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Ellman v. Ifocus Solutions Corp.

A-945-03T3 (N.J. Super. App. Div. 2004) (Unpublished)

CORPORATIONS; VEIL PIERCING—A corporate veil can be pierced where there is a showing that the corporation was operated as an individual’s alter ego but the burden of proof rests with the person making the claim.

A landlord sued its corporate tenant for damages incurred when the tenant abandoned the premises. The landlord was forced to re-let the premises after the abandonment, but was unable to “fully rent” them. It allegedly lost rent, late fees, and other damages. The landlord filed an action against the tenant corporation for breach of contract and sought to pierce the corporate veil to hold the corporation’s principal liable for the damages by contending that the corporation was the principal’s alter ego. The landlord also filed a separate claim against the corporation’s principal for tortious interference with contractual relations, asserting that the principal deliberately interfered with the landlord’s attempt to collect rent from the tenant corporation. The principal argued that the tenant corporation was not an alter ego and the lower court agreed, ruling that: (1) the landlord should have been on notice that it was doing business with a corporate entity when the principal signed the lease as an agent of the tenant corporation; (2) no facts had been supplied to support the allegation that the tenant corporation was a facade for the principal; and (3) no facts had been presented to establish that the principal acted outside of the scope of his duties as a corporate officer. For those reasons, the lower court dismissed the landlord’s complaint against the principal. The landlord appealed.

On appeal, the landlord argued that the lower court improperly granted the motion to dismiss because the facts alleged in the complaint were legally sufficient to set forth a cause of action. It asserted that the complaint against the principal stated a legally cognizable claim of tortious interference with business practice. The Appellate Division affirmed the lower court’s order, but only in part. The Court held that there was no factual support in the complaint for the landlord’s legal claims. Specifically, it found that the facts alleged with respect to the principal were conclusory in nature and provided no basis for piercing the corporate veil. It held that generally, shareholders and officers may not be held personally liable for the actions of their corporation absent a showing of fraud or injustice. Liability may be imposed upon a controlling stockholder of a close corporation where the controlling stockholder uses the corporation as an “alter ego” to conduct his or her personal business or as a vehicle for committing fraud but the burden to demonstrate whether the corporate veil should be pierced is on the person making that claim. Here, the landlord was unable to show that the corporate veil should be pierced because it did not plead a cause of action for fraud against the principal with specificity as required. Nonetheless, the Court reversed the lower court’s order dismissal of the fraud complaint with prejudice to permit the landlord to file an amended complaint and replead the fraud counts with specificity.

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