Canter v. Lakewood of Voorhees
2011 N.J. Super. LEXIS 117, 420 N.J. Super. 508, 22 A.3d 68 (2011)
Rule of Law:
Equitable principles of corporate veil piercing may apply to a New Jersey limited partnership, but only in limited circumstances where the limited partner takes action outside the statutory safe harbor, or dominates the partnership and uses it to perpetrate a fraud, injustice, or otherwise circumvent the law.
Facts:
- Lakewood of Voorhees Associates LP (Lakewood), a limited partnership, was formed in 1978 and capitalized with at least $600,000 to own and operate a nursing home.
- Seniors Healthcare, Inc. (SHI), a Pennsylvania corporation, was incorporated in 1996 and became a limited partner holding an 84.12% interest in Lakewood.
- Ozal of Lakewood, Inc. (Ozal), a New Jersey corporation, was incorporated in 1999 and became Lakewood’s general partner, holding a 1% interest; SHI is Ozal’s sole shareholder.
- Seniors Management-North, Inc. (SMN), a New Jersey corporation, was incorporated in 2000 and provided accounting, billing, group purchasing, and consulting services to the nursing home under a management agreement, controlling its day-to-day operations; SHI is SMN’s sole shareholder.
- Steven Lazovitz is Ozal’s sole director and a director, officer, and majority shareholder of SHI; he was also a former general and limited partner of Lakewood and former officer of SMN, and executed the original management agreement for Lakewood.
- Lenard Brown and Robert Sail are directors and employees of SHI and former officers of SMN; SMN paid their salaries until they were placed on SHI’s payroll, with SHI then paying them from corporate overhead fees received from SMN.
- Sanford Canter sustained injuries at the Lakewood of Voorhees Nursing Home, leading to a negligence action.
- Plaintiff’s expert opined that Lakewood, SHI, and SMN operated as 'one seamless long-term care organization,' and SHI and SMN 'exercised significant control' over Lakewood’s operation.
Procedural Posture:
- Plaintiff Sanford Canter initiated a nursing home negligence action against various defendants, including Seniors Healthcare, Inc. (SHI) and Lakewood of Voorhees Associates LP (Lakewood).
- SHI filed a motion for partial summary judgment, contending that corporate veil-piercing principles do not apply to a limited partnership like Lakewood, or alternatively, that there was no genuine issue of material fact for veil piercing.
- The motion judge denied SHI's motion for partial summary judgment, ruling that corporate veil-piercing principles could apply to a limited partnership and finding a genuine issue of material fact as to whether SHI controlled Lakewood enough to be liable.
- The motion judge subsequently denied SHI's motion for reconsideration.
- SHI filed a motion for leave to appeal the denial of both motions, which the Superior Court of New Jersey, Appellate Division, granted.
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Issue:
Does corporate veil-piercing apply to a New Jersey limited partnership, and if so, was there a genuine issue of material fact as to whether the limited partner, Seniors Healthcare, Inc. (SHI), dominated Lakewood of Voorhees Associates LP and used it to perpetrate a fraud, injustice, or circumvent the law, thereby rendering SHI liable for Lakewood’s negligence?
Opinions:
Majority - Simonelli, J.A.D.
Yes, corporate veil-piercing principles may apply to a New Jersey limited partnership, but in this case, there was no genuine issue of material fact that the limited partner, Seniors Healthcare, Inc. (SHI), dominated Lakewood of Voorhees Associates LP and used it for an improper purpose. The court held that equitable principles, such as veil piercing, can apply to limited partnerships, but only in specific circumstances: (1) where a limited partner takes actions outside the 'safe harbor' provisions of N.J.S.A. 42:2A-27b, or (2) where the limited partner dominates and uses the limited partnership to perpetrate a fraud, injustice, or otherwise circumvent the law. Both prongs of this domination test must be established by clear and convincing evidence. The court referenced N.J.S.A. 42:2A-27a, which generally shields limited partners from liability unless they are also a general partner or participate substantially in the business control, and N.J.S.A. 42:2A-27b, which provides a 'safe harbor' for certain activities that do not constitute control, such as being a shareholder of a general partner or consulting with the general partner. Looking to Delaware law for guidance (as New Jersey law on this specific issue was undeveloped), the court found support for applying veil-piercing in appropriate circumstances to prevent a 'wrong without a remedy.' However, the court found the evidence insufficient to satisfy the two-prong veil-piercing test against SHI. It noted that SHI's ownership of Ozal (Lakewood's general partner) and SMN (which managed day-to-day operations) fell within the statutory safe harbor and did not demonstrate direct involvement in Lakewood's daily operations. Commonality of ownership and overlapping officers, like Steven Lazovitz, were deemed insufficient to establish domination, as limited partners can act as officers/directors of a corporate general partner without assuming general partner liability (citing Zeiger v. Wilf). The court emphasized that ownership alone is not enough, and the organizational structure was legitimate. Crucially, there was no evidence that Lakewood was undercapitalized at its inception (it was capitalized with $600,000 in 1978), nor was it engaged in no independent business or merely a façade for SHI. Lakewood had its own assets, income, employees, bank accounts, and could enter contracts. Furthermore, there was no evidence of fraud, injustice, commingling of funds, or a failure to observe limited partnership formalities (which do not require annual meetings or specific record-keeping like corporations). Therefore, the record did not support piercing Lakewood's veil to hold SHI liable.
Analysis:
This case clarifies that New Jersey courts will apply corporate veil-piercing principles to limited partnerships but sets a high bar, requiring both domination and improper purpose by clear and convincing evidence. It emphasizes that a limited partner's ownership interest in a general partner or management company, or common officers, does not, by itself, demonstrate the control necessary to pierce the veil, especially if such activities fall within statutory 'safe harbor' provisions. This decision reinforces the legislative intent to provide limited liability for limited partners and requires plaintiffs to present strong evidence of manipulation and improper conduct beyond mere organizational structure or inter-company relationships to overcome that protection.
