United Air Lines, Inc. v. McGriff

95-5679 (U.S. Dist. Ct. D. N.J. 1998) (Unpublished)
  • Opinion Date: June 22, 1998

CORPORATIONS; PERSONAL LIABILITY—An officer, director, and shareholder is liable to a creditor if he fraudulently obtained the funds for the corporation and diverted the funds from their intended use.

In connection with the renovation of its airline terminal, an airline entered into an agreement with an electrical contractor for retrofitting of the terminal’s lighting fixtures. After amendment, the agreement allowed the contractor to draw down money which would be used to make advance deposits to the contractor’s suppliers. Each such application required sworn certification that the suppliers “have been contracted and have furnished, or are furnishing and/or preparing materials for and/or have done or are doing labor on said project; that there is due and/or to become due…the amount(s)...; that their statement…is a full, true and complete statement… .” The sole shareholder, officer, and director of the electrical contractor made the sworn certifications and submitted the required applications for payment. The representations made were false with respect to at least two of the applications. The contractor’s suppliers were not fully paid and the airline was required to pay them directly. The shareholder, officer, and director deposited one of the checks directly into his personal account. During the course of at least two years, he used corporate funds to pay rent for his family home, for other personal expenses, and as salary. He also paid various other personal expenses from corporate funds. According to the Court, this “continuing diversion of corporate funds suggests that [he] did not intend to pay his suppliers the full amount of funds he received for that specific purpose.” The Court also found that the shareholder made misrepresentations and engaged in fraud against the suppliers. As a consequence, it found that even though the shareholder, officer, and director acted on behalf of the corporation when he submitted the requisitions, because he diverted the proceeds from their intended use, he was personally liable for his fraudulent conduct. A corporate officer is liable to persons injured by his torts, even though he is acting on behalf of the corporation and derives no personal benefit from his tortious conduct. The airline, however, was denied the right to recover the funds that the shareholder deposited in his own account rather than into the corporation’s checking account. Because those funds represented payment for work the corporation had performed, the money belonged to the corporation and not to the supplier.