April 7, 2010
DAVID RICHARDSON AND LISA RICHARDSON, PLAINTIFFS-APPELLANTS,
UN EMPRESS PROPERTIES, LLC; JOSEPH UMBACH; LOUIS DELAURA; AND EMERALD HOLDING CO., DEFENDANTS, AND EMPRESS HOUSE CONDOMINIUM ASSOCIATION, INC., AND JOSE NODAR, DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-3297-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 3, 2010
Before Judges Stern and Sabatino.
This case involves an action for monetary damages brought by tenants in a condominium unit. The tenants, plaintiffs David and Lisa Richardson, appeal from the Law Division's entry of an order granting summary judgment dismissing their complaint against defendants, Jose Nodar ("Nodar") and the Empress House Condominium Association.
Plaintiffs reside in a multi-unit building in Paterson, known as Empress House Condominiums. Pursuant to a written "purchase and subscription agreement"--essentially a lease/purchase agreement--entered into in December 1995 between plaintiffs and the unit owner, UN Empress Properties, LLC ("UN Empress" or "the LLC"), plaintiffs pay a monthly fee for their use and occupancy of the unit. The monthly fees can be applied by plaintiffs towards an agreed-upon price for their eventual purchase of the unit. Under that agreement, UN Empress served as plaintiffs' landlord. The record indicates that most of the condominium units in the building were owned at the relevant times by UN Empress.
The record further indicates that defendant Nodar owned a controlling interest in UN Empress. Nodar testified at his deposition that he had another co-investor in the LLC, Joseph Umbach, but that Umbach had no role whatsoever in operating the property. Nodar also was the sole officer in defendant Empress House Condominium Association ("the Condominium Association").
Various problems arose with the maintenance and condition of plaintiffs' unit, particularly issues of water infiltration. It appears that the problems at issue were specific to plaintiffs' unit and did not concern the premises' common areas. Pursuant to legal advice, plaintiffs began making their monthly payments to their attorney's escrow account because the landlord had not made the repairs. Meanwhile, plaintiff David Richardson was elected president of the Empress House Tenants Association ("the Tenants Association").
Plaintiffs' withholding of their monthly payments prompted the landlord to bring a summary dispossession action against them in the Special Civil Part. In response, plaintiffs asserted that the landlord had breached the warranty of habitability. The Special Civil Part scheduled a hearing to address the habitability issues, pursuant to Marini v. Ireland, 56 N.J. 130 (1970). The Marini hearing was adjourned at the request of counsel for the landlord, and plaintiffs consequently did not come to court on the original scheduled date. However, a representative of the landlord*fn1 did appear that day, and the court inadvertently entered a judgment of possession in plaintiffs' absence.*fn2
When plaintiffs learned of this mistake, they successfully applied to the court to have the dispossession order stayed, on the condition that any unpaid rent would be paid out of their security deposit. Nevertheless, the sheriff posted a lock-out notice and plaintiffs were temporarily removed from their unit in error. They were restored to the premises the next day and still reside there. Plaintiffs contended that Nodar personally orchestrated the lockout. They suggested that he acted in retaliation for their withholding of rent, their complaints about the unit's condition, and David Richardson's leadership in the Tenants Association.
Understandably upset about being wrongfully evicted--even temporarily--and by the continued need for repairs in their unit, plaintiffs filed an action for compensatory and punitive damages in the Law Division. The complaint named several defendants: UN Empress; Nodar; the Condominium Association; Umbach; an individual named Louis DeLaura (asserted in the complaint to be the "owner of the subject premises"); and Emerald Holding Co. (asserted in the complaint to be "an owner or operator of the subject premises").
Plaintiffs were unable to effect service of process on Umbach, DeLaura, and Emerald Holding Co., and the court accordingly entered an order administratively dismissing the complaint, without prejudice, against those defendants pursuant to Rule 1:13-7. Meanwhile, UN Empress was dissolved*fn3 and thereby became judgment-proof. Because plaintiffs could not effect service upon UN Empress as a dissolved corporation, their claims against it were likewise administratively dismissed. These dismissals left Nodar and the Condominium Association as the sole remaining defendants.
Plaintiffs sought to impose personal liability upon Nodar based upon principles of piercing the corporate veil. They asserted that Nodar acted "personally and individually... and not on behalf of Empress House Properties[,] LLC." Therefore, argued plaintiffs, "even if Mr. Nodar was acting on behalf of the entity, it would be appropriate to pierce the corporate veil."
To support their veil-piercing theory, plaintiffs noted that at various times Nodar orally stated to them and to others that he was the "owner" of the property, even though the legal owner was the corporate LLC, UN Empress. Plaintiffs further note that some of the legal documents (i.e., notices to quit and the eviction complaint filed in the Special Civil Part) prepared by the landlord's then-attorney*fn4 had typed "Jose Nodar" as the landlord and not the LLC. Plaintiffs also drew significance from the fact that rent checks that they had at times made out to "Empress House" or to "Empress House Condo" were routinely deposited by Nodar into the LLC's bank account.
In response, Nodar contends that his casual references to himself as the unit's "owner" did not change the corporate form of the premises' owner of record, the LLC. Nodar further maintains that the eviction documents incorrectly designating him as the "landlord" were mistakes of the LLC's then-attorney and should not be attributable to him. In any event, those mis-designations, Nodar submits, do not change the corporate legal status of the landlord. Nodar also asserts that the incorrect payee designations that plaintiffs used on some of their rent checks is inconsequential, as the key point is that the money was deposited in the account of the true landlord and owner, the LLC.
Nodar testified at his deposition that he had no role in the commencement of the eviction proceedings against plaintiffs for non-payment of rent. He also disavowed responsibility for the scheduling of unit maintenance. According to Nodar, these functions were handled for the LLC by a different person, Ann DiPol.*fn5 Nodar further contends that, due to a miscommunication between himself and DiPol, he was ignorant of the fact that the removal of plaintiffs had been stayed by the court when he authorized the sheriff to post a lock-out notice.
The other remaining defendant, the Condominium Association, disclaimed any responsibility for the conditions within plaintiffs' unit. The Condominium Association also denied responsibility for the individual actions of Nodar. Plaintiffs argued that the Condominium Association should be liable to them because they allege that Nodar acted as the Association's agent.
Following Nodar's deposition and other discovery, Nodar and the Condominium Association moved for summary judgment. Plaintiffs opposed the motion, contending that they had adduced sufficient facts to justify piercing the corporate veil as to Nodar, and to warrant proceeding under an agency law theory against the Condominium Association.
After considering the proofs and the applicable law, the motion judge, Judge Raymond Reddin, granted both defendants summary judgment. Among other things, Judge Reddin noted in his oral opinion that plaintiffs had: not presented a sufficient showing to pierce [the landlord's] corporate protection or to take Jose N[o]dar out of the protection afforded him for having formulated and operated under the name UN Empress Properties, LLC. The property was owned by the LLC. The lease was in the name of the LLC. Albeit he [Nodar] had direct interaction with [plaintiffs] here, but the proofs, in my opinion, clearly show that he was doing so with that protection afforded to him by the LLC.
Judge Reddin also rejected plaintiffs' legal theory against the Condominium Association. The judge found that the Condominium Association, which did not own or maintain plaintiffs' individual unit within the building, did not "engage in [any acts it] shouldn't have." Nor did the judge discern "any acts that [the Condominium Association] didn't engage in that [it] should have." He noted that the Condominium Association's "function here is not a function that would have caused any harm or liability to [plaintiffs]."
The judge expressly recognized that because the LLC had been dissolved, plaintiffs would be left in this case without a viable defendant. Even so, the judge did not find that there were sufficient facts here to pierce the corporate veil or to impose liability upon Nodar or the Condominium Association. He therefore granted both of them summary judgment.
Plaintiffs now appeal the summary judgment order. In reviewing that order, we examine the facts of record, as did the motion judge, in a light most favorable to plaintiffs. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); Liberty Surplus Ins. Corp., Inc. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007); see also R. 4:46-2(c). Applying those familiar standards, we affirm the entry of summary judgment, both as to Nodar and as to the Condominium Association, substantially for the reasons expressed in Judge Reddin's oral opinion of April 17, 2009. We amplify that conclusion with only a limited discussion.
It is axiomatic that "a corporation is an entity separate from its stockholders[,]" and that "[i]n the absence of fraud or injustice, courts generally will not pierce the corporate veil to impose liability on the corporate principals." Lyon v. Barrett, 89 N.J. 294, 300 (1982); see also Frank v. Frank's, Inc., 9 N.J. 218, 224 (1952). Individual shareholders of a corporation generally are permitted to act on the corporation's behalf while the corporation remains a separate legal entity and the shareholders remain free from the entity's liabilities. Indeed, "a primary reason for incorporation is the insulation of shareholders from the liabilities of corporate enterprise." N.J. Dept. of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 500 (1983).
Given the strong policies authorizing businesses to operate in corporate form, the doctrine that allows the piercing of the corporate veil is a limited one. The purpose of the doctrine is to prevent the corporate form from "be[ing] used for the purpose of defeating justice." Telis v. Telis, 132 N.J. Eq. 25, 29 (E & A 1942). In general, veil-piercing is only appropriate where the corporation's principals have misused the entity "to perpetrate fraud, to accomplish a crime, or otherwise to evade the law." Ventron, supra, 94 N.J. at 500.
We concur with the motion judge that plaintiffs offered insufficient evidence that Jose Nodar committed any fraud or a crime, or that he abused the LLC's corporate form "to evade the law." The judge correctly noted in his opinion that sometimes principals in small businesses tend to speak loosely about themselves as the "owners" of those enterprises or of their business assets, even though those enterprises are legally owned by a corporate entity. The judge sensibly deemed it improper to make Nodar personally liable to plaintiffs because of such slips of the tongue. Likewise, the few misdesignations of Nodar as the "landlord" by the LLC's eviction counsel amount to little more than drafting errors that were not authorized by the client. The form of the rent checks made out by the tenants is also inconsequential; the situation would have been entirely different if the checks had been deposited into Nodar's personal bank account rather than that of the LLC, the actual landlord. The dismissal of Nodar as a party defendant is therefore affirmed.
We also affirm the dismissal of the Condominium Association as a party defendant. Plaintiffs were never members of the Condominium Association, as they have not yet become owners of a condominium unit within the building. Since they were not members of the Condominium Association, the latter owed no duty to plaintiffs as the tenants of a unit owner. Moreover, the leaks and conditions complained of by plaintiffs were essentially relating to their individual dwelling, not to common areas. Summary judgment in favor of this defendant was also appropriate.
Although we share the motion judge's empathy for plaintiffs' difficult circumstances following the dissolution of the LLC, we agree that, on the record developed, the law imposes no liability on defendants that were granted summary judgment.