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Cardillo v. Bolger


January 12, 2009


On appeal from the Superior Court of New Jersey, Law Division, Civil Part, Hudson County, Docket No. L-1272-06.

Per curiam.


Submitted: September 24, 2008

Before Judges Fisher and C.L. Miniman.

Plaintiff Cathy Cardillo presents a narrow issue for our consideration in her appeal from a final judgment entered on September 13, 2007, which dismissed her claims against defendant Brian Bolger and entered judgment in her favor against defendant B & C Renovation, Inc. (B&C), in the amount of $42,000. She asserts that the judge erred in concluding that Bolger was not liable for his corporation's violations of regulations governing home-improvement practices. We now reverse and remand for entry of judgment against Bolger.

The first count of plaintiff's complaint alleged violations of the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -106, by both defendants. The second count, also against both parties, sought damages for breach of contract. The plaintiff ultimately limited her CFA claims to violations of the regulations governing home-improvement practices, N.J.A.C. 13:45A-16.1 to -16.2, for which strict-liability is imposed under Cox v. Sears Roebuck & Co., 138 N.J. 2 (1994). Plaintiff also withdrew her breach of contract claim and any request under the CFA for treble damages or attorney's fees, seeking only the statutory remedy of a refund, N.J.S.A. 56:8-2.11, in the amount of $42,500 of the $68,000 she had already paid to B&C.

At trial, plaintiff made no effort to impose liability on Bolger by piercing the corporate veil. Instead, she relied exclusively upon the active participation of Bolger, a corporate officer and the sole shareholder of B&C, in the CFA violations committed by the corporation, relying on the tort-participation theory of liability recognized in Saltiel v. GSI Consultants, Inc., 170 N.J. 297 (2001), which the judge found inapplicable here.

Our discussion of the facts is drawn exclusively from the judge's findings of fact, which are summarized here.*fn1 Bolger is the sole owner of B&C and there was no evidence of any other person acting on behalf of the corporation relative to the issues before the court. The litigation arose out of a home-renovation project that began in February or March 2004. The written contract had been lost prior to trial.

The judge found by a preponderance of the evidence that plaintiff had established a CFA claim against B&C. Specifically, he found that the following acts constituted regulatory violations: (1) B&C was not a registered licensee with the City of Jersey City as required by municipal ordinance at the time of the home-improvement work and had failed to post the performance bond required by municipal ordinance;*fn2 (2) B&C started the demolition necessary to prepare for the home improvements without having obtained the necessary permits;*fn3 (3) B&C installed an inadequate cooling and heating system which was not properly sized for the needs of the plaintiff and the work that had been contracted;*fn4 and (4) B&C delayed in the completion of the work and, in some respects, failed to complete the work.*fn5 The judge concluded that these violations triggered the strict-liability standard of the CFA under Cox. He also found that the asserted defenses were not proven and, thus, he entered judgment in favor of plaintiff and against B&C for the full amount of the refund sought.

With respect to Bolger, the judge found that he was not involved in a fraudulent scheme, although he may have been negligent and may have failed to perform to the level required of him. The judge pointed out that plaintiff advanced $30,000 to B&C on March 12, 2004, and that Bolger applied for construction permits on March 17, 2004, and paid the required fee, which was inconsistent with a fraudulent scheme. Also, the judge found that Bolger cooperated with a structural inspection of the premises by plaintiff's engineer and was willing to make certain corrections to the work, albeit "[w]hether he did them the right way or not is another story, but . . . he attempted to make corrections or offered to make corrections." Additionally, the judge found that Bolger admitted to the damage to the tub and attempted to make a correction, which was again inconsistent with a fraudulent scheme.

The judge concluded that these facts were distinguishable from the facts of Kugler v. Koscot Interplanetary, Inc., 120 N.J. Super. 216 (Ch. Div. 1972). Defendant's principal stockholder and officer participated in the fraudulent pyramid scheme in which defendant made misrepresentations to prospective distributors. Id. at 257. Here, the judge opined that the tort-participation theory described in Saltiel required more than was required to impose strict-liability for CFA regulatory violations under Cox. He concluded that the evidence was insufficient to trigger the application of the tort-participation theory because Bolger was not involved in a fraudulent scheme.

The judge stated, "So I don't see this type of fraud that is required to get the participation theory to be involved in this case. And Saltiel goes into this analysis of whether . . . the facts in this case . . . sound in contract or sound in tort." The judge concluded that the CFA claims here sounded in contract and that the tort-participation theory had not been proven. Consequently, he dismissed the claims against Bolger individually. On the motion for reconsideration, the judge reaffirmed his earlier decision. This appeal followed.

Plaintiff does not raise any issue with respect to the judge's fact-findings, which are binding on appeal. See Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). However, plaintiff contends that the judge misconstrued and misapplied the tort-participation theory of liability to the facts when he dismissed her claims against Bolger, arguing that B&C's CFA violations sounded in tort rather than contract. She also contends that Bolger is made individually liable for his own acts, although done as an officer and shareholder of B&C, pursuant to the definition of "person" in the CFA. See N.J.S.A. 56:8-1(d). Because these issues present questions of law, our review is plenary. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995) ("A trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference.").

We begin with the CFA, which prohibits certain commercial practices:

The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice[.] [N.J.S.A. 56:8-2.]

The CFA further provides that, "[t]o accomplish the objectives and to carry out the duties prescribed by this act, the Attorney General . . . may . . . promulgate such rules and regulations . . . as may be necessary, which shall have the force of law." N.J.S.A. 56:8-4. The regulations so promulgated that govern home-improvement practices, N.J.A.C. 13:45A-16 to -16.2, make unlawful certain acts and practices utilized by a seller "involving the sale, attempted sale, advertisement or performance of home improvements." N.J.A.C. 13:45A-16.2.

The Supreme Court explained in Cox, supra, 138 N.J. at 17, that "[u]nlawful practices fall into three general categories:

affirmative acts, knowing omissions, and regulation violations." As to the proofs required, the Court held as follows:

When the alleged consumer-fraud violation consists of an affirmative act, intent is not an essential element and the plaintiff need not prove that the defendant intended to commit an unlawful act. However, when the alleged consumer fraud consists of an omission, the plaintiff must show that the defendant acted with knowledge, and intent is an essential element of the fraud.

The third category of unlawful acts consists of violations of specific regulations promulgated under the Act. In those instances, intent is not an element of the unlawful practice, and the regulations impose strict liability for such violations.

The parties subject to the regulations are assumed to be familiar with them, so that any violation of the regulations, regardless of intent or moral culpability, constitutes a violation of the Act. [Id. at 17-19 (citations omitted).]

The CFA also provides that the term "'person' as used in this act shall include any natural person . . . [or] corporation . . . and any . . . officer . . . [or] stockholder . . . thereof[.]" N.J.S.A. 56:8-1(d). Like this definition, the regulations governing home-improvement practices define "seller" as meaning "a person engaged in the business of making or selling home improvements and includes corporations . . . and their officers . . . and employees." N.J.A.C. 13:45A-16.1A.

Thus, the CFA and the regulations governing home-improvement practices apply equally to corporations and the individuals acting on their behalf.

We recognized individual liability in New Mea Construction Corp. v. Harper, 203 N.J. Super. 486, 502-03 (App. Div. 1985), where we held:

The judge should also assess damages against plaintiffs' principal Ashworth, who was a defendant as to the Consumer Fraud Act Count, if he finds from a review of the record and his findings that she meets the test for liability under that Act. See N.J.S.A. 56:8-1(d) (definition of "person"); Hyland v. Aquarian Age 2,000 Inc., 148 N.J. Super. 186, 193 (Ch. Div. 1977); Kugler v. Koscot Interplanetary, Inc., 120 N.J. Super. 216, 253-256 (Ch. Div. 1972).

Although the Chancery judge in Koscot imposed individual CFA liability under the tort-participation theory and did not discuss the statutory definition at all, the Chancery judge in Aquarian relied exclusively on the CFA's definition of "person." Compare Koscot, supra, 120 N.J. Super. at 253-54, with Aquarian, supra, 148 N.J. Super. at 193.

We have applied the CFA broadly because of its remedial purpose and have liberally construed it in favor of the victimized consumer, the object of legislative concern. Lemelledo, supra, 150 N.J. at 269; Jefferson Loan Co., Inc., v. Session, 397 N.J. Super. 520, 533-34 (App. Div. 2008) (observing that the CFA "is one of the strongest consumer protection statutes in the nation" and that its history "is one of constant expansion of consumer protection") (internal citations and quotations omitted); Scibek v. Longette, 339 N.J. Super. 72, 78 (App. Div. 2001) (CFA "is to be applied broadly in light of the statute's remedial purpose"); Ramapo Brae Condo. Ass'n, Inc. v. Bergen County Housing Auth, 328 N.J. Super. 561, 575 (App. Div. 2000), aff'd, 167 N.J. 555 (2001) (same); Levin v. Lewis, 179 N.J. Super. 193, 200 (App. Div. 1981) (holding that auto-repair regulations promulgated under the CFA are to be liberally construed in favor of protecting consumers). In accordance with this broad interpretative principle, we are satisfied that the judge here erred in applying the tort-participation theory to this CFA claim to exonerate Bolger because he is directly liable to plaintiff under the definitions of "person" in the CFA and "seller" in the applicable regulations.

We do not believe that a different result is mandated under the tort-participation theory discussed in Saltiel. There, defendant GSI Consultants, Inc. (GSI), entered into a contract with plaintiff requiring GSI to design and prepare specifications for turfgrass for two athletic fields. Saltiel, supra, 170 N.J. at 299. Plaintiff alleged that GSI was negligent in preparing the specifications and sought to recover in tort against defendants Henry Indyk and Richard G. Caton as current and former officers of GSI, respectively. Id. at 299-300. On the individual defendants' motions for summary judgment, the motion judge concluded that they were acting in their corporate capacities and dismissed the claims against them. Id. at 301-02. We reversed, "conclud[ing] that both Indyk and Caton could be personally liable for negligence under the so-called 'participation theory of personal liability.'" Id. at 302.

The issue before the Saltiel Court required it "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." Ibid. The Court began by observing,

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. [Id. at 303.]

The Court explained that "New Jersey cases that have applied the participation theory to hold corporate officers personally responsible for their tortious conduct generally have involved intentional torts." Id. at 304. Because the conduct at issue in Saltiel did not implicate such conduct, the Court then explored the boundaries between contract, where duties are voluntarily assumed, and tort, where duties are imposed by law, id. at 315-17, concluding that the dispute at issue was essentially a matter of contract. Id. at 318.

We recognize that the Saltiel Court cited Koscot for the proposition that New Jersey had applied "the participation theory to hold corporate officers personally liable for certain statutory violations." Id. at 305. However, Saltiel made no CFA claim and the Court did not consider the necessity of using that theory to determine whether liability should be imposed upon corporate officers under the CFA. We find the judge's conclusion that Bolger was not liable for his acts in violation of the CFA because they were essentially contractual in nature to be inconsistent with the plain language of the CFA and the regulations, which are to be given a liberal construction. The tort-participation theory simply cannot circumscribe the reach of the CFA and the remedies it provides to consumers. In any event, even if it is applicable, the Saltiel citation to Koscot can reasonably be construed to suggest that corporate officers, directors, shareholders, and employees are individually liable for statutory violations in which they participate, just as they are individually liable for intentional torts in which they participate because the duty is imposed by law, like a tort. We, thus, find the distinction between contract and tort irrelevant to the imposition of individual liability for statutory violations by corporate officers, directors, shareholders, and employees within the scope of their authority to act for the corporation and conclude that Bolger is personally liable for the refund ordered.

Reversed and remanded for entry of judgment in favor of plaintiff and against Bolger.

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