Opinion
DOCKET NO. A-3788-14T1
07-19-2016
PEARL RIVER PLUMBING, HEATING & ELECTRIC, INC., Plaintiff-Appellant, v. WILLIAM SZENTADORJANY and SEA SPRAY FIRE PROTECTION, INC., jointly and severally, Defendant-Respondent.
DiLorenzo & Rush, attorneys for appellant (Chris M. DiLorenzo, of counsel and on the briefs). Andrew Seewald, attorney for respondent.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Carroll and Rothstadt. On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-4801-13. DiLorenzo & Rush, attorneys for appellant (Chris M. DiLorenzo, of counsel and on the briefs). Andrew Seewald, attorney for respondent. PER CURIAM
Plaintiff, Pearl River Plumbing, Heating & Electric, Inc., appeals from a March 9, 2015 judgment dismissing its amended complaint against defendant William Szentadorjany. The sole issue on appeal is whether the trial court abused its discretion in denying plaintiff's application to pierce the corporate veil of defendant Sea Spray Fire Protection, Inc. (Sea Spray) and hold Szentadorjany personally liable for the debt owed to plaintiff. Based on our review of the record, we find the judge's decision is supported by substantial credible evidence and is consistent with applicable case law. Accordingly, we affirm.
I.
Plaintiff contracted with Sharp Electronics to perform plumbing, gas, and sprinkler work at Sharp's Mahwah facility. Plaintiff was not licensed to perform sprinkler work in New Jersey. Consequently, on the recommendation of its sprinkler engineer, plaintiff contacted Sea Spray to serve as the licensed subcontractor for the installation of the sprinkler system. Plaintiff's president, Thomas Bertussi, negotiated the scope of the work and the terms of payment with Szentadorjany, who served as Sea Spray's president and was its sole shareholder. As a result, on September 12, 2012, Bertussi sent a purchase order addressed to Szentadorjany at Sea Spray Fire Protection, Inc., which called for Sea Spray to provide labor for the installation of the sprinkler system at a cost of $25,000. The purchase order further specified that "[t]his includes [two] men/[fifty-eight] [hours] per week for [four] weeks." Separate from the written agreement, Bertussi also agreed to pay $2000 for Szentadorjany's hotel expenses due to the long hours Szentadorjany was required to work at the Sharp job site and its distance from his home.
Work at the Sharp facility began on October 1, 2012. Approximately one week later a dispute arose, which led the parties to meet on October 9. Bertussi described the meeting as cordial, while Szentadorjany characterized it as threatening. In any event, an agreement was reached to modify the terms of the purchase order. Specifically, it was agreed that plaintiff would pay $8,333.28 for the work that had been performed to date, plus $10,000 after all inspections and issuance of the certificate of occupancy. These payments were in addition to the $2000 hotel allowance, which plaintiff previously paid by check to Sea Spray on September 26. On October 10, plaintiff issued an $8,333.28 check, also payable to Sea Spray, for the completed sprinkler work.
It is undisputed that after receiving the $8,333.28 check, Szentadorjany contacted the Mahwah construction official to advise that Sea Spray was no longer involved with the sprinkler installation. Mahwah then issued a stop work order, which delayed the final inspection of the sprinkler system. According to plaintiff, it then had to engage another fire protection contractor and fire protection engineer to complete the sprinkler installation and obtain all required certificates of occupancy, at a cost of $51,120.08. Following a credit for the $10,000 that was to have been paid to Sea Spray after the final inspection, plaintiff began suit against Sea Spray and Szentadorjany individually, seeking damages of $41,120.08.
On January 5, 2015, plaintiff and Sea Spray entered into a consent judgment on the record, whereby Sea Spray conceded liability to plaintiff in the amount of $41,120.08 on plaintiff's breach of contract claim. On March 5, 2015, Judge James J. DeLuca conducted a bench trial with respect to plaintiff's remaining claims against Szentadorjany individually. In his detailed oral opinion, Judge DeLuca initially found as follows:
Mr. Bertussi testified at trial that as part of the contract with Sharp Electronics[,] plaintiff hired subcontractors including "Sea Spray." At trial [] Bertussi testified that plaintiff went into a contract with Sea Spray. Significantly to this [c]ourt[,] on September 26, 2012, before there was any dispute among the parties, plaintiff wrote a check to Sea Spray for hotel expenses. Additionally on October 10, 2012, after the modification was agreed to, plaintiff wrote another check for $8333.28, again payable to Sea Spray. Neither check was made payable to Mr. Szentadorjany individually. Mr. Szentadorjany testified that these funds were deposited into Sea Spray's bank account and were used by Sea Spray to pay the worker for Sea Spray who actually worked on the job. On cross-examination Mr. Bertussi
acknowledged plaintiff's agreement with Sea Spray and plaintiff did not ask Mr. Szentadorjany to execute any personal guarantee to plaintiff.Plaintiff does not challenge this ruling on appeal.
Accordingly, I find . . . based upon the evidence that plaintiff was aware that Sea Spray was a start-up entity since Sea Spray requested an advance of $2000 to pay for the hotel room so as to be near the job site. This advance was made on . . . September 29, 2012[,] before the job actually started and before the modification agreement of October 9, 2012. Accordingly, the [c]ourt finds that the contract was between plaintiff and Sea Spray. Defendant William Szentadorjany was not a party to the contract and accordingly plaintiff's contract claim against Mr. Szentadorjany is dismissed.
With respect to piercing the corporate veil, after citing relevant case law, the judge reasoned:
In the instant case plaintiff asserts that this [c]ourt should pierce the corporate veil because among other things the corporation did not have a business premises, [its] address was the same address as Mr. Szentadorjany's personal residence, it did not post any signs, it did not adopt any by-laws, it did not have any regular or annual meetings, it does not have any office[r]s . . . [or] any other shareholders aside from Mr. Szentadorjany, [and] it does not have a business phone in its name. Mr. Szentadorjany's personal cell phone was used for business. It used a van that was registered to a friend of Mr. Szentadorjany, it did not have a website, it did not rent a business location, it apparently did not have any loans or debts, [and] it is not a member of the chamber of commerce.
Plaintiff also asserts that Sea Spray did not have adequate capitalization. I have searched my notes, reviewed my recollection and I simply find that argument is not borne out by the facts of this case. It also apparently did have employees since according to the testimony of Mr. Szentadorjany there was one additional employee who was paid by Sea Spray for the work that was performed.
Significantly[,] in this case the facts are uncontroverted that Sea Spray was in fact duly incorporated in New Jersey prior to the time the contract with plaintiff was entered [into]. Sea Spray filed an annual report, Sea Spray filed corporate tax returns, [and] Sea Spray maintained a separate bank account. As I said, I searched my notes, looked at the record, looked at the documents in evidence and I find no evidence that Sea Spray was under-capitalized. Let me be clear, there is no doubt that Sea Spray was a start-up and apparently according to the testimony this was known to [] plaintiff.
Based upon the evidence and based upon the law presented, the [c]ourt finds that [] plaintiff did not . . . meet its heavy burden to support its theory that the corporate veil should be pierced.
II.
In reviewing a judge's determination whether to pierce the corporate veil, we are bound by the judge's factual findings so long as they are supported by substantial credible evidence. See Marioni v. Roxy Garments Delivery Co., 417 N.J. Super. 269, 275 (App. Div. 2010). We owe particular deference to a trial judge's evaluation of witness credibility. State v. Locurto, 157 N.J. 463, 471 (1999). However, we owe no deference to the trial judge's interpretation of the law. Marioni, supra, 417 N.J. Super. at 275. Moreover, we review a judge's decision whether to grant an equitable remedy for abuse of discretion so long as it is consistent with the judge's factual findings. Id. at 275-76.
"[P]iercing the corporate veil is not technically a mechanism for imposing legal liability, but for remedying the fundamental unfairness that will result from a failure to disregard the corporate form." Verni v. Harry M. Stevens, Inc., 387 N.J. Super. 160, 199 (App. Div. 2006) (quotations omitted), certif. denied, 189 N.J. 429 (2007). New Jersey courts will pierce the corporate veil when necessary "to prevent an independent corporation from being used to defeat the ends of justice, to perpetrate a fraud, to accomplish a crime, or otherwise to evade the law." Tung v. Briant Park Homes, Inc., 287 N.J. Super. 232, 239-40 (App. Div. 1996).
"[T]he party seeking an exception to the fundamental principle that a corporation is a separate entity from its principal bears the burden of proving that the court should disregard the corporate entity." Id. at 240 (internal citations omitted). See also Richard A. Pulaski Constr. Co. v. Air Frame Hangars, Inc., 195 N.J. 457, 472 (2008); Verni, supra, 387 N.J. Super. at 199. The issue is one for the factfinder, "unless there is no evidence sufficient to justify disregard of the corporate form." Verni, supra, 387 N.J. Super. at 199.
To justify holding the principals of a company individually liable, it is not enough to allege that a judgment against the company will be uncollectible; after all, "the insulation of shareholders from the liabilities of the corporate enterprise" is the primary reason for incorporation. Pulaski, supra, 195 N.J. at 472. Some factors to consider in the analysis include whether the corporation was undercapitalized at its formation (that is, did not have enough capital to satisfy then existing or reasonably foreseeable debts), whether the principals failed to observe corporate formalities, insolvency, and the absence of corporate records or accounts. 18 Am. Jur. 2d Corporations § 54 (2004).
Our courts have held that piercing the corporate veil as to a particular person requires his or her personal complicity in the misuse of the corporation or in failure to observe corporate formality. See, e.g., Marascio v. Campanella, 298 N.J. Super. 491, 502 (App. Div. 1997) (holding that the fact that a shareholder was alleged to have paid some corporate obligations from his personal checking account, without more, does not provide a basis to justify piercing the corporate veil and imposing personal liability on that shareholder); Arrow Mfg. Co., Inc. v. Levinson, 231 N.J. Super. 527, 533-34 (App. Div. 1989) (setting aside the judgment because there was insufficient evidence to support piercing the corporate veil and holding appellant personally liable for the corporate debt).
On appeal, plaintiff argues, as it did before the trial court, that the testimonial evidence adduced at trial established that Sea Spray did not follow corporate formalities and was operated as the alter ego of Szentadorjany. However, Judge DeLuca rejected plaintiff's contentions based on the facts as he found them, including his evaluation of witness credibility. There is no basis in this record to disturb his credibility findings, to which we owe deference. See Locurto, supra, 157 N.J. at 472.
Having reviewed the record in light of these principles, we find no basis to disturb Judge DeLuca's well-reasoned factual findings and legal conclusions. Pursuant to Tung, plaintiff bore the burden of proving that the corporate veil should be pierced. We agree with defendants that plaintiff did not sustain its burden in establishing Szentadorjany's personal liability for the contract sums that Sea Spray owed to plaintiff. Plaintiff hired Sea Spray primarily because it was licensed to perform sprinkler work in New Jersey while plaintiff was not. The record establishes that Sea Spray was properly licensed, as it represented; that there were no deficiencies in the sprinkler work Sea Spray performed; and that Sea Spray was paid only for the services it actually performed. Moreover, plaintiff was well aware that Sea Spray was a start-up company. On these facts, we discern no fraud or injustice that would justify disregard of the corporate form. Pulaski, supra, 195 N.J. at 472; Lyon v. Barrett, 89 N.J. 294, 300 (1982). We therefore affirm, substantially for the reasons set forth in Judge DeLuca's cogent oral opinion.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION