Mahoney v. Nitroform Co.

• Decision Date: 30 January 1956
• Docket Number: A--71,Nos. A--68,s. A--68
• Citation: 20 N.J. 499,120 A.2d 454
• Parties: Dorothy W. MAHONEY, Petitioner-Appellant and Cross-Respondent, v. NITROFORM COMPANY, Inc., Respondent-Respondent and Cross-Appellant. Harriet M. KRAEMER, Petitioner-Appellant, and Cross-Respondent, v. NITROFORM COMPANY, Inc., Respondent-Respondent and Cross-Appellant. to
• Court: New Jersey Supreme Court

Page 499

20 N.J. 499

120 A.2d 454

Dorothy W. MAHONEY, Petitioner-Appellant and Cross-Respondent, v. NITROFORM COMPANY, Inc., Respondent-Respondent and Cross-Appellant.

Harriet M. KRAEMER, Petitioner-Appellant, and Cross-Respondent, v. NITROFORM COMPANY, Inc., Respondent-Respondent and Cross-Appellant.

Nos. A--68 to A--71.

Supreme Court of New Jersey.

Argued Jan. 3 and 9, 1956.

Decided Jan. 30, 1956.

Alexander Avidan, Newark, argued the causes for appellants-cross-respondents (Avidan & Avidan, Newark, attorneys).

Isidor Kalisch, Newark, argued the causes for respondent-cross-appellant.

The opinion of the court was delivered by

WILLIAM J. BRENNAN, Jr., J.

The Appellate Division reversed judgments of the Essex County Court sustaining workmen's compensation awards for the dependents of Richard W. Mahoney and Edward C. Kraemer, respectively the president and the secretary-treasurer of Nitroform Company, Inc. Mahoney and Kraemer were killed on February 21, 1953 in an explosion and fire at the company's Newark plant at 444 Frelinghuysen Avenue. 36 N.J.Super. 116, 114 A.2d 863 (1955). We granted certification, 19 N.J. 336, 116 A.2d 830 and 19 N.J. 337, 116 A.2d 831 (1955).

Each decedent held 25% Of the company's issued stock, and a like percentage was held by Thomas J. Tully, vice-president in charge of research, and Leon I. Ross, vice-president in charge of sales.

There were separate trials of the two cases in the Division before different Deputy Directors. Tully testified at both trials and supplied the only proofs as to the corporate history and methods of operation and the arrangements with and among the incorporators. No corporate books or records were available at the trials because, according to Tully, minimum attention was given to record keeping and such records as were kept had either been destroyed in the explosion or had been seized by the authorities investigating the mishap.

Tully testified that he and his fellow officers organized Nitroform in 1952 to manufacture chemicals. The company's modest manufacturing quarters were leased at a rental of $100 per month. All work was done by the incorporators, primarily by Mahoney and Kraemer, except as on infrequent occasions casual labor was employed, usually relatives of the incorporators. For the purposes of this case, it is of especial importance that Mahoney and Kraemer did all the work incident to the production of the chemicals manufactured by the concern.

The four men gave only spare time to the business, as each held regular employment elsewhere. Mahoney was a production chemist at Merck & Company, Rahway, working a 44-hour week at an annual salary of $4,944, or $95.08 per week. Kraemer was custodian of the chemical stockroom at the Newark College of Engineering, receiving $4,088 per year, or approximately $80 per week. Tully was an associate professor of chemistry at the Newark College of Engineering and, while not too clear from the record, it appears that Ross was in the investment business. Neither Tully nor Ross spent much time at the Nitroform plant, but Mahoney and Kraemer averaged 20 hours per week, working nights, Saturdays, Sundays and holidays.

At the time of the accident only one product was being manufactured, a highly explosive compound called tetranitromethane, a very profitable item, produced at a cost of 90 cents per pound and selling at from $15 to $30 per pound depending upon quantity. The company's customers for the compound were armed service contractors.

None of the four incorporators drew any money from the company as salary, wages, dividends or otherwise. The corporation, however, had $1,087.73 in the bank at the time of the accident and also an unspecified amount of accounts receivable.

Tully testified, in substance, that the four incorporators agreed that none would draw anything until the enterprise prospered more substantially but that when that time arrived each would be paid from corporate funds the reasonable value of his services, that value in the cases of Mahoney and Kraemer to be measured at the rate of their respective earnings in their regular employments.

The Mahoney petition was heard before Deputy Director Medinets in December 1953, and the Kraemer petition before Deputy Director Umberger in April 1954. The workmen's compensation risk for Nitroform was an assigned risk to the carrier providing the insurance. The assignment was made pursuant to the 'New Jersey Plan for the Granting of Workmen's Compensation Insurance to Employers Unable to Secure it for Themselves,' approved by the Commissioner of Banking and Insurance and administered by the Compensation Rating and Inspections Bureau of New Jersey. The carrier, on behalf of Nitroform, filed answers to the widows' petitions which, under oath, admitted that the decedents were in the 'employ' of Nitroform at the time of the accident. A like admission as to Kraemer particularly was made in the Kraemer case in a pretrial order entered in that case before the trial in the Division. At both trials, however, leave was sought to withdraw the admissions of employment and such leave was granted, formally in the Kraemer case, and substantially, if informally, in the Mahoney case. No proofs of any kind were offered in support of the defense. But respondent contends that the petitioners did not sustain their burden of proof to establish statutory employment, insisting that the testimony of Tully, if sufficient to support an inference of employment, was so inconsistent with the contents of a statement signed by him 12 days after the accident as not to be believed. The statement was prepared by the carrier's investigator following an interview with Tully.

The Division and the County Court found that Tully's testimony was worthy of belief, and concurred in a finding that Mahoney and Kraemer were 'working officers' and thus employees within the definition of R.S. 34:15--36, N.J.S.A., namely, "employee' is synonymous with servant, and includes all natural persons who perform services for another for financial consideration * * *.' Judge Foley in the County Court did not perceive 'any great conflict between the (Tully) statement and the witness's account of the agreement.' Moreover, he cogently observed:

'It strains one's credulity to suppose that Mahoney during the thirty-two weeks of the company's existence should have steadily contributed an average of twenty hours per week of his time and the effort and skill required by the exacting tasks he performed, without any thought of recompense. Equally difficult is it to assume that Tully and Ross, who shared none of the burdens that Mahoney and Kraemer shouldered in turning out the company's product would have expected them to serve without pay. Was the promise of full-time employment sufficient reward for all these labors? The facts supply a negative answer.'

Neither the Appellate Division nor the respondent seems to question Tully's evidence that Mahoney and Kraemer constituted the respondent's production force or that it may reasonably be inferred that the company's receipts represented the proceeds of sales of products manufactured by the two men. This would ordinarily suffice to bring the decedents within the act, for, as the Appellate Division acknowledged, it is settled law in our State that when corporate officers perform work which if performed by anyone else would confer employee status for the purposes of the Workmen's Compensation Act the officers have that status. Adam Black & Sons, Inc. v. Court of Common Pleas, 150 A. 672, 8 N.J.Misc. 442 (Sup.Ct.1930); Strang v. Strang Electric Co., 152 A. 242, 8 N.J.Misc. 873 (Sup.Ct.1930); Hannaford v. Central R. Co. of New Jersey, 115 N.J.L. 573, 576, 181 A. 306 (Sup.Ct.1935), affirmed 116 N.J.L. 412, 185 A. 46 (E. & A.1936); see also Goldmann v. Johanna Farms, Inc., 26 N.J.Super. 550, 98 A.2d 142 (Cty.Ct.1953); cf. Bowne v. S. W. Bowne Co., 221 N.Y. 28, 116 N.E. 364 (Ct.App.1917), and Carville v. A. F. Bornot & Co., 288 Pa. 104, 135 A. 652 (Sup.Ct.1927), where compensation was denied only because the duties performed were executive services merely.

The Appellate Division, however, was of the view that the petitioners had failed to show the essentials of the statutory employment relationship of control by the corporation of the manner and method by which the production work was done and that Mahoney and Kraemer had the expectation that the corporation would compensate them for their labor. It was said that the 'alleged 'employee(s)' (were) entirely free from control or direction,' that each was 'free to come and go when he chose and to render such service as might be convenient for him at his indeterminate volition,' 36 N.J.Super. at page 127, 114 A.2d at page 869, and that Tully's statement signed after the accident is 'instinct with the affirmation that the men had no pecuniary claims against the respondent at any time but only a hope that by their voluntary efforts the company would prosper sufficiently to give them full time jobs eventually.' 36 N.J.Super. at page 125, 114 A.2d at page 868. Tully's testimony was found to be 'vague, inconsistent, unconvincing and biased' and a 'transparent attempt to fabricate a basis for recovery,' 36 N.J.Super. at page 125, 114 A.2d at page 868. The conclusion of ultimate fact was therefore that each decedent was merely 'an autonomous member of what was in effect a joint venture, identified as a corporation by nothing more than a bare form of organization,' 36 N.J.Super. 127, 114 A.2d at page 869.

Thus, in effect, the Appellate Division evaluated the evidence as justifying a complete disregard of the corporate entity, an action which in our view was clearly erroneous. The respondent did not take that extreme position but under oath admitted in its answers that the decedents were in the 'employ' of Nitroform for the purposes of coverage under the act. The withdrawal of those admissions at the trials were not based...