Stochastic Decisions, Inc. v. DiDomenico

• Citation: 565 A.2d 1133,236 N.J.Super. 388
• Parties: STOCHASTIC DECISIONS, INC. Plaintiff-Respondent, v. James DiDOMENICO, Carol Coaches, Inc., All American Coaches, Inc., DCJM Realty Corp. and ACJ Transportation Corp., Defendants-Appellants.
• Decision Date: 30 October 1989
• Court: New Jersey Superior Court — Appellate Division

Page 388

236 N.J.Super. 388

565 A.2d 1133

STOCHASTIC DECISIONS, INC. Plaintiff-Respondent, v. James DiDOMENICO, Carol Coaches, Inc., All American Coaches,

Inc., DCJM Realty Corp. and ACJ Transportation

Corp., Defendants-Appellants.

Superior Court of New Jersey,

Appellate Division.

Argued Sept. 27, 1989.

Decided Oct. 30, 1989.

Frank E. Catalina, for defendants-appellants (Margulies, Wind, Herrington & Katz, Jersey City, attorneys; Frank E. Catalina, on the brief).

Helen Davis, Chaitman, New York City, for plaintiff-respondent (Ross & Hardies, Somerset, attorneys; Helen Davis Chaitman, New York City, on the brief).

Before Judges GAULKIN, DREIER and SCALERA.

The opinion of the court was delivered by

DREIER, J.A.D.

Defendants appeal from a ruling by Judge Garrenger in the Law Division holding all corporate defendants jointly and severally liable for $175,564 in unpaid insurance premiums, and James DiDomenico personally liable for $41,265 in compensatory and $100,000 in punitive damages.

The corporate defendants are part of a group of closely held corporations owned by Anthony and Carol DiDomenico or their son James, the common purpose of which was to provide bus services. Two of the major corporations, the Eagle Bus Company which ran a coach service and the Bravo Bus Corp. which leased the busses to Eagle, are not defendants in this action. Other DiDomenico corporations included: Carol Coaches, Inc., which garaged Eagle's busses; All American Coaches, Inc., which was formed to obtain transport rights for other companies; ACJ Transportation Corp. which ran a school bus service; and PDQ Escorts, Inc., which provided escort service to the busses.

Since 1982, Irwin Yagoda, president of plaintiff Stochastic Decisions, Inc., served as insurance broker for many of the DiDomenico corporations. Although Anthony claimed that Yagoda was aware of the separate purposes and functions of each corporation, Yagoda claimed to be unaware of the responsibilities of each corporation and considered it an ongoing question as to which corporations to insure. Yagoda testified that all the corporations involved in running the bus operation faced potential liability, blanket insurance coverage was necessary, and thus all were listed as named insureds on the policies. When insurance premium payments were made to Yagoda, the money was drawn from whichever DiDomenico corporation could honor the check.

In 1984, Anthony and Carol transferred ownership of Carol Coaches to James. James, upon becoming owner, continued the insurance policy on Carol Coaches that Yagoda had provided. Carol Coaches' property ultimately sold for $2,100,000.

There was a history of delinquent premium payments, and Yagoda had on occasion advanced the funds himself and forwarded payment to the insurance companies. Yagoda and the insurance companies, fearful that Anthony might default, requested financial information from the DiDomenicos. In early 1985, Anthony provided a personal financial statement that falsely reflected his ownership of real estate that belonged to Carol Coaches and his son James. Anthony, Carol and James promised they would sell this land to pay for the premiums, but never did.

In early 1985, the insurance coverage was about to lapse unless the insureds paid $61,000 in audits and adjustments. The DiDomenicos asked Yagoda to forward the adjustment and promised they would pay him back. Yagoda forwarded the adjustment payment, but only after receiving five post-dated checks, signed by James, as part of a repayment schedule. (These checks served as the basis for James' personal liability). Yagoda did not ask for and the repayment schedule did not include personal guarantees or promissory notes from the DiDomenicos. The first post-dated check, a $20,000 check from the ACJ Corp., was to be deposited at the end of the month. This check cleared, and the amount is not in dispute. The difference was to be paid with four additional post-dated checks from the Eagle Corp. These were to be deposited one per week after the end of the month.

Before the first additional post-dated check was to be deposited, the DiDomenicos instructed Yagoda not to deposit these checks. Eventually, on the advice of the DiDomenico's bookkeeper, but not on the authorization of Anthony or James, Yagoda deposited the first check, and it was returned for insufficient funds. Anthony DiDomenico then stopped payment on the rest of the checks because the first was not deposited with his authorization. In 1985, Eagle Bus and Bravo Bus Corp. filed for bankruptcy. ¹

Plaintiff filed a complaint on January 10, 1986, seeking $294,200 plus prejudgment interest against the corporate defendants as well as compensatory damages measured by the four unpaid checks and punitive damages against James. At the time of trial, the DiDomenico Enterprises owed the plaintiff about $175,000 in prepaid premiums. After a bench trial, Judge Garrenger held all the corporate defendants jointly and severally liable based on numerous instances of commingling of assets and misrepresentation regarding their ownership. James DiDomenico was held to be personally liable, in fraud, for the four bad checks. Judge Garrenger believed that James knew the four checks were not going to be honored. He further felt James and Anthony to be totally unbelievable witnesses. Finally, James was held liable for an additional $100,000 in punitive damages. The judge believed that James lied regarding his intent to honor the checks, and transferred corporate assets away while telling Yagoda to hold the checks. There was, however, some language in the opinion indicating that while the judge felt James' actions deserved to be penalized he was using the punitive damage award to cause Anthony immediately to pay the full amount due.

Defendants claim the trial court erred in piercing the corporate veils and make two major arguments in support of this proposition. First, defendants contend that the corporate defendants maintained a separate existence. They stress that Carol Coaches and DCJM never engaged in the same business as the defunct Eagle or Bravo Bus Corps., i.e., the business of bussing, and that little commingling of assets occurred. Second, they assert that Irwin Yagoda, an experienced and intelligent insurance broker, bore the risk of dealing with Eagle Bus and Anthony DiDomenico. They point out that Yagoda knew of the separate corporate existences (although this testimony is disputed), yet never requested personal guarantees or promissory notes.

Plaintiff correctly notes that the proof demonstrated that Eagle represented itself as "Carol Coaches, Inc. d/b/a Eagle," took tax depreciations for Carol Coaches' assets and paid no rent to Carol Coaches for use of their garage. Further, the respondents call attention to Anthony's testimony that he was likely to pay corporate bills from whichever corporate checking account had the funds at the time.

Judge Garrenger pierced the veils of the corporate defendants after referring to a pervasive commingling of corporate assets and identities. He had no doubt in his mind that "Carol Coaches was holding itself out as one and the same as Eagle" and that Yagoda relied on this representation.

The power of New Jersey courts to pierce the corporate veil is well established. In State, Dept. of Environ. Protect. v. Ventron Corp., 94 N.J. 473, 468 A.2d 150 (1983), the New Jersey Supreme Court recently stated:

The purpose of the doctrine of piercing the corporate veil is to prevent an independent corporation from being used to defeat the ends of justice, Telis v. Telis, 132 N.J.Eq. 25 (E. & A.1942), to perpetrate fraud, to accomplish a crime, or otherwise to evade the law, Trachman v. Trugman, 117 N.J.Eq. 167, 170 (Ch. 1934). [Id. 94 N.J. at 500, 468 A.2d 150].

New Jersey courts have also pierced the corporate veil of a closely held corporation to impose liability on the owner individually. Kugler v. Koscot Interplanetary, Inc., 120 N.J.Super. 216, 293 A.2d 682 (Ch. Div.1972) (personal liability imposed in the wake of a fraudulent pyramid scheme). Accord, Yacker v. Weiner, 109 N.J.Super. 351, 263 A.2d 188 (Ch. Div.1970), aff'd 114 N.J.Super. 526, 277 A.2d 417 (App.Div.1971). Another New Jersey case held numerous corporations to be part of a family partnership for purposes of forced dissolution. Fortugno v. Hudson Manure Co., 51 N.J.Super. 482, 144 A.2d 207 (App.Div.1958). New Jersey courts will likewise pierce the corporate veil of a subsidiary corporation where it is a mere instrumentality of the parent corporation. Mueller v. Seaboard Commercial Corp., 5 N.J. 28, 73 A.2d 905 (1950).

Under facts more analogous to those at bar, the Massachusetts Supreme Court pierced the corporate veils to hold numerous closely held corporations and their owner liable for conversion. My Bread Baking Co. v. Cumberland Farms, Inc. et al., 353 Mass. 614, 233 N.E.2d 748 (1968). The Court stated the general rule that common ownership along with common management will not alone give rise to common liability, but then stated:

[A]dditional facts may be such as to permit the conclusion that an agency or similar relationship exists between the entities. Particularly is this true (a) when there is active and direct participation by the representatives of one corporation, apparently exercising some form of pervasive control, in the activities of another and there is some fraudulent or injurious consequence of the inter-corporate relationship, or (b) when there is a confused intermingling of activity of two or more corporations engaged in a common enterprise with substantial disregard of the separate nature of the corporate entities, or serious ambiguity about the manner and capacity in which the various corporations and their respective representatives are acting. In such circumstances, in imposing liability upon one or more of a group of 'closely identified' corporations, a court 'need not consider with nicety...