SOUTH JERSEY HEALTH SYSTEM, INC. v. FRANK A. GAROFOLO

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3885-02T40717-04T1

SOUTH JERSEY HEALTH SYSTEM, INC.

Plaintiff-Respondent,

v.

FRANK A. GAROFOLO,

Defendant-Appellant,

and

LONGSHORE & SIMMONS, INC.,

THE LSG GROUP, LONGSHORE & GAROFOLO,

INC., LONGSHORE*SIMMONS*GAROFOLO,

Defendants.

________________________________________________________________

 

Argued November 2, 2005 - Decided

Before Judges Conley and Weissbard.

On appeal from Superior Court of New Jersey,

Law Division, Cumberland County, CUM-L-130-04.

Todd W. Heck argued the cause for appellant

(Basile & Testa, attorneys; Todd W. Heck, on the brief).

Jerry L. Tanenbaum argued the cause for respondent (Schnader Harrison Segal & Lewis, attorneys; Mr.

Tanenbaum and James R. Costello, II, on the brief).

PER CURIAM

Defendant Frank Garofolo appeals from the denial of his motion to dismiss the complaint of plaintiff South Jersey Health System, Inc. and to vacate the default entered against him. We agree that the default should have been vacated and, therefore, reverse.

Plaintiff, who operates hospitals in South Jersey, entered into a letter agreement on September 20, 2002 with Longshore & Simmons, Inc. (LSG or Longshore), by which LSG was to recruit nurses for plaintiff. Defendant signed the letter as "Senior Vice President." Plaintiff paid LSG a total of $118,361.95, consisting of a $75,000 retainer, $29,361.95 in expenses and $14,000 in advance payment of fees. After a year, plaintiff was dissatisfied with LSG's work as it had identified only four qualified nurses, none of whom accepted employment with plaintiff. Plaintiff requested a year-end assessment of LSG's progress, but Longshore either failed or refused to provide such an assessment, and did not respond to correspondence or phone calls.

As a result, plaintiff instituted suit on February 4, 2004. Named as defendants were Longshore & Simmons, Inc., the LSG Group, Longshore & Garofolo, Inc., Longshore*Simmons*Garofolo (LSG), and defendant Garofolo individually. The complaint alleged that the defendant entities "share corporate officers and directors, and are affiliated with one another as a single entity operating under fictitious names, as predecessors or successors or share other inter-related affiliations." The suit alleged breach of contract, unjust enrichment and that:

33. Frank A. Garofolo caused Longshore to cease operations without notice to South Jersey and without reimbursement to South Jersey, to avoid its obligations owed to South Jersey.

34. The corporate form of the LSG entities is a sham and Frank A. Garofolo is liable as a corporate officer of LSG.

Defendant was personally served with the summons and complaint at his office in Pennsylvania on February 10, 2004. While the record is not entirely clear, it appears that the entities were also served at around the same time. Neither defendant nor the entities filed an answer and, accordingly, on May 24, 2004, a default was entered against all defendants. On June 23, plaintiff moved for entry of judgment by default, supported by an affidavit of amount due. The motion was returnable on July 23, 2004. However, on July 14, 2004, defendant cross-moved to vacate the default and to dismiss the complaint. In support of that cross-motion, defendant submitted the following certification:

1. I am a named defendant in the within action.

2. I am the sole owner of the defendants Longshore & Simmons, Inc. and Longshore & Garofolo, Inc., both of which are duly incorporated Pennsylvania corporations. The defendant Longshore & Garofolo, Inc. has been inactive since its inception. The defendants LSG Group and Longshore*Simmons*Garofolo constitute registered fictitious names of the defendant Longshore & Garofolo, Inc., which is in good standing. Attached as Exhibit "A" hereto is a true and correct copy of a download from the official Pennsylvania Department of State website evidencing the registration of Longshore*Simmons*Garofolo as a fictitious name for Longshore & Garofolo, Inc.

3. The only business entity named as a defendant which had any dealings with the Plaintiff in this matter is the defendant Longshore & Simmons, Inc. d/b/a Longshore*Simmons*Garofolo.

4. I have apparently been joined personally in this lawsuit by the Plaintiff because of its claim that the "corporate form of [the other named defendants] is a sham" and that I am supposedly "liable as a corporate officer" for the alleged debts of the corporate defendants, all as stated in Count Three of the Plaintiff's Complaint.

5. The corporate formalities for the defendant Longshore & Simmons, Inc. d/b/a Longshore*Simmons*Garofolo have been observed at all relevant times, and none of its corporate assets or monies have been commingled with any of my personal funds. And, although I am a corporate officer of that sole entity (among these named defendants) which entered into the subject agreement with the Plaintiff, I do not understand my mere status as a corporate officer to impose personal liability upon me for my corporation's debts.

6. I was personally delivered a copy of the Summons and Complaint in this matter on February 10, 2004 at my office in Conshohocken, Pennsylvania, at a time when neither myself nor the other named defendants had day-to-day counsel. Furthermore, I did not consult with a New Jersey attorney concerning this lawsuit until very recently, after the Plaintiff had apparently caused the entry of default against me in this proceeding and had filed a Motion for the entry of default judgment against all defendants.

After briefing and oral argument on July 23, 2004, the motion judge denied defendant's cross-motion and granted plaintiff's motion for judgment by default which was thereafter entered on July 27, 2004 in favor of plaintiff and against all defendants "jointly, severally and in the alternative, in the amount of $118,361.95, plus costs of suit and attorneys' fees to date." On that same date, the judge dictated into the record an oral opinion rejecting defendant's argument that service of process was improper and finding no good cause to vacate the default. Defendant sought reconsideration which was, again after full briefing by both parties, and oral argument on September 20, 2004, denied.

On appeal, defendant again argues that service of process was improper and, alternatively, that good cause was demonstrated to vacate the default against him. No claims are raised on this appeal concerning the entities, and the judgment by default against them remains in force.

I

Rule 4:4-4(b)(1) provides that a plaintiff may personally serve an out-of-state defendant using the same procedures as service for an in-state defendant after an affidavit satisfying the requirements of R. 4:4-5(c)(2) is filed with the court noting that an inquiry had been performed by the plaintiff.

Here, plaintiff did perform an inquiry for the defendant's whereabouts in New Jersey. Finding no New Jersey addresses, plaintiff personally served all defendants at their office in Conshohocken, Pennsylvania. However, plaintiff did not, as required by the rule, file the affidavit of inquiry before effecting out-of-state service. Indeed, the affidavit was not filed until July 20, 2004, in response to defendant's cross-motion.

Defendant argues that this defect in service invalidates the personal jurisdiction of the New Jersey Superior Court, and therefore, the judgment against him should be vacated. Plaintiff claims that the defective service is minor and should not invalidate the personal jurisdiction of the court.

"A trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995). Although "[s]ervice-of-process rules prescribe particular procedures for effecting service in order to acquire in personam jurisdiction, default judgments will not be vacated for minor flaws in the service of process." Sobel v. Long Island Entm't Prods., Inc., 329 N.J. Super. 285, 292 (App. Div. 2000); see also Rosa v. Araujo, 260 N.J. Super. 458, 462 (App. Div. 1992), certif. denied, 133 N.J. 434 (1993). However, "a default judgment will be set aside for a substantial deviation from the service of process rules." Sobel, supra, 329 N.J. Super. at 293. "Where due process has been afforded a litigant, technical violations of the rule concerning service of process do not defeat the court's jurisdiction." Rosa, supra, 260 N.J. Super. at 463 (citing O'Connor v. Altus, 67 N.J. 106, 127-28 (1975). "'An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated . . . to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.'" O'Connor, supra, 67 N.J. at 126 (quoting Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S. Ct. 652, 657, 94 L. Ed 865, 873 (1950)).

We conclude that the service of process defect was "technical" rather than "substantial." In Rosa, supra, 260 N.J. Super. at 462, service was made upon an individual who was not a member of the household and who did not reside with the defendant. However, since defendant received the summons and had the opportunity to defend, due process was satisfied. Id. at 463. In Sobel, supra, 321 N.J. Super. at 288-89, process was mailed to an address that was not defendant's, and the mail was never forwarded to the correct person; no personal service was made. The defendant in Sobel had no notice of the lawsuit and was therefore not afforded the opportunity to make a defense, in violation of his due process rights.

This case is analogous to Rosa, but unlike Sobel, because defendant had notice of the lawsuit and was given an opportunity to respond. In fact, defendant received the summons personally. Even though the affidavit was later filed with the court, fulfilling the legal requirement, the address inquiry itself was performed before the service of process, fulfilling the spirit and intent of the law. The service violation was, therefore, merely technical rather than substantial. We agree with the motion judge that defendant's motion to dismiss the complaint was properly denied.

II

Rule 4:43-3 provides that a default may be set aside "[f]or good cause shown." In O'Connor, supra, 67 N.J. at 124-28, as here, the Court rejected defendant's argument that out-of-state service of process was improper. Nevertheless, the Court went on to note that the good cause required to set aside a default was in contrast to the more stringent requirements of R. 4:50-1 to set aside a default judgment. Id. at 128-29. As with the comparable federal rule, good cause "requires the exercise of sound discretion by the court in light of the facts and circumstances of the particular case." Id. at 129 (citing Elias v. Pitucci, 13 F.R.D. 13 (E.D. Pa. 1952)). Finding good cause, the default in O'Connor was set aside. Ibid. Applications to set aside default judgments, under R. 4:50-1, "should be viewed with great liberality, and every reasonable ground for indulgence is tolerated to the end that a just result is reached." Marder v. Realty Constr. Co., 84 N.J. Super. 313, 319 (App. Div.), aff'd, 43 N.J. 508 (1964). Since the standard to set aside a default is less stringent than the R. 4:50-1 standard, the Marder language is certainly applicable in the present context. Bank of New Jersey v. Pulini, 194 N.J. Super. 163, 165 (App. Div. 1984); Stuchin v. Kasirer, 237 N.J. Super. 604, 609 (App. Div.), certif. denied, 121 N.J. 660 (1990); see also Pressler, Current N.J. Court Rules, Comment on R. 4:43-3 (2005). Thus, defendant's application should have been "treated indulgently," Jameson v. Great Atl. & Pac. Tea Co., 363 N.J. Super. 419, 430 (App. Div. 2003), certif. denied, 179 N.J. 309 (2004) (citing Davis v. DND/Fidoreo, Inc., 317 N.J. Super. 92, 100 (App. Div. 1998), certif. denied, 158 N.J. 686 (1999)), "to the end of securing a trial upon the merits." Ibid. (quoting Goldfarb v. Roeger, 54 N.J. Super. 85, 92 (App. Div. 1959)).

In her opinion of July 27, 2004, and again in her opinion of September 20, 2004 denying reconsideration, the motion judge did not advert to these principles and, in our view, certainly did not apply them. Her denial of defendant's motion to vacate constituted a mistaken exercise of discretion. The key is whether defendant has presented a meritorious defense. Local 478 v. Baron Holding Corp., 224 N.J. Super. 485, 490 (App. Div. 1988); Bank of New Jersey, supra, 194 N.J. Super. at 165-66. Here, we have no doubt that defendant did so.

The contract in question was between LSG and plaintiff. According to defendant's certification, LSG was a registered fictitious name of Longshore & Garofolo, Inc., a Pennsylvania corporation in good standing. Defendant signed the letter agreement in his capacity as Senior Vice President. In its complaint, plaintiff asserts, without elaboration and without supporting facts, that the "corporate form of the LSG entities is a sham," thereby rendering defendant personally liable for the corporate obligations of the entities. While it is true that defendant admitted being the sole owner of the entities, that fact does not render him personally liable.

Certainly the corporate veil may be pierced in cases of "fraud or injustice," Lyon v. Barrett, 89 N.J. 294, 300 (1982); Karo Mktg. v. Playdrone Am., 331 N.J. Super. 430, 442-43 (App. Div.), certif. denied, 165 N.J. 603 (2000). But we do not view plaintiff's spare allegation as so clearly sufficient to demonstrate its right to pierce the corporate veil as to deprive defendant of his meritorious defense. Clearly, as established by the default of the entities, the contract with plaintiff was breached. Just as obviously, as a principal of the entities, defendant likely caused that breach in some sense. That does not, however, make him personally liable for the corporate debt. All corporations act through their officers. If that fact alone rendered them personally liable, there would be no need to ever pierce the corporate veil. The fact that a corporate officer causes the corporation to breach a contract does not, without more, render the officer personally liable. Zeiger v. Wilf, 333 N.J. Super. 258, 284-88 (App. Div.), certif. denied, 165 N.J. 676 (2000).

We conclude that defendant's motion to set aside the default against him should have been granted. We reject plaintiff's contention that on remand the sole issue should be whether the corporate veil should be pierced. While the corporate entities have defaulted, defendant has not. We see no reason why defendant should be limited to one issue in defending the case. Defendant will be permitted to file his answer and the case will proceed in normal course.

 
Reversed.

The Notice of Appeal was improperly captioned.

The contract was embodied in a letter proposal to plaintiff dated September 19, 2002 which was accepted by plaintiff on September 20, 2002 by signing the last page of the letter under a heading of "Authorized By."

(continued)

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12

A-0717-04T1

December 12, 2005