Earlier this month, in the case of New Jersey Dep’t of Environmental Protection (NJDEP) v. Navillus Group, Docket No. A-4726-13T3 (N.J. App. Div. Jan. 14, 2016), the Appellate Division of the Superior Court of New Jersey determined that there was insufficient evidence on summary judgment to hold the principal of a company personally liable for part of a $2 million judgment in an action brought pursuant to the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11, et seq. (the “Spill Act”) to recover costs expended by the State to clean up a contaminated property in Franklin Township owned by Jim Sullivan, Inc. The court also reversed the trial court’s finding of liability against the defendants under a theory of unjust enrichment.
The case involves two family-owned companies. In 1999, the Navillus Group, a general partnership composed of the children of James Sullivan, Jr. purchased tax sale certificates for the former Accutherm Inc. site in Franklin Township for the purpose of taking ownership of the property through foreclosure, although the company apparently did so with a check written from an account in the name of Jim Sullivan, Inc., a corporation in which the same Sullivan siblings were shareholders or employees. Approximately one year after the foreclosure, Navillus conveyed the property to Jim Sullivan, Inc. for $1.00.
On summary judgment, the trial court found Navillus, Jim Sullivan, Inc. and the Sullivan siblings, as general partners of Navillus, all liable under the Spill Act for the costs of remediation and for unjust enrichment. The trial court also pierced the corporate veil of Jim Sullivan, Inc. and additionally held patriarch James Sullivan, Jr. personally liable, finding that there had been a comingling of assets based solely on the assumption that funds from Jim Sullivan, Inc. were used to purchase the tax certificates. The Sullivan defendants appealed on several grounds, and the appellate court upheld the judgment under the Spill Act as to all of the defendants except James Sullivan, Jr., but reversed the finding of liability under the claim of unjust enrichment.
In its analysis of the veil-piercing issue, the Appellate Court invoked the New Jersey Supreme Court’s 1983 ruling in State, Dep’t of Envtl. Prot. v. Ventron Corp., 468 A.2d 150 (N.J. 1983), which held that the doctrine of piercing the veil is used to prevent a corporation from being used to “perpetrate fraud, to accomplish a crime, or otherwise to evade the law,” or when an individual uses the corporation as an alter ego and abuses the corporate form in order to advance his own personal interests. In the case before it, the Court found that there was insufficient undisputed evidence on the record to support the trial court’s summary judgment decision to pierce the corporate veil under these principles. First, there was no positive evidence that a check from James Sullivan, Inc. was used to purchase the tax certificates, as this was merely an assumption made by James Sullivan III while testifying at trial. Moreover, even if James Sullivan, Inc. had purchase the certifications, the court held that “[w]riting a check for another entity on one occasion, during the more than twenty-year existence of Jim Sullivan, Inc., hardly demonstrates a pattern of comingling assets that might serve as a foundation for piercing the veil.” Finally, the court found no evidence that the transfer of the property from Navillus to Jim Sullivan, Inc., or the later distribution of other assets from the corporation, were done with an intent to evade liability.
On the issue of the unjust enrichment claim, the court also found that there was insufficient evidence on the record to support the trial court’s decision. The doctrine of unjust enrichment is an equitable principle that a person shall not be allowed to unjustly enrich himself at the expense of another. But the court found that the NJDEP did not present any proof that the property’s cleanup increased the property’s value or made it any more marketable. In assuming the theory of unjust enrichment liability was even applicable to Spill Act cases, the court said it “fail[ed] to discern how the individual Sullivan defendants, who never individually owned the site, were enriched by its cleanup.” Further, the court found, “neither the parties nor the trial court addressed how James Sullivan Inc. was enriched.”