ISTVAN MARTON v. NEW JERSEY FENCING ALLIANCE INC.

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

ISTVAN MARTON,

Petitioner-Respondent,

v.

NEW JERSEY FENCING ALLIANCE,

INC., FRANK MUSTILLI, individually,

and GEORGE JANTO, individually,

Respondents-Respondents,

and

BLANCHE MUSTILLI, individually,

Respondent-Appellant.

_______________________________________________

April 13, 2016

Submitted March 15, 2016 Decided

Before Judges St. John and Guadagno.

On appeal from the Division of Workers' Compensation, Claim Petition Nos. 2007-16277 and 2008-7570.

Young & Perez, attorneys for appellant (Robert J. Young, on the brief).

Pitman, Mindas, Grossman, Lee and Moore, P.C., attorneys for respondent Istvan Marton (Brendan H. Morris, on the brief).

Robert Lougy, Acting Attorney General, attorney for respondent Uninsured Employer's Fund (Alan C. Stephens, Deputy Attorney General, on the statement in lieu of brief).

PER CURIAM

Respondent Blanche Mustilli appeals from a final judgment of the Division of Workers' Compensation finding her personally liable for injuries sustained by petitioner, Istvan Marton, stemming from a work-related injury. We hold that the evidence does not support a finding that Blanche Mustilli was actively engaged in the corporate business so as to justify a finding of personal liability, and reverse.

Marton was employed as a fencing instructor with New Jersey Fencing Alliance, Inc. (NJFA) when he suffered an injury during a fencing lesson on May 15, 2007. Marton filed an initial employee claim petition (2007-16277) with the Division of Workers' Compensation against NJFA. NJFA did not have workers' compensation insurance at the time of Marton's injury, and on June 28, 2007, he moved to amend his claim to include the Uninsured Employer's Fund.

In June 2008, Marton filed a second petition (2008-7570) against NJFA and Frank Mustilli, the founder, head coach, and former president and trustee of NJFA. On September 2, 2008, the second petition was amended to join George Janto and Frank's wife Blanche.1

The judge of compensation bifurcated the trial of both petitions, first addressing whether Marton was an employee of NJFA. On June 24, 2014, the judge heard the testimony of Marton and Frank Mustilli. Trial continued on October 7, 2014, with the testimony of Blanche Mustilli and George Janto.

Marton, who is Hungarian, testified that he came to the United States in 2005 to teach fencing in Houston, Texas. Marton had a work visa and was sponsored by a Houston fencing club. In 2007, Janto recruited Marton to join NJFA as a fencing instructor. Marton arrived in New Jersey in April 2007 and signed an employment contract with NJFA on April 6, 2007. The contract called for Marton to be paid a minimum of $1,100 per week. Marton testified that Janto negotiated his contract and signed it on behalf of NJFA.

Marton worked weekdays from 3:00 or 4:00 in the afternoon until 8:00 or 8:30 in the evening, and occasionally worked on weekends as well. Marton's schedule of instruction was set for him and posted on a board; he did not arrange any of his lessons. Blanche usually prepared the schedule for student instruction.

Frank Mustilli testified that NJFA was incorporated in 2000 as a 501(c)(3)2 corporation to provide fencing lessons to children ages eight to eighteen. For the first few years, NJFA operated from the cafeteria of Columbia High School in Maplewood. In 2006, the cafeteria underwent renovations and NJFA relocated to a leased space on Burnett Avenue, not far from the high school. Frank used his home address on NJFA correspondence, banking statements, and the corporation's checking account because of difficulty receiving mail at the Burnett address.

When Janto told Frank that Marton was willing to come to NJFA, Frank was "extremely happy." Frank testified that there were some complications in transferring the sponsorship of Marton's work visa from the Houston club where he was previously employed to NJFA. Frank consulted with an immigration attorney who agreed to expedite the transfer of Marton's sponsorship, but said it would take ninety days and that Marton could not work for NJFA until the transfer was completed.

Frank testified that, because of the visa issue, he arranged for Marton to work as an independent contractor, employed directly by the parents of the students he taught. He described the arrangement

Mr. Marton ran his own program. He would come. His wife would come. She would sit down in an area right immediately off the strip. She would mark down all the kids that were in attendance. And she would write down all the private lessons given out. She collected from the parents. That schedule then would be given to us. We took the checks and gave it right back to him.

When Frank was shown a check for $1,100 drawn on the NJFA checking account and made payable to Marton, he claimed that checks from Marton's students were deposited into the NJFA account and that Marton was issued that check in return. Marton vehemently denied that he worked as an independent contractor or that his wife played any role at NJFA.

Blanche testified and described herself as a secretary at NJFA. She collected and deposited checks for the lessons, and drafted and signed NJFA checks at Frank's direction for rent and occasionally for payment of coaches. Blanche was never an officer and had no decision-making role at NJFA. She denied ever being a guarantor of any NJFA debt obligations.

Blanche testified that in 2006, when NJFA first began to lease space, occasionally there was not enough income from lessons to cover the $8,000 monthly rent. On some occasions, Frank used their jointly held funds to cover the shortfall. Blanche estimated that approximately $100,000 of these funds were used by NJFA for this purpose.

At the conclusion of testimony on October 7, 2014, the judge made a preliminary finding that Marton was an employee of NJFA, and "Frank Mustilli, Blanche Mustilli and George Janto owe responsibility under [N.J.S.A. 34:15-79] as being [principals] of the Corporation." The judge found

I'm aware that there is case law concerning the spouse of the purported [principal] of the corporation as not being actively involved in the business. If nothing else, by their debt involvement [and] with running this business[,] it's obvious that Mrs. Mustilli was signing the checks, taking the phone calls, and along with her husband, putting themselves at some extreme risks in terms of signing a long term lease for a large amount of money in order to operate this business.

The case continued as to disability on October 28, 2014. After hearing evidence of Marton's injuries, treatment, and medical expenses, and the submission of the parties' respective expert reports, the judge determined that Marton was entitled to payments for temporary disability and unpaid medical bills, and that he was 33 1/3% permanently disabled. The judge also imposed court costs and counsel fees.

After Blanche filed a notice of appeal, the judge of compensation read an oral supplemental decision into the record pursuant to Rule 2:5-1(b). The judge found that Blanche "was acting de facto corporate secretary and actively involved in the business, . . . including banking, written and telephonic and web page access, [and] using the home as a company office[.]" Alternatively, the judge found that "the facts called for a piercing of the corporate veil . . . because the respondents did not follow the letter or intent of the law to be allowed protection of the corporate structure."

On appeal, Blanche argues that the finding of individual liability on her behalf is not supported by either the pertinent statute or the interpretive case law. She also argues that the finding of individual liability should be overturned as there is no indication that she had legal representation below.

N.J.S.A. 34:15-79 provides in pertinent part

Where the employer is a corporation, any officer who is actively engaged in the corporate business, including, but not limited to, the president, vice-president, secretary, and the treasurer thereof shall be liable for failure to secure the protection prescribed by this article.

It is undisputed that Blanche was not a corporate officer of NJFA. However, the judge of compensation attached no significance to that because, other than Janto, there were no corporate officers. The judge reasoned: "You can't hide behind the corporate shield when you don't follow the rules." The judge also discounted Blanche's lack of compensation, finding her lack of salary "hardly matters in a 501 corporation run by your husband and his friend." The judge concluded that Blanche, Frank, and Janto "[a]ll . . . had a practical and realistic opportunity to avoid injuries, injurious consequences, of corporate conduct in the areas of the public health and safety."

In amending N.J.S.A. 34:15-79, the Legislature intended "to impose liability only on certain corporate officers who were 'actively engaged' in the corporate business." Macysyn v. Hensler, 329 N.J. Super. 476, 486 (App. Div. 2000). In Macysyn, we reversed the imposition of personal liability on the corporate secretary of an uninsured hardware store for a judgment stemming from a work-related injury. Id. at 478. We found that the secretary "signed corporate loan documents, corporate minutes, and any other writing that required the signature and seal of the corporate secretary[, and therefore] was actively engaged in the limited role of a corporate secretary." Id. at 486. However, we held that the secretary "did not actively engage in the management of the corporation's business. She received no salary and made no business decisions affecting the operation of the hardware store in any way. Her involvement was circumscribed to the bare-bone function of a corporate secretary, i.e., the keeper of the corporate seal." Ibid.

Unlike the appellant in Macysyn, Blanche did not hold the title of corporate secretary. Although she was actively involved in performing many secretarial functions at NJFA, such as answering phone calls, scheduling lessons, and writing and depositing checks, there is no evidence that she played a role in any of the business decisions made at NJFA. She denied assuming any debt obligation on behalf of NJFA, and there is no indication she had any input into fundamental decisions such as the hiring of coaches, the coaches' compensation, how much to charge for lessons, or how many students to place in a class. Similar to the appellant in Macysyn, Blanche also received no compensation from NJFA.

The judge of compensation relied on the fact that funds belonging to Frank and Blanche were used to make up shortfalls in lease payments when the Burnett facility first opened. However, mere consent by a wife to the use of marital funds by her husband does not have the effect of elevating that spouse to the position of a responsible corporate officer. Like the appellant in Macysyn, Blanche was actively engaged as a secretary, but "made no business decisions affecting the operation of the [business] in any way." Id. at 486.

As Blanche was not actively engaged in the corporate business of NJFA, the decision to impose personal liability was error. As we are reversing the imposition of liability, we need not consider Blanche's alternative argument that the judgment must be reversed because she was not represented.

Reversed.

1 To avoid confusion and for ease of reference, we occasionally refer to the Mustillis by their first names.

2 26 U.S.C.A. 501(c)(3) provides an exemption from federal income tax for an organization devoted to education if certain prerequisites are satisfied.