TEN WEST CONDOMINIUM OWNERS' ASSOCIATION, INC. VS. LRGÂ REALTY, LLCCARL CERBONE VS. TEN WEST CONDOMINIUM OWNERS' ASSOCIATION,ET AL.(L-1197-12, MORRIS COUNTY AND STATEWIDE) ( 2017 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R.1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1991-15T1
TEN WEST CONDOMINIUM OWNERS'
ASSOCIATION, INC.,
Plaintiff-Appellant,
v.
LRG REALTY, LLC, and CARL
CERBONE,
Defendants-Respondents.
___________________________________
TEN WEST CONDOMINIUM OWNERS'
ASSOCIATION, INC.,
Plaintiff,
v.
LRG REALTY, LLC, its members, each
Individually, and the owners of any
Interest in Units CA 301-310 (Tax Lot
1.14), Units CB 101-107 (Tax Lot
2.01-2.07), Units p/o CB 110 (Tax Lot
2.10), Units CB 201-201, 212-217
(Tax Lot 2.11) and Units CB 301-317
(Tax Lot 2.28), 2740 Route 10 West,
Parsippany-Troy Hills, New Jersey, and
CARL CERBONE, Managing Member of LRG
REALTY, LLC,
Defendants.
___________________________________
LRG REALTY, LLC and TEN WEST
CONDOMINIUM OWNERS' ASSOCIATION, INC.,
Plaintiffs,
v.
RON REGAN, ALOK AGARWAL, NEIL BASS,
FOSTER & BELL, LLC, SMARTAX, LLC,
TRIAD TECHNOLOGY CORP., LLC, THE
PROGRESSIVE COMPANIES, GEORGE DENMAN,
OXFORD PROPERTIES, LLC, BRENT LYNCH,
COVETED PROPERTIES, LLC,
Defendants.
____________________________________
CARL CERBONE,
Plaintiff,
v.
TEN WEST CONDOMINIUM OWNERS'
ASSOCIATION, THE PROGRESSIVE COMPANIES,
RON REGAN, ALOK ARAWAL, NEIL BASS,
FOSTER & BELL, LLC, TRIAD TECHNOLOGY
CORP., LLC, GEORGE DENMAN, OXFORD
PROPERTIES, LLC, BRENT LYNCH,
COVERED PROPERTIES, LLC.,
Defendants.
____________________________________
Argued June 1, 2017 – Decided July 17, 2017
Before Judges Fuentes, Carroll and Farrington.
On appeal from the Superior Court of New Jersey,
Law Division, Morris County, Docket No. L-1197-12.
Thomas C. Martin argued the cause for appellant
(Price, Meese, Shulman & D'Arminio, P.C.,
attorneys; Mr. Martin, of counsel and on the
brief).
2 A-1991-15T1
Richard D. Picini argued the cause for respondents
(Caruso Smith Picini, PC, attorneys; Mr. Picini,
of counsel and on the brief).
PER CURIAM
This case arises out of a judgment for counsel fees entered
against defendant Carl A. Cerbone (Cerbone) and LRG Realty, L.L.C.
(LRG), following plaintiff's successful prosecution of an action
to compel LRG to pay maintenance fees. However, an issue remained
as to whether this liability was imposed against both Cerbone and
LRG, or against LRG alone. The court found that any determination
of this issue was subject to a piercing the corporate veil
analysis. The parties filed cross-motions for summary judgment
on this issue, which were denied by Judge Michael E. Hubner. A
bench trial was held on this limited issue before Judge Robert J.
Brennan on December 8, 2015, during which Cerbone moved for
judgment pursuant to Rule 4:40-1. Judge Brennan entered judgment
in favor of Cerbone, dismissing plaintiff's complaint seeking to
hold Cerbone personally liable for the sum of $89,457.91. We
affirm.
The Association filed a notice of appeal on January 19, 2016,
and an amended notice of appeal on January 21, 2016.
On appeal, plaintiff seeks to overturn Judge Brennan's order
of judgment dated January 5, 2016, arguing the trial court erred
3 A-1991-15T1
in applying the incorrect legal standard when adjudicating
Cerbone's motion for judgment. Plaintiff further seeks to overturn
Judge Hubner's July 28, 2015 order denying plaintiff's motion for
summary judgment. Plaintiff argues the trial court erred because
the undisputed material facts proved LRG was a mere instrumentality
or alter-ego of Cerbone, did not maintain corporate formalities,
was undercapitalized, and financed by sham promissory notes.
Cerbone and LRG argue in response that Judge Hubner was
correct in denying plaintiff's motion for summary judgment which
was essentially based upon the same evidence plaintiff presented
at trial. They further argue that Judge Brennan correctly directed
a verdict because LRG was not a mere instrumentality or alter ego
of Cerbone, there was no evidence of fraud or injustice, the
promissory notes issued by LRG were not sham transactions, and the
failure of LRG to maintain corporate formalities did not constitute
sufficient grounds to pierce its corporate veil.
Cerbone formed LRG in August, 1995, and he has been the
company's sole member and manager since that date. Through LRG,
Cerbone hoped to develop, lease, and sell commercial condominiums,
thereby creating a "legacy" for his children and grandchildren.
LRG remained inactive until September 16, 2004, when it purchased
approximately eighty percent of Ten West's units from a foreclosure
4 A-1991-15T1
proceeding1. At this time, LRG assumed the role of Ten West's
sponsor and responsibility for selling the Association's
condominium units. LRG retained exclusive control of the
Association as the majority owner. Cerbone operated LRG out of
his home in Parsippany which was the company's principal place of
business. Cerbone's daughter and personal accountant maintained
LRG's books and records as well as the books and records of
Cerbone's other companies. LRG obtained a tax identification
number, filed annual income tax returns, and paid the requisite
annual limited liability fee to the State of New Jersey, but held
no formal meetings, kept no minutes, and observed minimal business
formalities. Cerbone, in his individual capacity, owned the land
upon which Ten West was located. Pursuant to an arrangement
described in the parties' Ground Lease and Amended By-laws, LRG
paid its share of condominium maintenance fees to Ten West and Ten
West in turn paid monthly rent to Cerbone in his individual
capacity.
Between 2004 and 2013, LRG renovated and "built out" three
units, obtained certificates of ownership, and sold the units to
their present owners. According to the record, proceeds from the
three sales are the only income LRG produced.
1
LRG financed this purchase with funds it borrowed from Valley
National Bank.
5 A-1991-15T1
In addition to the three sales, LRG built tenant "fit-outs"
in the remaining space it owned in Ten West, hoping to sell or
lease this space for profit. It financed the "fit-outs" with
loans from Cerdel Construction, another entity wholly owned and
operated by Cerbone. Although the record contains evidence of
Cerbone's attempts to market these units, the trial judge found
the failure to attract lessees or purchasers was due to the
"downturn in the commercial real estate market." Cerbone reported
LRG's losses on his personal income tax returns. Cerbone, both
personally and through his other companies, loaned LRG the funds
necessary to pay its condominium maintenance fees, construction
expenses, and other obligations. The loans were documented by
promissory notes, approximately 125 in total, in amounts ranging
from $19.45 to $372,901.75. He testified he neither demanded, nor
received interest or payments on these notes which lacked default
terms.
Over the years, several disagreements arose between Cerbone
and the other Ten West unit owners. Those disagreements caused
Cerbone to resign from the Association's Board of Trustees in
2009. In 2012, LRG stopped paying its maintenance fees. Cerbone,
however, demanded that the Association continue to pay him rent.
When the Association refused, LRG commenced suit in a complaint
6 A-1991-15T1
filed May 11, 2012,2 alleging violation of the amended bylaws,
misappropriation of funds, retaining and paying counsel without
prior authorization, failing to properly document finances, and
keeping inadequate records of meetings. LRG further alleged breach
of fiduciary duty, fraud, unjust enrichment, self-dealing,
criminal racketeering, negligence, breach of business judgment,
conversion of assets, breach of contract, and breach of covenant
of good faith and fair dealing. The complaint also alleged Ten
West owed "a pro-rated share of the fixed rent, which collectively
amounts to $7,975.83 per month."
The Association brought a separate action against Cerbone and
LRG for the non-payment of condominium maintenance fees and sought
to pierce the corporate veil, alleging Cerbone "wrongfully and
fraudulently exploit[ed] the corporate form for his own personal
gain to the substantial detriment of the Association and [its]
owners[.]"
In its answer to LRG's Second Amended Complaint, the
Association alleged LRG and/or Cerbone were "in breach of the
agreement sued upon and therefore [had] no right or remedies."
LRG, in its answer, denied Cerbone used the corporation to
perpetuate a fraud, evade the law, or defeat the ends of justice.
2
LRG amended its Complaint and Jury Demand on June 4, 2012 and
August 29, 2012.
7 A-1991-15T1
Both sides accused the other of filing frivolous and meritless
claims. The parties' actions were consolidated and the Law
Division entered a judgment against LRG for $224,997.18 in
delinquent maintenance fees. LRG satisfied that judgment on May
6, 2013.
Pursuant to N.J.S.A. 46:8B-21, Sections 5.04 and 10.2 of the
master deed, and provisions of the bylaws, Ten West filed a motion
to compel Cerbone and/or LRG to reimburse the Association for its
counsel fees and litigation costs. Judge Thomas V. Manahan granted
the Association's motion for summary judgment on March 20, 2014.
Cerbone moved to dismiss himself from the case alleging LRG
was a separate entity. Judge Manahan ruled the motion was
premature because discovery was not complete. He specifically did
not consider whether the Association was entitled to pierce LRG's
corporate veil and recover from Cerbone individually. Judge Jared
D. Honigfeld denied LRG's motion for reconsideration on June 11,
2014. On July 18, 2014, he entered an order setting counsel fees
in the amount of $89,457.91, specifying Cerbone and LRG were
"jointly and severally liable[.]" On October 2, 2014, Judge
Honigfeld entered an order clarifying his previous order. He
stated,
This [c]ourt, upon a re-reading of the
Statement of Reasons portion of Judge
Manahan's [o]rder[,] . . . is satisfied that
8 A-1991-15T1
said [o]rder did not render defendant Carl
Cerbone liable for counsel fees. Such
liability, if any, would have to be predicated
upon a piercing of the corporate veil between
Cerbone and LRG Realty, a matter which Judge
Manahan expressly did not adjudicate, and
indicated would require the completion of
discovery.
Between the dates of Judge Manahan's two orders, Cerbone
convened a meeting of the Association's Board of Directors. The
Association alleges, and Cerbone in his trial testimony did not
materially dispute, Cerbone taunted the Board by brandishing a
check for counsel fees before returning it to his pocket. He then
informed the Board LRG was filing for bankruptcy, which it did on
July 25, 2014. The Association filed a proof of claim in LRG's
bankruptcy proceedings for $89,457.91, representing the amount of
the judgment for counsel fees entered by Judge Honigfeld. The
list of creditors in LRG's bankruptcy also included Cerbone, Cerdel
Construction, Cerbone Enterprises and Valley National Bank. On
September 23, 2014, LRG's ownership interest in Ten West was sold
for $500,000. The sale proceeds were insufficient to satisfy all
of the claims presented by LRG's creditors.
The parties filed cross-motions for summary judgment which
were denied by Judge Hubner who found substantial issues of
material fact. The matter proceeded to a bench trial before Judge
Brennan on December 7 and 8, 2015. The Association called Cerbone
9 A-1991-15T1
as a witness in its direct case, as well as Ten West President,
Ronald Regan, before resting. Cerbone moved for judgment pursuant
to Rule 4:40-1. Judge Brennan granted the motion finding:
Now, ordinarily the Court is not to weigh
witness credibility in determining a motion
for judgment, and the motion should ordinarily
be denied or a question of credibility as to
a material fact has been raised, we have the
slightly unusual circumstance here that, as I
say, the defendant was called on -- Mr.
Cerbone was called as a witness on the
plaintiff's case, and we are involved in a
non-jury or bench trial. And so the court has
had the opportunity to consider the testimony
of the two witnesses called by plaintiff, and
that would be Mr. Ronald Regan, who is the
president of the plaintiff association
incorporated, as well as Mr. Cerbone, the
individual defendant here.
And so to the extent that there may be
certain credibility issues, I think it would
be appropriate for me to go ahead and resolve
them on this motion, since the plaintiff has
offered all the evidence it intends to offer,
and the defense has offered more limited
testimony in the form of cross-examination of
Mr. Cerbone by his attorney.
Judge Brennan went on to find (referring to promissory notes):
But I think the point is made that there is--
and of course, the [c]ourt is to view the
evidence in the light most favorable to the
plaintiff. But after all, this is not a jury
trial, and I've heard from both sides, and I'd
only be hearing -- taking more evidence from
the defendant.
And so it's clear to me that the notes
are not supportive of the notion that the
corporate veil pierced; that Mr. Cerbone did,
in fact, keep his finances separate and apart
10 A-1991-15T1
from that of LRG. And that's reflected in the
documents . . . .
But as a general proposition I find that the
notes reflect obligations of LRG to Carl
Cerbone, and that's why they were done. And
there was nobody else to sign o[n] behalf of
LRG because Mr. Cerbone was the sole member
and the sole owner.
The court noted that Cerbone testified:
[w]ithout contradiction that LRG was -- it had
expenses.
. . . .
So on the under-capitalization point, we
have the ownership of property in this
condominium association, as well as a source
of funds that were advanced to LRG in the hopes
of a turnaround in the real estate market . .
. .
There was testimony that eventually its
space was sold for approximately $500,000,
which is much less than the company's
obligations.
Judge Brennan found:
[t]here's no proof that Mr. Cerbone violated
any tax laws or accounting principles in
treating these losses this way. This was his
company, and he took the losses on his tax
returns. It's -- I think it makes the point
that there is a separation here, and that he
did as a taxpayer is entitled to do, which is
balance what limited income he had with the
losses from his investment in LRG.
. . . .
So I have considered all of these tax returns,
but I don't find them supportive of the
argument that the plaintiff makes.
11 A-1991-15T1
The court also considered plaintiff's contentions that
defendant did not observe corporate formalities, "So the
formalities were not kept in their entirety. I find that the
finances were kept separate. But the fact that one person -- or
that an LLC owned by one person does not have minutes is not
persuasive in a matter involving proof of -- clear and convincing
proof." After further consideration of the certificate of
formation of LRG "which goes back to 1995," the listing agreement
dated June 11, 2010, the marketing brochure assignment and
assumption of the ground lease agreement, the court concluded:
[LRG] was -- it was not a shell corporation.
It had an interest in this building, a
considerable interest, more than half the
space. And there was considerable funding,
in excess of a million and a half dollars,
just from Mr. Cerbone and his companies, not
to mention Valley National Bank, which is also
listed as a creditor in the bankruptcy
proceeding, owed hundreds of thousands of
dollars . . . .
And Cerbone himself certainly did not
derive any benefit from the failure of LRG to
pay its condominium fees at all. That wasn’t
something that made his life or his finances
any better.
And certainly, the plaintiff has recourse
against LRG, but it's in the Bankruptcy Court
. . . .
Nevertheless, there is nothing illegal
about going into bankruptcy. And as much as
Mr. Regan might resent it and be financially
put upon by that legal action, it doesn’t mean
that LRG was a sham, was an instrumentality
of Mr. Cerbone, or that the corporate form was
ignored abused, or otherwise used fraudulently
12 A-1991-15T1
in an illegal way or in a way that would
deprive Ten West of its rights.
. . . .
Even under the standard of Rule 4:40 --
and this -- there is no proof that makes out
here entitlement to a piercing of the
corporate veil, even giving the plaintiff the
benefit of all favorable inferences and
looking at the evidence in the light most
favorable to the plaintiff.
In determining whether the trial judge properly granted a
motion for judgment pursuant to Rule 4:40-1, this court applies
the same standard of review as the trial court. Frugis v.
Bracigliano, 177 N.J. 250, 269 (2003) (citing Luczak v. Twp of
Evesham, 311 N.J. Super. 103, 108 (App. Div.), certif. denied, 156
N.J. 407 (1998)). The standard is identical to that used to
consider a motion for judgment notwithstanding the verdict, R.
4:40-2 or a motion for involuntary dismissal, R. 4:37-2(b). Rena,
Inc. v. Brien, 310 N.J. Super. 304, 311 (App. Div. 1998). This
court "must accept as true all evidence supporting the position
of the non-moving party" and "accord[] that party the benefit of
all legitimate inferences that can be deducted from such evidence."
Ibid.
We will affirm the trial court's judgment only if plaintiff
has shown no right to relief, R. 4:37-2(b). See R. 4:40-1, and
"no rational [fact-finder] could conclude from the evidence that
13 A-1991-15T1
an essential element of . . . plaintiff's case is present." Perez
v. Professionally Green, L.L.C., 215 N.J. 388, 404 (2013) (quoting
Pron v. Carlton Pools, Inc., 373 N.J Super. 103, 111 (App. Div.
2004)). If there is any legitimate view of the evidence that
would sustain a judgment in plaintiff's favor, or if reasonable
minds could differ, this court must reverse. Verdicchio v. Ricca,
179 N.J. 1, 30 (2004) (quoting Estate of Roach v. TRW, Inc. 164
N.J. 598, 612 (2000)); Lyons v. Hartford Ins. Grp., 125 N.J. Super.
239, 243 (App. Div. 1973).
Plaintiff asserts on appeal that Judge Brennan based his
determinations in part on credibility findings. Ordinarily,
credibility findings have no role in a motion for judgment pursuant
to Rule 4:40. However, where, as here, the trial judge was the
finder of fact, and plaintiff had rested after calling the
president of the Association and Cerbone, the court was entitled
to make findings of credibility and his determinations regarding
same are entitled to substantial deference on appeal. "[B]ecause
a trial court 'hears the case, sees and observes the witnesses,
[and] hears them testify,' it has a better perspective than a
reviewing court in evaluating the veracity of the witnesses" and
the quality of the evidence. Twp. Of W. Windsor v. Nierenberg,
150 N.J. 111, 132-33 (1997) (quoting Pascale v. Pascale, 113 N.J.
20, 33 (1998)).
14 A-1991-15T1
As to the issue of whether the court erred in its
determination that plaintiff failed to prove by clear and
convincing evidence that LRG's corporate veil should be pierced
on account of fraud, injustice or otherwise circumventing the law,
we begin with the fundamental proposition that a corporation is a
separate entity from its shareholders. Lyon v. Barrett, 89 N.J.
294, 300 (1982). A primary reason for incorporation is the
insulation of shareholders from the liabilities of the corporate
enterprise. Adolf A. Berle, Jr., The Theory of Enterprise Entity,
47 Colum. L. Rev. 343 (1947); Note, Piercing the Corporate Veil:
The Alter Ego Doctrine Under Federal Common Law, 95 Harv. L. Rev.
853, 854 (1982); H. Henn, Law of Corporations § 146, at 250 (2d
ed. 1961). Even in the case of a parent corporation and its
wholly-owned subsidiary, limited liability normally will not be
abrogated. Mueller v. Seaboard Commercial Corp., 5 N.J. 28, 34
(1950).
Except in cases of fraud, injustice, or the like, courts will
not pierce a corporate veil. Lyon, supra, 89 N.J. at 300. 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, 26 (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.
15 A-1991-15T1
1934); State, Dept. of Environmental Protection v. Ventron Corp.,
94 N.J. 473, 500-01 (1983).
Personal liability may be imposed upon a controlling
stockholder of a close corporation where the controlling
stockholder disregards the corporate form and utilizes the
corporation as a vehicle for committing equitable or legal fraud.
Walensky v. Jonathan Royce Intern., 264 N.J. Super. 276, 283,
(App. Div.), certif. denied, 134 N.J. 480 (1993); Marascio v.
Campanella, 298 N.J. Super. 491, 502 (App. Div. 1997). A party
seeking to pierce the corporate veil must establish: (1) that the
entity was "dominated" by the individual owner, and (2) "that
adherence to the fiction of separate corporate existence would
perpetrate a fraud or injustice, or otherwise circumvent the law."
Verni ex rel. Burstein v. Harry M. Stevens, Inc., 387 N.J. Super.
160, 199-200 (App. Div. 2006) (citing Ventron, supra, 94 N.J. at
500-01).
The first prong of the analysis, "domination" requires a
showing that the closely held corporation or limited liability
company had "no separate existence" from its owner, and acted
merely as the owner's "conduit," "instrumentality," or "alter
ego." Id. at 200 (citing Ventron, supra, 94 N.J. at 501). Relevant
factors include undercapitalization, insolvency, the extent of the
owner's day-to-day involvement in the entity's affairs, the
16 A-1991-15T1
absence or presence of separate records and accounts, and the
entities compliance or non-compliance with business formalities.
Canter v. Lakewood of Voorhees, 420 N.J. Super. 508, 519 (App.
Div. 2011) (quoting Verni, supra, 387 N.J. Super. at 200); 18 Am.
Jur. 2d Corporations § 54 (2004).
To establish a fraud, an injustice, or other circumvention
of the law, the party seeking to pierce the corporate veil must
show the entity had "no independent business of its own," and the
owner deliberately undercapitalized the entity, thereby rendering
it judgment-proof. OTR Assocs. V. IBC Sec'ys, Inc., 353 N.J.
Super. 48, 52 (App. Div. 2002) (citing Ventron, supra, 94 N.J. at
501). Although Cerbone was LRG's sole member and manager and
retained exclusive control over its day-to-day activities, and was
solely responsible for its capitalization through his personal
assets and loans; and further, although he failed to hold meetings
or keep minutes, the plaintiff produced no evidence upon which the
fact finder could base a finding that Cerbone utilized LRG to
commit fraud, cause an injustice or otherwise circumvent the law.
To the contrary, Judge Brennan found Cerbone, with the
exception of failing to conform with corporate formalities, abided
by the law, adequately capitalized LRG, did not personally profit
and had established LRG long before the events which provoked the
17 A-1991-15T1
litigation, having operated LRG for the purpose of developing,
leasing and selling commercial real estate.
Similarly, N.J.S.A. 42:2C-30 provides that:
[t]he debts, obligations, or other liabilities
of a limited liability company . . . are solely
the debts, obligations, or other liabilities
of the company[,]and [they] do not become the
debts, obligations, or other liabilities of a
member or manager solely by reason of the
member acting as a member or manager acting
as a manager.
[N.J.S.A. 42:2C-30.]
Nevertheless, the power to look beyond the corporate form is
well established. Stochastic Decisions, Inc. v. DiDomenico, 236
N.J. Super. 388, 393 (App. Div. 1989). Piercing the corporate
veil is a doctrine designed to address an otherwise enforceable
judgment that is rendered unenforceable because the defendant is
a corporate entity without sufficient assets to pay it. See Verni,
supra, 387 N.J. Super. at 199. It is an equitable remedy whereby
"the protections of corporate formation are lost" to eliminate the
"fundamental unfairness" that would otherwise result from a
"failure to disregard the corporate form." Ibid. (citations
omitted). The doctrine's purpose is to prevent a corporation or
limited liability company "from being used to defeat the ends of
justice, . . . to perpetrate fraud, to accomplish a crime, or
otherwise to evade the law[.]" Ventron, supra, 94 N.J. at 500.
18 A-1991-15T1
We are satisfied from our careful study of this matter that
there is substantial credible evidence in the record as a whole
which reasonably warrants the findings and conclusions of the
trial court. Therefore, we discern no sound reason or legal
justification for disturbing these findings and conclusions.
Leimgruber v. Claridge Associates, Ltd., 73 N.J. 450, 455-56,
(1977); Rova Farms Resort v. Investors Ins. Co., 65 N.J. 474, 484,
(1974); State v. Johnson, 42 N.J. 146, 161-62, (1964). See also
R. 2:11-3(e)(1)(A).
Affirmed.
19 A-1991-15T1