Zeiger v. Wilf
333 N.J. Super. 258, 755 A.2d 608 (2000)
Rule of Law:
A corporate officer and limited partner does not incur personal liability for a limited partnership's obligations or for causing a corporate breach of contract where the corporate charter was temporarily suspended but reinstated, the officer's actions fell within a statutory 'safe harbor' for limited partners who also serve as officers of a corporate general partner, and the contracting party was an insider aware of the corporate structure and did not rely on personal guarantees.
Facts:
- Shelley Zeiger and Darius Kapadia purchased a rundown hotel in Trenton, intending to renovate and operate it, but could not secure sufficient financing to complete the project.
- In March 1985, Steven Novick, Richard Goldberger, and Joseph Wilf formed a group to purchase and redevelop the property, with Wilf becoming the leading figure and primary spokesman for the purchasing group.
- On February 17, 1986, Goldberger, Moore & Novick, Trenton, No. 2, Inc. (Trenton, Inc.), a corporation formed by the purchasers, contracted to buy the property for $3,840,000.
- As part of the deal, Trenton, Inc. entered into a consulting agreement with Zeiger, promising him $27,000 per year for sixteen years for minimal assistance.
- On March 4, 1986, the closing occurred, and Trenton, Inc. purchased the property and signed the consulting agreement.
- The following day, Trenton, Inc. assigned its property interests and the consulting contract to a newly formed limited partnership, Goldberger, Moore & Novick, Trenton, L.P. (Trenton, L.P.).
- Trenton, L.P. was structured with Trenton, Inc. as its sole general partner and four limited partners, including an entity controlled by Wilf and his family (Capitol Plaza Associations, CPA) and Zeiger.
- Trenton, L.P. made monthly consulting payments to Zeiger for approximately two years, ceasing in March 1988 at Joseph Wilf's direction, who stated the money was needed for renovation and Zeiger was contributing nothing to the project.
Procedural Posture:
- On July 19, 1993, Shelley Zeiger sued Joseph Wilf, claiming Wilf had become the 'surviving partner and owner of the partnership assets' and was in default of consultant payments.
- On March 28, 1995, Zeiger filed an amended complaint naming Joseph Wilf, Capitol Plaza Associations (CPA), Goldberger, Moore & Novick, Trenton, L.P. (Trenton, L.P.), and Goldberger, Moore & Novick, Trenton, No. 2, Inc. (Trenton, Inc.) as defendants.
- After extensive discovery, Joseph Wilf moved for summary judgment, which the motion judge granted on December 23, 1996, dismissing the complaint against him.
- On January 24, 1997, the motion judge denied Zeiger's motion for reconsideration of the summary judgment granted to Wilf.
- On March 3, 1997, a trial against the other defendants (Trenton, L.P., Trenton, Inc., and CPA) began before a different judge.
- On April 8, 1997, a jury returned a verdict of $456,801 against Trenton, L.P. and Trenton, Inc.
- The trial court reserved Zeiger's claim against CPA for determination by the court.
- On December 4, 1997, the trial court found CPA liable to Zeiger for $456,801 and entered judgment against it.
- Shelley Zeiger, as plaintiff-appellant, appealed the summary judgment in favor of Joseph Wilf.
- CPA, Trenton, L.P., and Trenton, Inc. filed a cross-appeal, but Trenton, L.P. and Trenton, Inc. later abandoned their cross-appeal due to intervening bankruptcy proceedings, leaving CPA as the active cross-appellant arguing for reversal of the judgment against it and affirmation of the dismissal as to Wilf.
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Issue:
Does an individual, who is a limited partner and an officer of the corporate general partner of a limited partnership, incur personal liability as a general partner for the limited partnership's obligations, or for tortious interference with contract, where the corporate charter was temporarily suspended and the individual largely directed the business, but the plaintiff was an insider and was aware of the corporate structure and did not rely on personal guarantees?
Opinions:
Majority - Lesemann, J.A.D.
No, an individual who is a limited partner and an officer of the corporate general partner of a limited partnership does not incur personal liability as a general partner for the limited partnership's obligations, nor for tortious interference with contract, when the corporate charter was temporarily suspended but retroactively reinstated, and the individual's actions fall within a statutory 'safe harbor' provision, especially where the plaintiff was an insider and did not rely on personal guarantees. The court first addressed the corporate charter suspension of Trenton, Inc. and found it provided no basis for imposing personal liability on Wilf or CPA. N.J.S.A. 14A:4-5(7) dictates that reinstatement of a corporate charter relates back to the date of revocation, validating all actions taken in the interim. The court cited Asbestos Workers Local Union No. 32 v. Shaughnessy, which held that personal liability should not be imposed on corporate officers for actions during a charter suspension once the charter is retroactively reinstated, particularly where no fraud or reliance on individual assurances occurred. The alleged contract breach also predated the charter suspension. Second, the court rejected Zeiger's claim that Wilf incurred general partner liability by taking 'part in the control of the business' of Trenton, L.P. The Uniform Limited Partnership Law (N.J.S.A. 42:2A-27a) provides a 'safe harbor' provision (N.J.S.A. 42:2A-27b(6)) explicitly stating that 'serving as an officer, director or shareholder of a corporate general partner' does not constitute participation in control for the purpose of imposing general partner liability. Wilf acted as vice president of Trenton, Inc., the sole corporate general partner. Furthermore, Section 27a limits liability to persons who transact business with actual knowledge of a limited partner's participation in control and reasonably believed, based on their conduct, that they were a general partner. Zeiger, as an 'insider' and sophisticated businessman, knew he was dealing with distinct entities (a limited partnership and a corporation) and did not claim to be misled or to have relied on Wilf's personal assurances. The court distinguished out-of-state cases lacking similar 'safe harbor' provisions and found persuasive cases like Frigidaire Sales Corp. v. Union Properties, Inc. and Western Camps, Inc. v. Riverway Ranch Enterprises, which emphasized full disclosure and absence of fraud. Third, the court concluded that Wilf's decision to cause Trenton, L.P. and Trenton, Inc. to terminate Zeiger's consulting contract did not impose personal liability on him. Citing Welch v. Bancorp Management Advisors, Inc., the court affirmed the general principle that an officer causing their corporation to breach a contract does not incur personal liability if they act in good faith, within the scope of their authority, and with the intent to benefit the corporation, even if personal interests are also present, so long as those interests are not adverse to the corporation. There was no basis to conclude Wilf acted other than in his capacity as a corporate officer to benefit the enterprise. The court also reversed the judgment against CPA, finding no basis for its liability, as its function was merely to hold ownership interests, and Wilf was not acting on its behalf in running the project.
Analysis:
This case provides critical guidance on the limits of personal liability for individuals involved in complex business structures like limited partnerships with corporate general partners. It strongly reinforces the legislative intent behind the Revised Uniform Limited Partnership Act (RULPA) to provide certainty and predictability in defining limited partner liability. By emphasizing the 'safe harbor' provisions and the necessity of third-party reliance for imposing liability, the decision protects corporate officers and limited partners from undue personal exposure, thereby encouraging investment and participation in such ventures. Future cases will likely cite this decision to affirm limited liability in similar contexts, particularly when sophisticated parties are involved and statutory protections are clearly met.
