News & Noteworthy

Authored - NJ Contract Law Update - Alter Ego Isn't So Easy
SEPTEMBER 19, 2012 | Windels Marx - Commercial Litigation

Let's say that you believe the entity that owes your client money on a contract is insolvent, or perhaps it has gone bankrupt. Can you sue the owner of the company? In Transmodal Corp., v. EMH Associates, Inc., 2010 WL 3937042 (D.N.J. 2010), the Court emphasized the need for specific proofs of either commingling, undercapitalization, or the other elements that allow piercing the corporate veil, in order to reach the principal of even a single-shareholder entity.

The Court emphasized that although the individual defendant was "the sole shareholder of EMH, there is no evidence that the corporate formalities were not maintained". The entity was in existence for quite some time and actually pursued its business, as opposed to the corporation being used "as a mere device to further...personal" "Nor has [plaintiff]...come forward with any expert testimony showing that EMH was undercapitalized for its stated business." No specific proof was advanced of transfers after insolvency. Moreover, substantial payments were made by the corporation to its creditors, as the individual shareholder ostensibly attempted to keep the company afloat.

The Court's analysis should be instructive to the practitioner, whether on offense and defense. In a sense, Transmodal provides a pathway for the plaintiff as to the elements needed to be proven; and a ready-built motion by the defense when they are not proven.

As a coda, in a later Opinion in the same case, 2011 WL 124641 (D.N.J. 2011), the Court overlooked the analysis established in Pacifico v. Pacifico, 190 N.J. 250 (2007); as set forth in my Article of April 17, 2012, "Construing Language Against the Drafter". As that Article points out, the Pacifico standard replaced In re Miller's Estate 90 N.J. 210 (1982). This author is unaware whether Pacifico was cited to the Transmodal Court.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

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