On certification to the Superior Court, Appellate Division, whose opinion is reported at
The opinion of the court was delivered by: Justice Hoens
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
Allen v. V and A Bros., Inc.
Argued February 28, 2011 -- Decided July 7, 2011
HOENS, J., writing for a unanimous Court.
The issues on appeal are (1) whether the owners and employees of a corporation may be individually liable for Consumer Fraud Act (CFA) violations that are directly attributable to acts undertaken by them through the corporate entity; and (2) whether those individuals may be barred by the doctrine of collateral estoppel from relitigating the quantum of damages assessed by a jury following a trial in which only the corporate defendant was represented.
Plaintiffs, William and Vivian Allen, contracted defendant V and A Brothers, Inc. to landscape their property and build a retaining wall to enable the installation of a pool. At the time, V and A Brothers was wholly owned by two brothers, defendants Vincent DiMeglio, who subsequently passed away, and Angelo DiMeglio. The corporation also had one full-time employee, defendant Thomas Taylor. After V and A Brothers completed the work, plaintiffs filed a two-count complaint naming both corporate and individual defendants. The first count was directed solely to V and A Brothers and alleged that the corporation breached its contract with plaintiffs by improperly constructing the retaining wall and using inferior backfill material. The second count was directed to the corporation and Vincent's estate, Angelo, and Taylor individually, alleging three "Home Improvement Practices" regulatory violations of the CFA: (1) failure to execute a written contract (N.J.A.C. 13:45A-16.2(a)(12)); (2) failure to obtain final approval for the construction before accepting final payment (N.J.A.C. 13:45A-16.2(a)(10)(ii)); and (3) failure to obtain plaintiffs' consent before modifying the design of the retaining wall and substituting the inferior backfill material (N.J.A.C. 13:45A-16.2(a)(3)(iv)).
Before trial, the trial court granted the individual defendants' motion to dismiss the complaint against them, holding that the CFA did not create a direct cause of action against the individuals. Plaintiffs' remaining claims were tried and the jury returned a verdict in favor of plaintiffs on all counts, awarding damages totaling $490,000. The Appellate Division reversed the trial court's order dismissing the claims against the individual defendants under the CFA. Allen v. V and A Bros., Inc., 414 N.J. Super. 152 (App. Div. 2010). The panel remanded the matter to determine whether any of the individual defendants had personally participated in the regulatory violations that formed the basis for plaintiffs' CFA complaint. The panel, however, precluded relitigation of the overall quantum of damages found by the jury in the trial against the corporate defendant. The Court granted defendants' petition for certification. 204 N.J. 40 (2010).
HELD: (1) Employees and officers of a corporation may be individually liable under the CFA for acts they undertake through the corporate entity; and (2) the individual defendants are not collaterally estopped from relitigating the quantum of damages attributable to the CFA violations.
1. The consideration of individual liability here requires analysis of the CFA's language and its relationship with traditional theories used by courts to impose personal liability when acts are undertaken through a corporation. In interpreting a statute, the Court effectuates the Legislature's intent by first looking to the plain language, and seeking further guidance only if the Legislature's intent cannot be derived from the words chosen. The analysis of individual liability in this matter requires consideration of the CFA's definition of "person," N.J.S.A. 56:8-1(d); the CFA's operative provision that creates a cause of action, N.J.S.A. 56:8-2; and the three "Home Improvement Practices" regulations that formed the basis for the CFA claims. (pp. 17-22)
2. The CFA's broad definition of "person" supports the proposition that the CFA permits the imposition of individual liability upon one whose acts are part of a violation by a corporation. Defining the term "person," however, merely identifies the universe of actors who may engage in the behavior that the statute defines to be a violation; it does not independently create a basis for their liability. Rather, liability can only be imposed in accordance with the operative provision of the CFA, which has as its focus the "act" that is defined as a violation of the statute's protections. (pp. 22-23)
3. The CFA's operative provision protects consumers from certain affirmative acts, knowing omissions, and regulatory violations. In light of the broad remedial purposes of the CFA and the expansive sweep of the definition of "person," it is clear that an individual who commits an affirmative act or a knowing omission that the CFA has made actionable can be liable individually. Although the statute would also impose liability on the individual's corporate employer for such an affirmative act, there is no basis on which to conclude that the statute meant to limit recourse to the corporation and to shield the individual from liability. On the contrary, it has been held that corporate officers and employees could be individually liable pursuant to the CFA for their affirmative acts, notwithstanding that they were acting through a corporation. Although one might engage in an alternative veil-piercing approach, nothing in the CFA or the relevant precedents suggests that in the absence of veil-piercing the individual employee or officer will be shielded from liability for a CFA violation. (pp. 23-26)
4. Individual liability of a corporate employee or officer for CFA regulatory violations, rather than an affirmative act or a knowing omission, is dependent on the language of the particular regulation upon which the complaint is based and the nature of the individual defendant's actions. Regarding the "Home Improvement Practices" regulations at issue here, a distinction can be drawn between the principals of a corporation and its employees. The principals may be broadly liable because they are the ones who set the policies that the employees may be merely carrying out. Therefore, if the principals have adopted a course of conduct in which written contracts are never used, in clear violation of the regulation, there may be little basis on which to extend personal liability to the employee who complies with that corporate policy. However, if the employee unilaterally concludes that an inferior product should be used in place of one specified in a contract and does so without the knowledge of the homeowner, there is little reason to construe the CFA to limit liability to the corporate employer and permit that employee to escape bearing some individual liability. As a result, although the analysis turns on the particular regulation and circumstances of the claim, there can be individual liability under the CFA. This concept of individual liability does not violate the statutory protections of the Business Corporation Act and is consistent with the tort participation theory. Because the trial in this matter was limited to plaintiffs' claims against the corporation, the matter must be remanded because the record is insufficient to permit a conclusive analysis of whether any of the individually-named defendants can be individually liable. (pp. 26-32)
5. The Appellate Division's order precluding relitigation of the overall quantum of damages assessed by the jury implicates a collateral estoppel analysis. Collateral estoppel prohibits relitigation of issues if its five elements are met, only the fifth of which is in dispute here: whether the party against whom the doctrine is asserted was a party to or in privity with a party to the earlier proceeding. A non-party is in privity when he or she actually controlled the litigation. Even if all five elements coalesce, collateral estoppel will not be applied when it is unfair to do so. Neither Taylor nor Vincent's estate were in privity with the corporate defendant because there is no evidence that either exercised any control over the litigation. Collateral estoppel also does not apply to Angelo because: (1) although he was the sole shareholder of the corporation during litigation and appeared as a fact witness, it is unclear whether he actually exercised control over the litigation; (2) collateral estoppel would not be fair because the claims against the individuals were dismissed and Angelo might have made different tactical decisions if he was participating as a defendant; and (3) because the other individual defendants will be not be estopped from relitigating damages attributable to the CFA violations, precluding Angelo from doing likewise would serve no purpose in the context of the matters tried on remand. (pp. 32-38)
The judgment of the Appellate Division is AFFIRMED and MODIFIED IN PART and REVERSED IN PART; and the matter is REMANDED to the trial court for proceedings consistent with the Court's decision.
CHIEF JUSTICE RABNER and JUSTICES LONG, LAVECCHIA, ALBIN and RIVERA-SOTO join in JUSTICE HOENS's opinion.
JUSTICE HOENS delivered the opinion of the Court.
This appeal involves two related questions that require us to consider the grounds for imposing individual liability based upon a violation of the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20.
The first question concerns the interplay between CFA claims brought against corporate entities and individual employees or officers who are also named as defendants. More specifically, we consider whether, and under what circumstances, the owners and employees of a corporation may be individually liable for CFA violations that are directly attributable to acts undertaken by them through the corporate entity.
The second, and related, issue concerns whether those individuals may be barred by the doctrine of collateral estoppel from relitigating the quantum of damages assessed by a jury in the context of a trial in which only the corporate defendant was represented.
I. We derive our recitation of the facts that give rise to the issues on appeal from the testimony offered at trial. In doing so, however, we recognize that the factual record relating to the individual defendants is constrained because the trial proceeded with only the corporation as a defendant. That is, although two of the individual defendants appeared at trial and testified as fact witnesses they did so after they had been dismissed as parties and they were not represented by individual counsel at trial. Moreover, the record does not reflect that either of them was even present during the trial save for the day on which each was called to testify.
With that caveat concerning the facts that can be derived from the record, it is clear that, at its core, this is a dispute between plaintiffs William and Vivian Allen and the corporate and individual defendants they hired to perform work on their house and grounds. Although it is largely a dispute concerning the quality of the work performed, plaintiffs also allege that defendants violated three separate regulations governing home improvements. Those regulatory violations form the basis for plaintiffs' CFA claims against the corporation as well as the individuals.
A. Plaintiffs lived in Skillman, during which time an entity known as Caliper Farms performed landscaping work on their property. At all times relevant to this dispute, Caliper Farms was the name through which the corporate defendant, V and A Brothers, Inc., did business. At the time when the events giving rise to this dispute were unfolding, the corporation was wholly owned by two brothers, Vincent and Angelo DiMeglio. After the dispute arose, but before this lawsuit was filed, Vincent passed away, and Angelo purchased Vincent's shares of V and A Brothers, Inc. from Vincent's estate, thereby becoming the sole owner of the corporation.
In 2002, plaintiffs purchased a home in Princeton Township that was in need of landscaping. Because they had been satisfied with the work performed by Caliper Farms on their home in Skillman, they engaged defendant V and A Brothers, Inc. to do the landscaping work at the Princeton property. As part of the work at the residence in Princeton, plaintiffs planned to build an in-ground swimming pool in the backyard of the home. Because the lot on which the Princeton home was built was steeply sloped, the scope of that work included building a retaining wall and creating a level area on the property where the pool could be installed. Plaintiff contracted with V and A Brothers, Inc. to level the property and build the retaining wall, but hired a separate company to install the pool.
Angelo testified that his brother Vincent, who was several years older than he, had started the business and acted as the on-site manager for the work that the corporation performed. In contrast, Angelo attended to administrative matters and, although he occasionally visited sites and observed work in progress, he played a more limited role in the field than did Vincent. In addition to Angelo and Vincent, the corporation had one full-time employee, Thomas Taylor. Taylor was their sales representative and served as the corporation's principal contact with plaintiffs. He was responsible for designing the landscaping layout and evaluating the way the backyard could be configured to accommodate the pool, a task that was complicated not only by the steep slope at the rear of the property, but by wetlands restrictions and zoning constraints as well.
Plaintiffs assert that they hired V and A Brothers, Inc. to level off the slope and build the retaining wall based on their discussions with Taylor. The parties' agreement concerning the grading of the slope and the construction of the wall was not reduced to writing, but all parties agree that the estimated price was $160,000. Although V and A Brothers, Inc. designed the layout of the project, defendants relied on their block distributor, E.P. Henry, and an engineering firm, Earth Engineering, for the design of the retaining wall and for the job specifications relating to that aspect of defendants' work. According to plaintiffs, the agreed-upon work included specifications about the type and quality of backfill that could be used and that fixed the maximum height of the retaining wall. Both the backfill and the wall height eventually became sources of disagreement between the parties.
The construction of the retaining wall required the use of backfill to support the wall. There are, however, many varieties, types, and grades of backfill, each of which is capable of supporting different amounts of weight. As a result, the plans for this retaining wall specified the type of backfill required for the job. Plaintiffs assert that V and A Brothers, Inc. did not use the specified backfill, but instead substituted an inferior grade of fill that defendants trucked to plaintiffs' property from one of defendants' other construction sites. Both Angelo and Taylor testified that Vincent was responsible for obtaining backfill that was appropriate for the job.
The plans also specified that the wall would be twelve feet, four inches in height. As the overall project proceeded, however, the construction of the pool changed in two ways. First, the pool installation was impacted by subsurface conditions that were apparently unanticipated. As a result, when the other contractor completed the pool installation, the actual elevation of the pool was higher than had been expected. Second, in order to create a large enough area to install the pool, the retaining wall needed to be moved out as compared to the original plan. Moving the wall required that it be located farther down the existing slope on the property. Taken together, these two alterations meant that had the retaining wall been installed as designed, the top of it would have been below the level at which the pool was actually constructed. V and A Brothers, Inc. therefore increased the height of the retaining wall to conform with the elevation of the pool, resulting in a finished wall that significantly exceeded the height specified in the plan.
Rather than the twelve-foot, four-inch height included in the plan, the completed wall was eighteen feet, four inches high. Taylor testified that there was nothing in the engineering plan to indicate that the specified height of the wall represented the maximum permissible height, but he conceded that he did not consult further with the engineers while building a wall that exceeded the planned height by nearly fifty percent.
After V and A Brothers, Inc. completed the work but before it obtained final municipal approval for the construction, plaintiffs paid in full for all of the work that had been performed. It appears from the record that ...