The New Jersey Appellate Division on Friday refused to pierce the corporate veil and impose liability against an alter ego of a Pesach program organizer.
Somerset Hotel, LLC incorporated in October 2013, and took ownership of a hotel which was under foreclosure. The purchase included the hotel's receivables.
Avraham Ohavi, the Organization for Jewish Direction, Asher Ben-Tov, and Congregation Netivot of New York, Inc hosted Pesach programs in this hotel in 2012 and 2013.
After the new buyer acquired the hotel, on November 13, 2013, on behalf of Avraham Ohavi, Asher Ben-Tov signed a contract for the 2014 Passover program. The organizers were billed $132,319.94 for hosting the 2014 program. As of July 2014, only $68,085.00 had been paid toward the outstanding invoice.
In reviewing the outstanding balance for the 2014 Passover program, the hotel management noticed that these organizers also owed $29,000 for the 2012 program and $8,730.62 for the 2013 Passover program (which were arranged with the hotel's previous owners).
Ultimately, Somerset Hotel, LLC filed a lawsuit in Superior Court in Somerset County against the Pesach program organizers alleging breach of contract and other causes of action, claiming that they owed $29,000 for the 2012 Passover program, $8,730.62 for the 2013 Passover program, and $64,234.94 for the 2014 Passover program.
At trial, the plaintiff proffered the contract for the 2014 Passover program, but did not produce the contracts for the 2012 and 2013 Passover programs.
Based on the proofs, the judge disallowed claims related to the 2012 and 2013 Passover programs as lacking evidentiary support, and limited plaintiff's breach of contract claim to the unpaid amount for the 2014 Passover program. The judge found plaintiff had a valid contract with Ohavi and the Organization for the 2014 Passover program, (Ohavi and the Organization were identified as the obligated parties under the contract for the 2014 Passover program. Ben-Tov signed that contract on behalf of Ohavi and the Organization) and Ohavi and the Organization breached that contract by failing to pay the full amount due under that agreement, causing plaintiff to suffer damages in the amount of $64,234.94.
The plaintiffs attempted to pierce the corporate veil and impose liability against Ben-Tov and Netivot as well, claiming that they financially benefitted from the 2014 Passover program and were alter egos of Ohavi and the Organization.
The judge rejected these claims, explaining that it was "a collection argument, not a direct claim." Additionally, the judge found that plaintiff presented "no proofs that would involve or that would demonstrate that Netivot or Ben-Tov was an alter ego of the contract defendants."
The judge noted plaintiff presented no evidence Ohavi was dominated by Netivot or that Ohavi was created to perpetuate a fraud or circumvent the law.
Plaintiff proffered Ben-Tov's testimony to establish a corporate fiction and demonstrate that he or Netivot used Ohavi to escape liability for money owed. However, the judge ruled that Ben-Tov's trial testimony failed to support plaintiff's claim. Ben-Tov's trial testimony did not establish that Ohavi lacked business of its own, that it was created exclusively for Netivot's benefit, or that Ohavi was judgment proof.
Somerset Hotel, LLC took their case to the Appellate Division.
In a decision released on Friday, Judges Mayer and Paganelli were not persuaded, writing:
We first address plaintiff's argument that the judge erred in entering judgment against Ohavi and the Organization only. Plaintiff argues Ben-Tov was responsible for payment under the contract for the 2014 Passover program because he signed the document on Ohavi's behalf and Ohavi had not yet been incorporated on the date the contract was signed. As a result, plaintiff contends the judge erred by not finding Ben-Tov personally liable for the amount due for the 2014 Passover program. Additionally, because Ohavi existed as a "doing business as" entity of Netivot when the contract for the 2014 Passover program was signed, plaintiff asserts Netivot was liable for the debt as well.
Plaintiff argues the judge should have pierced the corporate veil and entered judgment against Ben-Tov and Netivot as well.
We disagree.
"A corporation is an entity separate from its stockholders. In the absence of fraud or injustice, courts generally will not pierce the corporate veil to impose liability on the corporate principals." Lyon v. Barrett.
The party seeking to pierce the corporate veil bears the burden of proof. Richard A. Pulaski Constr. Co. v. Air Frame Hangars, Inc., Verni ex rel. Burstein v. Harry M. Stevens, Inc. of N.J.
To meet this standard, a party must prove "fraud, illegality, or injustice" or demonstrate that "recognition of the corporate entity would defeat public policy or shield someone from public liability for a crime." Kaplan v. First Options of Chicago, Inc.
The collective evidence must be "sufficient to justify disregard of the corporate form." Verni.
We are satisfied the judge properly rejected plaintiff's argument that Ben-Tov and Netivot should be liable for payment under the contract for the 2014 Passover program because the evidence presented was insufficient to warrant piercing the corporate veil. Despite having an opportunity at trial to question Ben-Tov regarding the relationship between Ohavi and Netivot, plaintiff offered no evidence demonstrating Ohavi was Netivot's alter ego. Plaintiff merely speculated that Netivot used Ohavi to advance its interests and avoid payment for the 2014 Passover program. Absent competent evidence in the record, the judge correctly declined to pierce the corporate veil and impose liability against Netivot. Nor did the judge err in declining to impose liability against Ben-Tov. Ben-Tov testified he received no personal or financial benefit from the Passover programs. The unrefuted testimony supported the judge's finding that Ben-Tov merely served as a point person for communications between plaintiff's predecessor and Ohavi regarding the Passover programs.
Based on the testimony and evidence presented at trial, the judge concluded the contract for the 2014 Passover program bore Ohavi's name because Ohavi was Netivot's registered assumed name and Netivot conducted the 2012 and 2013 Passover programs at the hotel. Additionally, the judge found Ohavi had legally existed as Netivot's registered assumed name in New York since 2011.
Having reviewed the record and deferring to the judge's factual findings, we are satisfied there was sufficient credible evidence in the record to support the entry of judgment against Ohavi and the Organization. Ohavi and the Organization were the only entities that actually executed the contract for the 2014 Passover program. Plaintiff offered nothing more than speculation and conjecture supporting its request to pierce the corporate veil and impose liability against Ben-Tov and Netivot.
Attorney Eric B. Rochkind Esq. of Rajan Legal, PC represented Somerset Hotel, LLC.
Attorney Jason J. Rebhun Esq. represented the Pesach program organizers.
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