A New Jersey Appellate Division panel ruled on June 23, 2010 that principals of a company can be found personally liable under New Jersey’s Consumer Fraud Act (CFA) even without actual knowledge about alleged unlawful practices sufficient to pierce the corporate veil. As well, the court ruled that there was no need to prove intent before triggering the treble damages regulations under the statute.
The case involved a poorly constructed landscape project. The lower court allowed the claims against the landscaping company to go to a jury because, in violation of CFA regulations, there was no written contract and the workers accepted final payment without obtaining permission from the plaintiffs after the construction plans were changed. The claims against the principals of the defendant company were dismissed because the lower court found they did not directly participate in the project sufficient to pierce the corporate veil.
A jury found in favor of the plaintiffs and trebled damages to $490,000. The plaintiffs appealed seeking to get the principals to pay the award. The Appellate Division reversed the lower court’s decision and remanded to determine if the principals had any personal participation in any of the two regulatory violations. In other words, there was no need to determine if there was culpable conduct sufficient to pierce the corporate veil but there was the need to at least show they participated in the conduct that gave rise to the regulatory violations.
This is a significant decision. It evaporates by way of the New Jersey CFA the protections normally afforded directors and officers of a company. The corporate immunity protecting principals of a company is usually only tossed aside for fraudulent conduct that is sufficient to pierce the corporate veil. By allowing treble damages against principals without any such showing, this decision becomes yet another loud wake-up call for New Jersey private companies as to the benefits of Directors and Officers insurance.