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Cardillo v. Bolger

A-1117-07T2 (N.J. Super. App. Div. 2009) (Unpublished)

CONSUMER FRAUD ACT; CORPORATIONS; SHAREHOLDERS; OFFICERS — Under the participation theory of personal liability assumed within New Jersey’s Consumer Fraud Act, if a corporate officer is sufficiently involved in a commission of a tort in circumstances where the corporation owes a duty of care to the victim, and the duty had been delegated to the officer, and the officer breached the duty of care by his or her own conduct, the officer can be found personally liable under the Act.

A home improvement company renovated a home but was not a registered licensee with the municipality as required by municipal ordinance. It also failed to post the performance bond required by municipal ordinance. Further, it commenced the work without obtaining the necessary permits. The homeowner claimed that the contractor failed to install an adequate cooling and heating system and failed to complete the work, and then sued the home improvement company.

The lower court found that the company had violated the Consumer Fraud Act (CFA). The homeowner withdrew any request under the CFA for treble damages or attorney’s fees and sought and received only the statutory remedy of a refund for a portion of the money the homeowner had paid. The homeowner then sought a judgment against the company’s owner (a shareholder) under a tort-participation theory. The lower court held that a tort-participation theory required more than was required to impose strict-liability for CFA regulatory violations, which violations were alleged at trial. It did not believe the contractor acted in an intentionally fraudulent manner and refused to find the company’s owner liable under the tort-participation theory. The homeowner appealed, asserting that the lower court erred in concluding that the sole shareholder of the home improvement company was not liable for his or her corporation’s violations governing home-improvement practices.

The Appellate Division reversed the lower court’s ruling with respect to the sole shareholder’s liability and remanded for entry of judgment in favor of the homeowner. It noted that the homeowner wasn’t trying to pierce the corporate veil. Instead, she was relying exclusively upon the active participation of the shareholder in the CFA violations committed by his company, relying on the tort-participation theory of liability which the lower court found inapplicable. The Court broadly applied the CFA because of its remedial purpose and liberally construed it in favor of the victimized consumer. It ruled that the lower court erred in applying the tort-participation theory to this CFA claim to exonerate the shareholder because he was directly liable to the homeowner under the definitions of “person” in the CFA and “seller” in the applicable regulations. “Persons” and “sellers” held accountable under the CFA include officers and employees if they, in fact, violate the CFA. It found that the acts do not need to be intentionally fraudulent to be violations of the CFA. The Court concluded that such individuals could be personally liable for negligence under the so-called “participation theory of personal liability.” The test is whether the corporate officer is sufficiently involved in the commission of the tort in circumstances where the corporation owes a duty of care to the victim, the duty was delegated to the officer, and the officer breached the duty of care by his or her own conduct. Here, the Court found that the shareholder was sufficiently involved in the commission of the tort to warrant a finding that he was personally liable under the statute.


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