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Erickson v. Leonard

March 18, 2008


On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-47-02.

Per curiam.


Argued September 24, 2007

Before Judges S. L. Reisner and Gilroy.

This is plaintiff Donald Erickson's second appeal from a dismissal of a legal malpractice action filed against Jeffrey S. Leonard, Esq., his former attorney, and Leonard's law firm, Hersh, Ramsey & Berman, P.C. We previously reversed the grant of summary judgment dismissing plaintiff's complaint, and remanded the matter to the trial court for further proceedings. Erickson v. Leonard, No. A-3410-04 (App. Div. Jan. 6, 2006) (slip op. at 2). Plaintiff now appeals from the October 24, 2006, order, which granted defendants' motion for summary judgment on remand. Plaintiff also appeals from the December 15, 2006, denial of his motion for reconsideration. We affirm.


Plaintiff was a contractor that engaged in the construction and sale of residential homes. Plaintiff was also the sole shareholder, officer, and employee of Lynn Development Corporation (LDC), a development and construction company. On November 2, 1989, LDC entered into a contract with William G. and Aida G. Visakay for the construction and sale of a new home. Plaintiff executed the contract as President of LDC only. Although plaintiff refused the Visakays' request that he personally guarantee the contract, including any necessary repairs after closing of title, he did guarantee the return of the deposit monies in the event the Visakays cancelled the contract in accordance with its terms.

Five years post-closing of title, the Visakays filed suit against plaintiff, individually and d/b/a LDC, for damages to the home caused by "foundation/structural settlement" (the underlying action). Plaintiff solicited defendants' representation in defense of the lawsuit. Although defendants recognized early in the action that the parties to the contract were the Visakays and LDC, not plaintiff, defendants failed to move for dismissal on the ground that plaintiff was not personally liable for the acts of his corporation. Plaintiff, after having received advice from defendants that he had no defense to the action, settled the action, paying the Visakays $220,375.

Following the settlement, plaintiff filed a complaint instituting a legal malpractice action against defendants, alleging among other matters, that defendants had negligently "failed to assert the corporate shield of . . . LDC, as a barrier against personal liability exposure" on the underlying claim. On October 18, 2004, the trial court granted summary judgment, determining that plaintiff had failed to demonstrate a prima facie claim of legal malpractice.

On appeal, we reversed, determining that the trial court had erred in granting summary judgment on plaintiff's claim that defendants "failed to pursue the issue of his personal liability for the defects in the house." Id. at 5. We stated in relevant part:

The undisputed evidence on the motion record supports a reasonable inference that the Visakays were well aware that they were dealing with a corporate entity and that Erickson was not agreeing to personal liability, except to a very limited extent.

There is no evidence that Erickson used the corporation to perpetuate a fraud or that the corporation was undercapitalized for the purpose for which it was created, i.e., to construct houses. The house was completed, and the Visakays did not complain about the structural defect until five years later. Erickson protected the Visakays, as the law required, by registering the house with HOW.

Further, Erickson provided an expert report detailing the alleged malpractice by the Hersh, Ramsey firm in failing to file a motion to dismiss the complaint against him in his personal capacity. The defendant law firm did not file a contesting expert report on the malpractice issue.

Ordinarily, the sole shareholder of a corporation is not personally liable for the debts of the corporation. And, generally, a breach of contract action against a corporation, premised on faulty construction of a house, cannot be parlayed into a tort claim against its sole shareholder. On this record, reasonable jurors could conclude that Erickson had a viable defense to personal liability and that the Hersh, Ramsey firm should have asserted that defense on his behalf, rather than advising him to settle the Visakay case. Of course, at trial, additional facts may be adduced on behalf of the defense that might sway the jury to reach a different conclusion. We decide only that Erickson is entitled to his day in court on this issue. [Id. at 5-7 (citations omitted).]

On June 1, 2006, the parties appeared before the trial court for a case management conference, contending that they believed the issue, of whether defendants were negligent by not asserting the corporate shield defense in the underlying action, could be resolved on cross-motions for summary judgment. In presenting the matter to the trial court, plaintiff's counsel stated:

Essentially, the whole issue of the malpractice is whether or not the [defendants] should have made a motion for summary judgment to get ...

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