON, PROFESSIONAL TURFGRASS CONSULTANTS, DEFENDANTS-APPELLANTS



The opinion of the court was delivered by: Stein, J.

Argued September 17, 2001

On certification to the Superior Court, Appellate Division.

In this appeal we consider whether corporate officers can be held personally liable for allegedly tortious conduct under the participation theory of liability. The conduct at issue arose after the corporate defendant entered into a contract with plaintiff pursuant to which it was to design and prepare specifications for the turfgrass to be used on two athletic fields at a New Jersey university. Plaintiff alleged that the corporation and its officers negligently prepared the turfgrass specifications resulting in substantial financial loss to plaintiff. Accordingly, plaintiff sought to recover in tort against the officers personally based on the participation theory of liability.

The trial court granted summary judgment for both individual defendants, concluding that their status as corporate officers insulated them from personal liability. In an unpublished opinion the Appellate Division reversed, holding that the officers' complicity in the preparation of the allegedly defective specifications could provide a basis for personal tort liability under the participation theory. We granted the officers' petitions for certification, 167 N.J. 89 (2001), and now reverse the judgment below.

I.

In December 1997, plaintiff Jan Saltiel, doing business as Edgewater Design Associates, filed suit against GSI Consultants, Inc. (GSI), a Pennsylvania corporation, Dr. Henry Indyk, a GSI corporate officer, and Richard Caton, a former GSI corporate officer. The complaint sought damages arising from allegedly defective turfgrass specifications prepared by defendants and used by plaintiff in the reconstruction of a softball field and soccer field located at William Paterson University (WPU) in Wayne, New Jersey. Plaintiff is a landscape architect and GSI is a turfgrass consulting company doing business under the name Turfcon. Plaintiff has since voluntarily dismissed her claims against GSI.

The underlying transaction involved WPU's award to plaintiff in March 1995 of a contract to provide landscaping architectural services for the reconstruction of its athletic fields. Plaintiff in turn requested a proposal from GSI outlining turfgrass specifications for the reconstruction. In February 1995, GSI submitted a proposal, signed by Caton, listing the services that it would perform in connection with the WPU contract. The letter was on the letterhead of Turfcon, and the letterhead stated: "GSI Consultants, Inc./Turfcon Division." Plaintiff accepted the proposal and engaged GSI to prepare the specifications for the WPU athletic fields. GSI performed the following services: preparation of specifications for the design of a new drainage system; design, preparation of specifications, and testing of a rootzone mixture; preparation of specifications and selection of a new sod; and monitoring of the actual reconstruction, which was to be completed by a contractor selected by WPU after a public bid, ultimately Flanagan's Inc.

The softball field was constructed first. Indyk, in his capacity as a corporate officer of GSI, made several site visits to monitor the construction of the field and correct any deviations from the turfgrass specifications. The record indicates that WPU has expressed no dissatisfaction with the work done on the softball field.

The soccer field was completed in September 1996. Indyk did not visit the soccer field on a regular basis as had been his practice with respect to the softball field. Almost immediately after its completion, the soccer field developed problems of standing water and inadequate drainage. In response to the problems, WPU installed additional drainage facilities and began core aerification of the soccer field's turf. However, the drainage did not improve and the turfgrass was consistently damp or soggy. The soccer field remained unfit for athletic use.

Plaintiff hired Turf Diagnostics and Design, Inc. (TDD) to determine the cause of the drainage failure. After an investigation, TDD informed plaintiff that, although the soccer field had been constructed in accordance with GSI's field specifications, the field specifications had been negligently prepared because the rootzone designed by GSI formed a nearly impermeable barrier that did not allow for proper water drainage. As required under plaintiff's contract with WPU, she prepared new specifications for the field and hired a contractor to reconstruct it at a cost of $351,000. Plaintiff's contract with GSI did not require GSI to provide a bond or demonstrate evidence of professional liability insurance.

Plaintiff's complaint alleges claims against all defendants for negligent design, negligent misrepresentation, breach of contract, breach of warranty, promissory estoppel, and agency liability. The parties conducted discovery that focused primarily on whether defendants Indyk and Caton could be held personally liable. In January 1999, Indyk moved for summary judgment on the ground that he could not be personally liable for acts he performed as an officer on behalf of GSI. The trial court granted summary judgment, reasoning:

It [] appears the very purpose for incorporation - one of the purposes is - is to hopefully escape from individual liability or responsibility. And certainly, when you look at the Turfcon letterhead, when they wrote to Jan Saltiel of Edgewater Design Associates, although Turfcon appears on the top of that letterhead, the GSI Consultants, Incorporated clearly appears on the bottom with two phone numbers, and the address of the entity.

So I don't share the same impression of this case as the plaintiff shares. I - I think the defense is absolutely correct in their motion for summary judgment to dismiss Dr. Henry Indyk from this case. New Jersey law should apply. The fields are about 10 miles from this courthouse, at the William Paterson College, the now William Paterson University in Wayne. The fact that the shares were not signed pursuant to Pennsylvania law, to me, is not of any great consequence, because they were delivered. They're in the names of the - Dr. - Dr. [Caton], Dr. Indyk, and their wives. They're in the stock agreement that was entered into as - as well. And there's no question that Dr. Indyk was acting through his corporation when he agreed to undertake the responsibilities of overseeing the two fields that were being built in William Paterson, or being renovated in William Paterson. So I'm going to grant defendant's application for summary judgment on behalf of the individual[.]

Thereafter, Caton also moved for and was granted summary judgment, essentially on the basis of the same analysis that supported summary judgment for Indyk. In an unreported opinion the Appellate Division reversed both summary judgment rulings. That court concluded that both Indyk and Caton could be personally liable for negligence under the so-called "participation theory of personal liability."

II.

The sole issue on appeal is whether the trial court properly granted summary judgment in favor of defendants Caton and Indyk. Its resolution requires us to consider: (1) the proper application of the participation theory of personal liability for tortious conduct by corporate officers under New Jersey law; and (2) whether the plaintiff's claim against Indyk and Caton sounds in tort or contract.

We note at the outset that summary judgment may be granted if, according the plaintiff the benefit of all positive inferences from the facts as presented, a trial court determines that plaintiff has failed to assert a genuine issue of material fact. Brill v. Guardian Life Ins. Co. of America, 142 N.J. 520, 523 (1995). We recently observed that the "determination whether there exists a genuine issue with respect to a material fact challenged requires the motion judge to consider whether the competent evidential materials presented . . . are sufficient to permit a rational factfinder to resolve the alleged dispute in favor of the non-moving party." James v. Bessemer Processing Co., Inc., 155 N.J. 279, 305 (1998).

A.

The Appellate Division's opinion correctly determined that our caselaw has recognized the applicability of the participation theory of personal liability for the tortious conduct of corporate officers. Fletcher's Cyclopedia of the Law of Private Corporations defines the participation theory as follows:

An officer of a corporation who takes part in the commission of a tort by the corporation is personally liable for resulting injuries; but an officer who takes no part in the commission of the tort is not personally liable to third persons for the torts of other agents, officers or employees of the corporation. Officers and directors may be held individually liable for personal participation in tortious acts even through they derived no personal benefit, but acted on behalf, and in the name of, the corporation, and the corporation alone was enriched by the acts.

An officer may be personally liable for a tort to a third person where the corporation owed a duty of care to that person, the duty had been delegated to the officer, and the officer breached this duty through personal fault causing injury. If the defendant's duty had been delegated with due care to some responsible subordinate, the defendant was not at fault and will not be held liable and the defendant knew or should have known of its nonperformance or malperformance and did not cure the risk of harm. [3A William M. Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 1137 (rev. perm. ed. 1994)(footnotes omitted).]

Thus, the essence of the participation theory is that a corporate officer can be held personally liable for a tort committed by the corporation when he or she is sufficiently involved in the commission of the tort. A predicate to liability is a finding that the corporation owed a duty of care to the victim, the duty was delegated to the officer and the officer breached the duty of care by his own conduct.

New Jersey cases that have applied the participation theory to hold corporate officers personally responsible for their tortious conduct generally have involved intentional torts. More specifically, the majority of the cases have involved fraud and conversion. See, e.g., Charles Bloom & Co. v. Echo Jewelers, 279 N.J. Super., 372, 382 (App. Div. 1995)(holding that defendants could be personally liable for alleged conversion even if they were acting in corporate capacity); Van Dam Egg Co. v. Allendale Farms, 199 N.J. Super. 452, 457 (App. Div. 1985)(declining to dismiss fraud complaint against corporate officer even though it did not allege that he personally benefitted from allegedly wrongful acts); Robsac Indus., Inc. v. Chartpak, 204 N.J. Super. 149, 156 (App. Div. 1985)(reversing summary judgment for defendant corporate officer charged with malicious interference with contract, fraudulent misrepresentation, and defamation notwithstanding that liability also was imposed on corporation); McGlynn v. Schultz, 95 N.J. Super. 412, 417 (App. Div. 1967)(finding corporate officers personally liable for knowingly acquiescing in and ratifying alleged conversion).

Over fifty years ago this Court in Hirsch v. Phily, 4 N.J. 408, 416 (1950), articulated the basis for holding corporate officers personally liable in such cases:

It is well settled by the great weight of authority in this country that the officers of a corporation are personally liable to one whose money or property has been misappropriated or converted by them to the uses of the corporation, although they derived no personal benefit therefrom and acted merely as agents of the corporation. The underlying reason for this rule is that an officer should not be permitted to escape the consequences of his ...


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