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Richardson v. UN Empress Properties, LLC

A-4680-08T1 (N.J. Super. App. Div. 2010) (Unpublished)

VEIL PIERCING — Courts recognize that principals of small businesses sometimes loosely refer to themselves as “owners,” but that, by itself, does not make them liable for their company’s debts.

Tenants leased a condominium unit from the sponsor. They signed a lease-purchase agreement under which the rent would be applied toward the purchase price for the unit. The tenants experienced various maintenance problems. When the problems were not fixed, the tenants began paying the monthly rent to their attorney’s escrow account. The sponsor responded by filing an eviction action. The tenants asserted, as a defense, the sponsor’s breach of the warrant of habitability. The landlord-tenant court scheduled a hearing. It was adjourned at the sponsor’s attorney’s request. A representative of the sponsor appeared on the original hearing date, but the tenants did not since they were advised that the hearing had been adjourned. The court inadvertently entered judgment for possession in the sponsor’s favor and the sponsor had the sheriff remove the tenants from the unit.

The next day, the tenants were restored to the unit. They sued the sponsor, its members, and the condominium association for damages resulting from their wrongful removal. When the sponsor entity dissolved, the case against it was dismissed. The tenants then argued that the sponsor’s member was personally liable under the piercing the veil principle because he had been acting personally and individually, and not on behalf of the sponsor-entity. They claimed that the member presented himself as the owner, that the eviction complaint listed him, and not the entity, as the owner, and that rent checks were routinely deposited into the sponsor’s account even though the checks were not made payable to the correct entity name. The member argued that even though he causally referred to himself as the unit’s owner, it did not change the fact that an entity was the owner of record. He also argued that the eviction complaint erroneously referred to him, individually, as owner but that was his prior attorney’s mistake. Lastly, he argued that the missing LLC designation on the checks was insignificant because the checks were deposited in the sponsor’s bank account and not his personal bank accounts. The tenants also argued that the condominium association was liable for the condition of the unit. The condominium argued that it was not liable because it was not the agent of the sponsor and owed no duty to the tenant to maintain the condominium unit.

The lower court granted the sponsor’s and condominium association’s motions for summary judgment and dismissed the complaint. The tenants appealed, but the Appellate Division affirmed. The Court found that the tenants offered insufficient evidence that the sponsor’s member had committed any fraud or crime, or that he abused the entity form to evade the law. It noted that principals of small businesses sometimes loosely refer to themselves as “owners,” but that does not make them liable for their company’s debts. The Court also noted that the sponsor’s prior attorney’s poor drafting of the eviction complaint was insufficient reason to pierce the veil. Lastly, the fact that the rent checks did not include the sponsor’s LLC designation would only be significant if the member deposited the checks into his personal account instead of the entity’s bank accounts.

Lastly, the Court also affirmed the lower court’s dismissal of the complaint against the condominium association because the tenants were not members of the condominium association and the association owed no duty to them as tenants. Further, the conditions complained of were specific to the unit, and not to the common areas which would have been the responsibility of the association.

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