Opinion ID: 855471
Heading Depth: 2
Heading Rank: 2

Heading: Participation Theory of Liability

Text: NASCO next argues that even if the corporate veil between Watson and Ostermueller cannot be pierced, Ostermueller is directly liable to NASCO based on a “participation theory” of liability. Under that theory, “a corporate officer can be held personally liable for a tort committed by the corporation when he or she is sufficiently involved in the commission of the tort.” Saltiel v. GSI Consultants, Inc., 788 A.2d 268, 272 (N.J. 2002). There are three distinct elements that a plaintiff must establish to succeed under the participation theory: (1) “the corporation owed a duty of care to the victim”; (2) that duty “was delegated to the officer”; and (3) “the officer breached the 11 NASCO’s emphasis on “the heightened fiduciary duties that exist between parties to a joint venture” is irrelevant to the veil-piercing analysis. (Appellant’s Opening Br. at 1.) The duties that Watson and Ostermueller may have owed to NASCO are unrelated to whether Watson was Ostermueller’s “alter ego,” and thus they cannot serve as a basis to pierce the corporate veil. See Verni, 903 A.2d at 498 (describing the “alter ego” doctrine). As the District Court accurately explained, “NASCO cannot use the joint venture theory as an end-run around the burdens imposed on a party seeking to disregard the corporate form.” (App. at 27.) 12 Because we conclude that there is no evidence supporting a finding of corporate dominance, we do not reach the second prong of the analysis – whether failing to pierce the veil would result in fraud or injustice. Ventron, 468 A.2d at 164; see also Craig, 843 F.2d at 150 (“Only after there has been [a finding of corporate dominance] does one reach the fraud or injustice issue.”). 10 duty of care by his own conduct.” Id. NASCO claims that Ostermueller is directly responsible for Watson’s intermingling of the funds of the joint venture, and thus, as Watson’s corporate officer, could be found liable under the participation theory. NASCO’s argument fails because it has not alleged any actual culpability on the part of Ostermueller in the intermingling of funds. Even if the intermingling were tortious (a point on which we express no opinion), Ostermueller’s only involvement with it was that his responsibilities as president of Watson allegedly included “mak[ing] sure that [the controller] keeps proper track of money.” (Appellant’s Opening Br. at 21.) NASCO does not provide any evidence that Ostermueller directed the intermingling, that he condoned it, or that he negligently supervised the controller. Rather, NASCO claims that Ostermueller’s status as a supervisor is itself sufficient to establish his participation in a corporate tort, effectively arguing that corporate officers are personally liable for all torts that occur on their watch. That argument ignores the element of the participation theory requiring that the corporation’s breach occurred “by [the officer’s] own conduct,” Saltiel, 788 A.2d at 272, and it is plainly contradicted by the principle of New Jersey law that “[a] director or officer of a corporation does not incur personal liability for its torts merely by reason of his official character,” Sensale v. Applikon Dyeing & Printing Corp., 79 A.2d 316, 317-18 (N.J. Super. Ct. App. Div. 1951). Therefore, no reasonable jury could find that Ostermueller was “sufficiently involved” in the intermingling of funds to be held personally liable for it, Saltiel, 788 A.2d at 272, and the District Court properly rejected that claim. 11