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Deluxe Building Systems, Inc. v. Constructamax, Inc.

2011 WL 322370 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

CORPORATIONS; SHAREHOLDERS; PERSONAL LIABILITY — In order to find a corporation’s shareholder personally liable for the acts of the corporation under the participation theory of liability, the claimant must establish an independent legal duty owed by the corporation that would extend to the shareholder personally.

Based upon a complex factual scenario, one party to a law suit sought to have personal liability imposed on an individual who owned a corporate real estate developer. He asserted a “participation theory” of liability. The corporate developer had been retained as a general contractor by the party seeking to impose such liability. In response, the shareholder argued that no cause of action for tortious interference with prospective economic advantage could be asserted against him under the “participation theory” of personal liability. The Court agreed. In doing so, it cited a 2002 New Jersey Supreme Court case which had held: “... the essence of the participation theory is that a corporate officer can be held personally liable for a tort committed by the corporation when he or she is sufficiently involved in the commission of the tort. A predicate to liability is a finding that the corporation owed a duty of care to the victim, the duty was delegated to the officer and the officer breaded [sic – breached] the duty of care by his own conduct.” In this case, “[first] and most critically, [the party seeking to impose liability] utterly failed ... to specifically allege the existence of an independent duty of care [the corporation] owed to [him] that could establish [the shareholder’s] personal liability under the ‘participation theory.’” In this complex case, the duties owed by the parties were defined by the various contracts to which they each agreed. Even though the party seeking to impose liability was alleging that somehow the corporation had interfered with the performance of his own contract with a surety, he “failed to establish the independent legal duty owed by [the corporation owned by the shareholder] that [would be] necessary to hold [the shareholder] personal[ly] liable under the ‘participation theory.’”

In addition, the party seeking to impose liability on the shareholder claimed that the shareholder was “personally liable for an alleged willful overstatement of [a] construction lien.” The Court rejected this claim because not a single state or federal case could be cited in which a court had “held a party personally liable for a violation of [the Construction Lien statute] pursuant to the ‘participation theory.’” This Court refused to create a new cause of action under New Jersey law.

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