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Unger v. Westside Pictures, Inc.

2005 WL 2447907 (N.J. Super. App. Div. 2005) (Unpublished)

CORPORATIONS; SHAREHOLDERS; LIABILITY—Where a contracting party deals with a corporation, absent the existence of some veil piercing factor, there can be no claim against the corporation’s shareholders for breach of contract absent fraud on the part of the shareholders.

A motion picture company organized as a corporation entered into an option agreement with a man to purchase film rights to a novel that the man owned. Its sister corporation then entered into an agreement with an investor whereby the investor agreed to pay the costs of the initial development of the book into a motion picture. In exchange for his investment in the movie, the investor was to receive screen credit and substantial compensation if full financing for the movie could be obtained. The agreement provided that the investor was to be repaid the money he contributed if the movie was produced. Pursuant to the agreement, the investor paid a substantial amount of the initial development costs. The owner of the novel then demanded that certain changes be made to the agreement he had with the motion picture company. The owner was not satisfied with the changes and refused to proceed with the agreement. The motion picture company the sued the novel owner for breach of contract. The company requested that the investor pay its legal fees and the investor refused. As a result, the company dismissed its action against the novel owner. The company then reimbursed the investor for some of the money that he had lent for the development of the movie. The investor filed an action against both corporations and their principals for breach of contract, unjust enrichment, and fraud, seeking to obtain the remainder of the money that had been invested. The investor obtained defaults against the two companies and a trial was held for the case against the companies’ principals. The lower court granted judgment dismissing the complaint against the principals and the investor appealed.

The Appellate Division affirmed the lower court’s ruling. It held that the investor could not proceed with a breach of contract action against the corporations’ principals because the investor had not entered into a contract with them. He had entered into an agreement with their companies. It further held that the investor could not succeed on a claim based on unjust enrichment against the principals. Unjust enrichment claims can only be maintained in cases where no written contract exists between the parties and one party is asserting that the other party has been unjustly enriched. The Court ruled that unjust enrichment was not applicable to this case because there was an enforceable written contact between the parties. The only action that the investor could maintain against the principals was for fraud. In order to prove fraud, the investor was required to show by clear and convincing evidence “a material representation of a presently existing or past fact, made with knowledge of its falsity and with the intention that the other party rely thereon, resulting in reliance by that party to his detriment.” In applying this standard, the Court found that the investor failed to prove that the option agreement with the book owner was either not valid or unenforceable and that principals were aware that the agreement was not valid. The investor was only able to prove that the book owner refused to abide by the agreement. As a result, the Court concluded that the investor failed to establish the elements of fraud.

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