Opinion
DOCKET NO. A-2957-14T3
04-29-2016
CANON FINANCIAL SERVICES, INC., Plaintiff-Respondent, v. DSL HOMES, LLC, Defendant-Appellant, and JASON LEE LUM AND SUPERIOR DATA CORP., Defendants.
Frank R. Emmerich, Jr. argued the cause for appellant (Conrad O'Brien, P.C., attorneys; Mr. Emmerich and Michael P. Hogan, on the briefs). Allison L. Domowitch argued the cause for respondent (Fleischer, Fleischer & Suglia, attorneys; Brian M. Fleischer, of counsel; Ms. Domowitch, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Lihotz and Nugent. On appeal from Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-529-13. Frank R. Emmerich, Jr. argued the cause for appellant (Conrad O'Brien, P.C., attorneys; Mr. Emmerich and Michael P. Hogan, on the briefs). Allison L. Domowitch argued the cause for respondent (Fleischer, Fleischer & Suglia, attorneys; Brian M. Fleischer, of counsel; Ms. Domowitch, on the brief). PER CURIAM
Defendant DSL Homes, a three-member limited liability company, appeals from a January 26, 2015 order granting summary judgment in favor of plaintiff Canon Financial Services, Inc., along with attorney's fees and costs of suit. The obligation resulted from debts under twelve equipment lease agreements executed by Jason Lee Lum, one of defendant's three members. On appeal, defendant argues the judge erred in concluding Lee Lum had apparent authority to bind defendant.
Viewing the facts in a light most favorable to defendant, Davis v. Brickman Landscaping, Ltd., 219 N.J. 395, 406 (2014), we conclude summary judgment was improvidently granted. This record presents material disputes of fact regarding the underlying proofs presented to show defendant's conduct reasonably led plaintiff to believe Lee Lum had authority to contract on behalf of the corporation. Accordingly, we reverse and remand the matter for trial.
Defendant is a small property management company founded sometime in 2005 and owned by members Dennis Callan, Samuel Carpin and Jason Lee Lum. Carpin considered himself the "[m]anaging partner" and asserted only he had the authority to sign documents on the corporation's behalf.
Sometime prior to plaintiff filing suit, Carpin bought Callan's interest. Also, Lee Lum signed over his ownership interest to Carpin in January or February of 2012.
Plaintiff is a third-party financing company, which facilitates the purchase or lease of office equipment from Canon USA sold through independent dealers or sales representatives. For example, an independent dealer meets with a potential customer and the two agree to terms. The dealer requests its customer complete a credit application that is submitted to plaintiff to facilitate the purchase. If approved, plaintiff and the customer execute a lease agreement and the equipment is delivered to the customer.
As noted, plaintiff primarily operated through dealers and had no direct contact with the customer. When engaging in transactions with LLCs, plaintiff required dealers to obtain the signature of the managing member and relied on the dealer to provide verification of the company or persons signing the lease, limiting its role to running a credit check.
Between October 12, 2009 and September 26, 2011, Lee Lum leased thirty-one copy machines by entering into fourteen separate lease agreements financed by plaintiff. Each lease named defendant as the acquiring company and Lee Lum falsely listed himself as president or vice-president. Carpin and Callan were unaware of the transactions. Prior to executing the agreement, after Lee Lum provided defendant's name, address, and tax identification number, plaintiff ran a credit check on Lee Lum and defendant to verify defendant's corporate status through Dunn and Bradstreet. Lee Lum was also required to personally guarantee the transactions, providing his home address and social security number. A total of sixteen commercial copy machines were shipped to Lee Lum's personal residence in Bucks County, Pennsylvania. The remaining fifteen were delivered to other locations Lee Lum designated.
Following a breach of the lease agreements' payment terms, plaintiff contacted Carpin in October 2012 seeking payment. Defendant claimed this was when it first learned of the debts incurred by Lee Lum. Defendant declined to pay the debts, asserting Lee Lum was unauthorized to engage in the transactions. Plaintiff attempted repossession following default and Lee Lum admitted he sold the equipment and retained the proceeds for his own personal gain.
Plaintiff initiated this action. In addition to the lease amounts, plaintiff sought late fees, attorney's fees and litigation costs. Default judgment was entered against Lee Lum when he failed to respond. Defendant challenged its responsibility for repayment of the debts, which it maintained were fraudulently incurred by Lee Lum. Following discovery, the parties filed cross-motions for summary judgment.
In addition to the parties and Lee Lum, plaintiff's amended complaint added Lee Lum's company, Superior Data Corp., as an additional defendant. It too defaulted; however, default was vacated and the action dismissed because Superior Data Corp. filed a voluntary petition seeking Chapter Seven bankruptcy relief.
Plaintiff argued the unequivocal terms of the lease agreements entitled it to payment of the debts incurred by Lee Lum, who was an LLC owner-member. Challenging plaintiff's motion, defendant refuted its obligation because it did not validly enter into the lease agreements, as Lee Lum had no authority to bind the corporation. As for Lee Lum's fraud, defendant asserted two lease agreements included Carpin's forged signature and the others resulted because plaintiff failed to diligently verify the information presented by Lee Lum.
The judge granted plaintiff's and denied defendant's motion for summary judgment on twelve of the fourteen leases, accepting Carpin's signature as forged on two leases. She concluded defendant was bound to satisfy the debts because Lee Lum had apparent authority to act for the corporation. The judge reasoned:
DSL Homes, LLC, used Jason Lee Lum's home address as their office address. So that certainly is one thing that [plaintiff] may have looked at. They used his home number as the LLC phone number so that's something else that they looked at. Mr. Lee Lum gave them the tax ID number. . . . But each of those pieces of information in and of itself might not mean much but when you put it all together, what you have is someone who is a member . . . signing leases on behalf of the LLC and just acting in the ordinary course of this business. The suggestions that DSL makes for what [plaintiff] should have done . . . would have all businesses come to a screeching halt.The final judgment, issued on January 26, 2015, awarded plaintiff $267,039.28. Defendant's appeal ensued.
There is nothing in this record that suggests that Jason Lee Lum acted in any way that would have given [plaintiff] pause to think that he wasn't acting for the LLC.
. . . .
But I'm satisfied from this that Jason Lee Lum held himself out as an owner and member of DSL, held himself out as having the authority to bind DSL, and there is nothing in the record that would suggest that [plaintiff] should not have relied upon that. And DSL's argument is that [plaintiff] should have done a lot of other things to confirm all of that when in fact they're not really in a position to do that.
"An appellate court reviews an order granting summary judgment in accordance with the same standard as the motion judge." Bhagat v. Bhagat, 217 N.J. 22, 38 (2014). We "must review the competent evidential materials submitted by the parties to identify whether there are genuine issues of material fact and, if not, whether the moving party is entitled to summary judgment as a matter of law." Ibid.; R. 4:46-2(c).
We must consider all facts in a light most favorable to the non-moving party, Robinson v. Vivirito, 217 N.J. 199, 203 (2014), keeping in mind "[a]n issue of fact is genuine only if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact." R. 4:46-2(c). "The very object of the summary judgment procedure . . . is to separate real issues from issues about which there is no serious dispute." Shelcusky v. Garjulio, 172 N.J. 185, 200-01 (2002). A motion for summary judgment will not be defeated by bare conclusions lacking factual support, Petersen v. Twp. of Raritan, 418 N.J. Super. 125, 132 (App. Div. 2011) self-serving statements, Heyert v. Taddese, 431 N.J. Super. 388, 413-14 (App. Div. 2013), or disputed facts "of an insubstantial nature." Pressler & Verniero, Current N.J. Court Rules, cmt. 2.1 on R. 4:46-2 (2016).
"The practical effect of this rule is that neither the motion court nor an appellate court can ignore the elements of the cause of action or the evidential standard governing the cause of action." Bhagat, supra, 217 N.J. at 38. It is only "when the evidence 'is so one-sided that one party must prevail as a matter of law,' the trial court should not hesitate to grant summary judgment." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995) (citation omitted) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S. Ct. 2505, 2512, 91 L. Ed. 2d 202, 214 (1986)).
If no genuinely disputed fact exists, we must "then decide whether the trial court's ruling on the law was correct." W.J.A. v. D.A., 210 N.J. 229, 238 (2012) (quoting Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010)). Since the grant of summary judgment calls for a review of the "trial court's interpretation of the law and the legal consequences that flow from established facts," the trial court's decision is "not entitled to any special deference," and is subject to de novo review. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
We decline to address plaintiff's newly asserted theory Lee Lum had actual authority to execute the leases on behalf of the corporate entity. The theory of liability presented before the Law Division rested solely on application of the distinct doctrine of apparent authority. Issues not raised below before the trial court are not to be considered on appeal unless they are jurisdictional in nature or substantially implicate public interest. "[I]t is a well-settled principle that our appellate courts will decline to consider questions or issues not properly presented to the trial court when an opportunity for such a presentation is available . . . . " Zaman v. Felton, 219 N.J. 199, 226-27 (2014) (alteration in original) (quoting State v. Robinson, 200 N.J. 1, 20 (2009)).
"Generally, an agent may only bind his principal for such acts that 'are within his actual or apparent authority.'" N.J. Lawyers' Fund for Client Prot. v. Stewart Title Guar. Co., 203 N.J. 208, 220 (2010) (quoting Carlson v. Hannah, 6 N.J. 202, 212 (1951)). Limiting our focus to apparent authority, the doctrine "imposes liability on the principal not as a result of an actual contractual relationship, but because the principal's actions have misled a third-party into believing that a relationship of authority in fact exists." Mercer v. Weyerhaeuser Co., 324 N.J. Super. 290, 317 (App. Div. 1999). The doctrine of apparent authority "focuses on the reasonable expectations of third parties with whom an agent deals." Restatement (Third) of Agency § 7.08 cmt. b (2006). Therefore "a court must examine the totality of the circumstances to determine whether an agency relationship existed even though the principal did not have direct control over the agent." Stewart Title, supra, 203 N.J. at 220 (quoting Sears Mortg. Corp. v. Rose, 134 N.J. 326, 338 (1993)). See also AMB Property, LP v. Penn America Ins. Co., 418 N.J. Super. 441, 454 (App. Div. 2011).
The "conclusion that a party has acted with apparent authority must rest upon the actions of the principal, not the alleged agent." Lobiondo v. O'Callaghan, 357 N.J. Super. 488, 497 (App. Div.), certif. denied, 177 N.J. 224 (2003); see also Jennings v. Reed, 381 N.J. Super. 217, 231 (App. Div. 2005) ("[A]pparent authority . . . is created as to a third person by written or spoken words or any other conduct of the principal which, reasonably interpreted, causes the third person to believe that the principal consents to have the act done on his behalf by the person purporting to act for him." (second alteration in original) (quoting Wilzig v. Sisselman, 209 N.J. Super. 25, 35 (App. Div.), certif. denied, 104 N.J. 417 (1986))). Thus, apparent authority arises "when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal's manifestations." (quoting Bridgewater-Raritan Educ. Ass'n v. Bd. of Educ. of Bridgewater-Raritan Sch. Dist., Somerset Cty., 221 N.J. 349, 363 (2015) Restatement (Third) of Agency, supra, § 2.03). The purpose of this doctrine is to prevent "a principal from 'choos[ing] to act through agents whom it has clothed with the trappings of authority and then determin[ing] at a later time whether the consequences of their acts offer an advantage.'" Estate of Cordero ex rel. Cordero v. Christ Hosp., 403 N.J. Super. 306, 312 (App. Div. 2008) (alterations in original) (quoting Restatement (Third) of Agency, supra, § 2.03 cmt. c).
When faced with an issue regarding apparent authority, "[t]he factual question is whether the principal has by his voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business uses, . . . is justified in presuming that such agent has the authority to perform the particular act in question." Alicea v. New Brunswick Theological Seminary, 244 N.J. Super. 119, 129 (App. Div. 1990) (alterations in original) (quoting Wilzig, supra, 209 N.J. Super. at 35), aff'd, 128 N.J. 303 (1992); Rodriguez v. Hudson Cty. Collision Co., 296 N.J. Super. 213, 220-21 (App. Div. 1997). Consequently, the party asserting apparent authority of a putative agent has the burden to establish three things: (1) the appearance of authority was created by the principal's conduct, as it cannot alone and solely be established by proof of the agent's conduct; (2) the third party relied on "the agent's apparent authority to act for [the] principal"; and (3) "reliance was reasonable under the circumstances." Mercer, supra, 324 N.J. Super. at 318.
Defendant contends plaintiff relied solely on Lee Lum's actions and statements, which are insufficient to bind the corporation. We note in this limited record there are disputes regarding defendant's corporate address and whether it was reasonable for plaintiff to extend further credit after default under the first lease agreement. Noticeably absent from the record are the documents plaintiff considered to support its reliance on Lee Lum's representations that he was authorized by the corporation to engage in the transaction. For example, plaintiff suggests it considered defendant's certificate of good standing and a credit report, yet these documents were not included and the record does not state where defendant was formed. There is no evidential support showing: (1) defendant's Certificate of Organization or Formation, which is dependent on the state in which it was incorporated; (2) defendant's certificate in good standing and/or its authorization to do business in the state where the contracts were formed, which also is not stated; and (3) other documents reviewed to extend credit in 2009 through 2011.
The Dunn & Bradstreet report in the record is dated December 28, 2012, and states it was created on February 22, 2011, almost two years after the first lease was executed. --------
Defendant also disputes whether plaintiff exercised due diligence supporting its claim reliance was reasonable. "It is usually a question for the trier of fact whether a reasonable person in the position of a third party would believe that an agent had the authority or the right to do a particular act." Restatement (Third) of Agency, supra, § 2.03 cmt. d; Amco Ukrservice & Prompriladamco v. Am. Meter Co., 312 F. Supp. 2d 681, 696 (E.D. Pa. 2004) ("Whether the doctrine of apparent authority applies in a given case is almost never suited for summary judgment because it closely turns on both the principal's manifestations and the reasonableness of the third party's beliefs." (citing Gizzi v. Texaco, Inc., 437 F.2d 308, 310 (3d Cir. 1971))); see also Shadel v. Shell Oil Co., 195 N.J. Super. 311, 315 (Law Div. 1984) (denying summary judgment under grounds for apparent authority because questions respecting the principal's "conduct and representations, as well as the [third-party's] reasonable reliance on that conduct" was for a jury to determine).
Also relevant may be the statutory authority governing the operation of limited liability corporations. For example, in New Jersey "[a] member is not an agent of a limited liability company solely by reason of being a member." N.J.S.A. 42:2C-27(a). However, in Pennsylvania a different statutory framework governs limited liability corporations. 15 Pa.C.S. §§ 8901 to 8948.
Defendant recites numerous facts challenging the reasonableness of plaintiff's continued reliance, which must be weighed and determined by the fact finder. For example: (1) Lee Lum used different corporate titles on the contracts; (2) the few payments made were not issued by defendant but Lee Lum personally or a corporate entity he controlled; (3) no facts show plaintiff attempted to verify the proposed transaction as reasonably related to defendant's known business or that plaintiff checked Lee Lum's status in the corporation; and (4) in the face of default on the initial lease, plaintiff continued to extend additional credit, apparently limiting its inquiry only to the corporation's name, address, and federal tax identification number; information which was publicly available.
Although the unrefuted facts include Lee Lum as a member and owner of defendant, and at some unspecified date for some unspecified time, Lee Lum's home address and phone number may have been used as the corporation's contact information, these facts alone are insufficient to support apparent authority. The genuine issues of material facts, demonstrated by the competent evidential materials set forth by defendant, preclude legal resolution of this dispute in favor of plaintiff by summary judgment. Brill, supra, 142 N.J. at 540.
Reversed and remanded. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION