Typically, an officer of a corporation does not incur personal liability for a corporation’s torts (i.e., acts of negligence) merely because of his or her official position. However, if that agent or officerpersonally commits or participates in that wrongful act, whether or not he or she is acting on behalf of the business entity, the agent or officer may be liable to an injured third party.
This summer, the Connecticut Supreme Court expanded this reasoning to apply to violations of Connecticut’s Unfair Trade Practices Act (“UTPA”), holding the principal of a construction corporation personally liable for his participation in wrongful conduct. See Joseph General Contracting, Inc. v. Couto, — A.3d —, 317 Conn. 565 (2015). In the Joseph General case, the owner and principal of the construction corporation repeatedly misled homeowners about zoning requirements for a new construction project, lied about financing opportunities and requirements, and caused material changes to the design during construction that affected the functionality of the house, among other transgressions.
Relying on a framework established and currently applied by federal courts, the Connecticut Court determined that an individual will be held liable if, after a showing that the entity violated the Act, it is proven that the individual either participated directly in the entity’s deceptive or unfair acts or practices, or that he or she had the authority to control them. A plaintiff must also prove that the individual had knowledge of the wrongdoing.
Controlling shareholders or officers of a closely-held corporation are presumed to have the ability to control the acts of the corporation, but this presumption is rebuttable. However, even an employee who is not an owner or officer may, under certain circumstances, have that authority. Authority to control may be established by evidence of a particular individual’s conduct, such as active participation in business affairs or the setting of company policy, as well as evidence that other employees deferred to that individual.
Knowledge of the wrongdoing may be established through evidence of actual knowledge or an awareness of a “high probability” of fraud and “intentional avoidance” of the truth. However, a good faith belief in the truth of a misrepresentation may preclude individual liability.
In the Connecticut case, the Court concluded that the president and sole shareholder of a general contracting corporation controlled the corporation and was actively engaged in the business relationship with the homeowners who were harmed. He was personally untruthful with the homeowners with respect to certain financing opportunities, he misled them and pressured them into an unfavorable restructuring of the transaction, and he willfully prevented them from accessing a sewer line to which they were entitled after the homeowners withheld a payment they did not in fact owe. In short, this individual either directly participated in the wrongdoing, or, by virtue of his position in the company and day-to-day involvement, had the ability to control it. The Court concluded that, under the circumstances, he was personally liable for the UTPA violations.
Although the Maine Supreme Court has not addressed this issue to the level of detail used by the Connecticut Court, the Maine Supreme Court has applied the same reasoning to hold a corporate officer liable where that officer’s individual representations and conduct constituted violations of the UTPA. See Advanced Construction Corp. v. Pilecki, 2006 ME 84, 901 A.2d 189.The Maine Court has also noted that establishing personal liability for corporate officers who participate in wrongful acts is distinct from “piercing the corporate veil” because the personal liability stems from the officer’s participation in the act, not the facts that must be established to pierce the corporate veil. Similarly, employees who commit an unfair trade practice within the scope of their employment may be held personally liable.