LM INSURANCE CORPORATION et al v. ALL-PLY ROOFING CO., INC.

Filing 130

OPINION. Signed by Judge John Michael Vazquez on 4/5/2017. (ld, )

Not for Publication
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

LM INSURANCE CORPORATION AND
LIBERTY INSURANCE CORPORATION,

Plaintiffs,

Civil Action No. 14-4723

v.
OPINION
ALL-PLY ROOFING CO., INC. AND JAMES
DURANTE,
Defendants.

John Michael Vazciuez, U.S.D.J.
The present matter comes before the Court on Defendants All-Ply Roofing Co., Inc. (“All
Ply”) and James Durante’s (collectively, “Defendants”) motion to dismiss the complaint for failure
to state a claim.

Plaintiffs LM Insurance Corporation and Liberty Insurance Corporation

(collectively, “Plaintiffs” or “Liberty”) oppose the motion.’ This case concerns allegations that
Defendants engaged in a scheme to fraudulently reduce its workers’ compensation premiums. This
motion was decided without oral argument pursuant to Federal Rule of Civil Procedure 78 and
Local Civil Rule 78.1. The Court has considered the parties’ submissions and grants in part and
denies in part Defendants’ motion. Defendants’ motion is denied as to Counts I, II, III and IV, and
granted as to Count V.

Defendants’ brief in support of its motion to dismiss the amended complaint will be referred to
hereinafler as “Def. Br.” (D.E. 111); Plaintiffs’ opposition to Defendants’ motion to dismiss will
be referred to “P1. Opp’n” (D.E. 113); and Defendants’ reply brief in further support of its motion
will be referred to hereinafter as “Def R.Br.” (D.E. 117).

I. BACKGROUND2

Generally, workers’ compensation insurance policies are issued with an estimated
premium based on the insured’s evaluation of their anticipated payroll, and this premium is paid
at the inception of the policy tenm Travelers Indem. Co. v. Kenvil Steel Prods., Inc., No. A-216l-

07T1, 2009 WL 170087, at *1 (N.J. App. Div. Jan. 27, 2009). At the conclusion of a policy term,
an audit is conducted of the insured’s books and records to determine the actual payroll and the
proper job classification for persons on the payroll so that the correct premium can be determined.
Id. If the actual payroll is more than the estimated premium, then the insured pays the additional

amounts owed to the insurance company. Id.
New Jersey has an involuntary market mechanism for employers who may not be able to
procure workers’ compensation coverage in the voluntary market.

This involuntary market

mechanism is called the New Jersey Workers Compensation Insurance Plan (“New Jersey Plan”).3
FAC ¶ 8, 10. The New Jersey Plan is administered by the New Jersey Compensation Rating and
Inspection Bureau (“CRIB”). Id.

¶

10.

On or about March 24, 2003, All-Ply submitted an

application (“the Application”) to CRIB for an insurance company to be designated to provide
workers’ compensation insurance to it.

Id.

11.

¶

The Application included an “Employer

Certification” executed by James Durante (“Durante”), All-Ply’s President, Treasurer, and Chief
Financial Officer. Id.

¶J 4,

12. Durante certified that All-Ply would (1) provide true, correct, and

complete information; (2) cooperate fully with the insurance company; and (3) promptly inform

The facts are derived from Plaintiffs’ First Amended Complaint. When reviewing a motion to
dismiss, the Court accepts as true all well-pleaded facts in the complaint. Fowler v. UPMC
Shadvside, 578 F.3d 203, 210 (3d Cir. 2009).

2

In the voluntary market, “an employer may purchase workers compensation insurance from any
authorized carrier that is willing to underwrite the coverage.” Id. ¶ 7.
2

the insurance company of any changes during the policy year to the infoniiation supplied. Id.

¶

13.
On January 18, 2005, Liberty was assigned by CRIB to provide workers’ compensation
coverage to All-Ply, effective March 27, 2005. Id.

¶ 14. Liberty provided workers’ compensation

and employers’ liability coverage to All-Ply from 2005 until 2014, pursuant to nine yearly
insurance policies (“the policies”). Id.

¶ 15. Pursuant to the policies, Defendants were required to

provide full and complete disclosures of their operations, remuneration, and exposures, including
amounts actually reported on audit to the New York State Insurance Fund (“NYSIF”). Id.

¶J 16,

17. All-Ply agreed to pay an estimated amount, but the policies also provided for audits in order
to compute the final, actual premiums. Id.

¶ 17. At various times during the coverage periods,

All-Ply worked on Owner Controlled Insurance Projects (“OCIP” or “OCIPS”). Id.

¶ 22.

With

an OCIP policy, the owner of the project, rather than All-Ply, provided the workers’ compensation
insurance coverage. Id.

Audits of each of the policies were conducted, and Plaintiffs uncovered allegedly
fraudulent activity which forms the basis of this lawsuit. Id.

¶J 18, 23. Liberty alleges that All-

Ply engaged in a fraudulent scheme to reduce its workers’ compensation premiums. Id.

¶ 23. The

scheme consisted of three facets: (1) All-Ply’s misrepresentations concerning remuneration
reported on OCIPS; (2) All-Ply’s misrepresentations concerning remuneration paid to the NYSIF;
and (3) All-Ply’s misrepresentations concerning the job responsibilities of certain employees so
that the employees fell into the higher rated “roofing” classification.

Id.

Each of these

misrepresentations, alleges Plaintiffs, resulted in lower premiums than required by the policies.

‘a.

3

For example, Defendants were able to avoid paying the higher premium for “toofers” by
misclassifying certain employees. Id.

Additionally, Plaintiffs allege that Defendants

¶ 41-55.

reported substantially less payroll to the NYSIF than they indicated to Plaintiffs. Id. ¶j 3 2-40.
Defendants reported to Plaintiffs that certain payrolls were “covered” by the NYSIF policies, but
did not report the payroll to NYSIF. Id. Liberty also alleges that Defendants misrepresented
remuneration reported on OCIPS. Id.

By overstating the amount Liberty reported on

¶J 24-31.

OCIPS, Plaintiffs did not pay those amounts to Defendants, thereby lowering their premium
liability. Id. Plaintiffs now seek to recover the premiums allegedly owed to them by Defendants.
II. PROCEDURAL HISTORY

Plaintiffs filed their complaint on July 29, 2014. D.E. 1. Defendants answered, D.E. 9,
and the parties underwent over two years of discovery, On August 4, 2016, Plaintiffs filed their
First Amended Complaint (“FAC”), alleging five causes of action: (1) workers’ compensation
insurance fraud pursuant to N.J.S.A. 34:15-57.4; (2) insurance fraud pursuant to N.J.S.A. 17:33A1 et seq. (“IFPA”); (3) common law fraud; (4) breach of contract; and (5) piercing the corporate
veil against Durante individually. D.E. 110. Subsequently, Defendants brought a motion to
dismiss the FAC, D.E. 111, which Plaintiffs oppose, D.E. 113.
III. STANDARD OF REVIEW

Rule 12(b)(6) of the Federal Rules of Civil Procedure permits a defendant to move to
dismiss a count for “failure to state a claim upon which relief can be granted[.]” To withstand a
motion to dismiss under Rule 1 2(b)(6), a plaintiff must allege “enough facts to state a claim to
relief that is plausible on its face.” Bell Ad. Corp.

V.

Twombly, 550 U.S. 544, 570 (2007). A

complaint is plausible on its face when there is enough factual content “that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft V.

4

Iqbal, 556 U.S. 662, 678 (2009). Although the plausibility standard “does not impose a probability

requirement, it does require a pleading to show more than a sheer possibility that a defendant has
acted unlawfttlly.” Connetty v. Lane Const. Corp., 809 F.3d 780, 786 (3d Cir. 2016) (internal
quotation marks and citations omitted). As a result, a plaintiff must “allege sufficient facts to raise
a reasonable expectation that discovery will uncover proof of [his] claims.” Id. at 789.
In evaluating the sufficiency of a complaint, a district court must accept all factual
allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff.
Phillips v. Cty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008).

A court, however, is “not

compelled to accept unwarranted inferences, unsupported conclusions or legal conclusions
disguised as factual allegations.” Baraka v. McGreevey, 481 F.3d 187, 211 (3d Cir. 2007).
“Independent of the standard applicable to Rule 12(b)(6) motions, Rule 9(b) imposes a
heightened pleading requirement of factual particularity with respect to allegations of fraud.” In
re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 192, 216 (3d Cir. 2002). Thus, pursuant to
Rule 9(b), when “alleging fraud or mistake, a party must state with particularity the circumstances

constituting fraud or mistake.

.

.

[m]alice, intent, knowledge, and other conditions of a person’s

mind may be alleged generally.” Fed. R. Civ. P. 9(b). A party alleging fraud must therefore
support its allegations with factual details such as “the who, what, when, where and how of the
events at issue.” US. cx rd. Moore & Co., PA. e. Majestic Blue fisheries, LLC, 812 F.3d 294,

307 (3d Cir. 2016). Accordingly, “[t]o satisfy the particularity standard, ‘the plaintiff must plead
or allege the date, time and place of the alleged fraud or otherwise inject precision or some measure
of substantiation into a fraud allegation.” feingoldv. Graff 516 F. Appx 223, 226 (3d Cir. 2013)
(citing Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007)). This heightened pleading
standard is designed to “ensure that defendants are placed on notice of the precise misconduct with

5

which they are charged. and to safeguard defendants against spurious charges of fraud.”

Craftrnatic Sec. Litig. v. Kraftsow, $90 F.2d 62$, 645 (3d Cir. 1989) (internal quotation marks
omitted).
IV. DISCUSSION

At the outset, the Court notes that Defendants raise numerous potential defenses that are
not appropriate for resolution at the motion to dismiss stage. Defendants argue that (1) they relied
on the expertise of their broker; (2) Liberty retaliated and overcharged them by classifying all of
All-Ply’s employees as “roofers” so the highest premium rating would be applied; (3) the amounts
included in the OCIP documents do not adequately reflect what Plaintiffs represented; (4) the
NYSIF is to blame for any errors in the 2011- 2012 calendar year policy; and (5) they are entitled
to equitable estoppel. Again, these are potential defenses; not bases for a motion to dismiss. As a
result, the Court denies Defendants’ motion to dismiss to the extent it is based on any of these
arguments.
Additionally, while it appears that Defendants are moving to dismiss the entire FAC, they
do not specifically mention Count IV

—

breach of contract. Defendants do not give the Court any

reason why this count is insufficiently pled, and it is not dismissed. Therefore, the Court will
address the remaining counts (I, II, III and V) under the Rule 1 2(b)(6) and Rule 9(b) standards.
Count I
In Count I, Plaintiffs bring a claim of Workers’ Compensation Fraud pursuant to N.J.S.A.
34:15-57.4. N.J.S.A. 34:15-57.4(b) creates a statutory cause of action against “any person who
wrongfully obtains benefits or evades the full payment of benefits or premiums by means of a
violation of [this statute].” Hartford Underwriters Ins, Co. v. Faystaffing, LLC, No. 16-1 128, 2017
WL 773877, at *3 (D.N.J. Feb. 28, 2017). In order to bring a civil claim under Section 34:15-

6

57.4(b), a party must allege a “violation of the provisions” of subsection (a). Id. This section is

violated when a person “purposely or knowingly:”
(2) Makes a false or misleading statement, representation or
submission, including a misclassification of employees, or engages
in a deceptive leasing practice, for the purpose of evading the full
payment of benefits or premiums pursuant to R.S.34:15-1 et seq.; or
(3) Coerces, solicits or encourages, or employs or contracts with a
person to coerce, solicit or encourage, any individual to make a false
or misleading statement, representation or submission concerning
any fact that is material to a claim for benefits, or the payment of
benefits or premiums, pursuant to R.S.34:15-1 et seq. for the
purpose of wrongfully obtaining the benefits or of evading the full
payment of the benefits or premiums.
N.J.S.A. 34:15-57.4(a)(2). In this context, a person acts “knowingly with respect to a result of his
conduct if he is aware that it is practically certain that his conduct will cause such a result.” Be//mo
v. Verizon Wireless, 435 N.J. Super. $5, 96 (App. Div. 2014) (citing N.J.S.A. 2C:2-2). Thus, “the
fraudulent statement must be made with a conscious objective to obtain benefits to which one
knows he or she is not entitled or with an awareness that the intentional falsehood will cause the
desired result of fraudulently obtaining benefits.” Id.

Defendants argue that this claim should be dismissed because Plaintiffs do not allege that
“the Defendants knowingly made any of the individual representations alleged for the purpose of
evading the full payment of premiums.” Def. Br. at 10 (emphasis added). Instead, Defendants
argue, Plaintiffs attempt to aggregate multiple allegations, “any of which individually may be
insufficient to prove liability under the statute.” Id. at 10-11. Thus, Defendants contend that

Plaintiffs’ allegations in Count I are insufficient to state a cause of action. Id. at 11.

Defendants also argue, with respect to Counts I, II and III, that Plaintiffs’ claims are outside the
statute of limitations required for each count. See Def. Br. at 11, 17, 20. Plaintiffs respond that
7

Under Count I, Plaintiffs enumerate many representations and submissions made by
Defendants that Plaintiffs allege were false and misleading. See F AC ¶J 61 (a)-(k), 62(a)-U). Then,
Plaintiffs state that “[t]he breadth, constituency and patterns of the misrepresentations, documents,
and submissions set forth [in the previous paragraphs] affirm that they were purposely or
knowingly made.” Id.

¶ 63. Therefore, Plaintiffs have specifically and plausibly alleged facts to

support the claim that Defendants “purposefully or knowingly” made false or misleading
statements in order to avoid the full payment of premiums. See, e.g., id.

¶J 61-63, 66-68; see also

Hartford Underwriters Ins. Co., 2017 WL 773877, at *3 (denying a motion to dismiss claim for

workers’ compensation fraud when plaintiff alleged nearly identical language in the complaint);
Fed. R. Civ. P. 9(b) (“[K]nowledge, and other conditions of a person’s mind may be alleged
generally.”). Defendants’ motion to dismiss Count I is denied.
Count II

the “discovery nile,” which tolls the statute of limitations from running when parties are
“reasonably unaware that they have been injured,” applies. P1. Opp’n at 29.
Generally, “statute of limitations is an affirmative defense not routinely decided on a
motion to dismiss.” Abdttt-Aziz v. Lanigan, No. 14-2026, 2016 WL 1162753, at *4 (D.N.J. Mar.
24, 2016). There is an exception, however, if “the plaintiffs tardiness in bringing the action [is]
apparent from the face of the complaint.” W. Penn Allegheny Health Sys., Inc. UPMC, 627 F.3d
85, 105 n.13 (3d Cir. 2010) (citingRobinson v. Johnson, 313 F.3d 128, 135 & n.3 (3d Cir. 2002)).
Here, Plaintiffs allege that, pursuant to the discovery rule, they have filed timely claims.
“The court must undertake an individualized consideration of the facts of the case in which plaintiff
seeks to invoke the [discovery] rule.” Kominsky v. C.B. Planning Servs. Corp., No. A-1344-09T3,
2010 WL 3516808, at *4 (N.J. App. Div. Sept. 9,2010). Thus, at this time, without the benefit of
factual discovery, the Court cannot determine whether the discovery rule applies. Therefore,
Defendants’ motion to dismiss based on a violation of the statute of limitations is denied without
prejudice.
8

Count II is brought pursuant to the IFPA. The IfPA was enacted “to confront aggressively
the problem of insurance fraud.

.

.

[by] requiring the restitution of fraudulently obtained insurance

benefits. N.J.S.A. 17:33A-2. Pursuant to the IFPA, a person violates the law if he:
[p]resents or causes to be presented any written or oral statement as
part of, or in support of or opposition to, a claim for payment or
knowing that the
other benefit pursuant to an insurance policy.
contains any false or misleading information concerning
statement
any fact or thing material to the claim.
.

.

N.J.S.A. 17:33A-4(a)(l). Thus, “[a] [p]laintiff must essentially prove (1) knowledge, (2) falsity,
and (3) materiality.” Horizon Blue Cross Bttte Shield of N.J v. Transitions Recovery Program,
No. l03197, 2015 WL $345537, at *4 (D.N.J. Dec. 8, 2015). This statute is to be construed
liberally, consistent with its purpose. Allstate Ins. Co. v. Northfield Ivled. Ctr., P. C., No. A-06361 2T4, 2014 WL $764091, at * 10 (N.J. App. Div. May 4, 2015). Therefore, “[u]nlike common law
fraud, proof of fraud under the IfPA does not require proof of reliance on the false statement or
resultant damages

.

.

.

nor proof of intent to deceive.” Horizon Blue Cross Blue Shield of N.J,

2015 WL $345537, at *4•
Defendants argue that Plaintiffs have not sufficiently pled the IFPA’s requirement of
“knowledge.” Def. Br. at 16—17. Defendants contend that Plaintiffs pled “simply a formulaic
recitation tracking the language of N.J.S.A. 17:33A-4,” which is “insufficient to withstand a
motion to dismiss.” Id. at 16. Further, Defendants argue that the pleading “states boldly and
without any factual foundation that the Defendants knew that the representations contained false
or misleading information.” Id. at 17.
In support of its position, Defendants cite to Allstate Ins. Co. v. Northfield Med. Ctr., P.C.,
No. A-0636-12T4, 2014 WL $764091, at *10 (N.J. App. Div. May 4, 2015). There, the New
Jersey appellate court reversed a trial court’s decision on liability under the IFPA. Id. In so
holding, the court determined that “[t]he burden of proof for an IFPA violation is the
9

preponderance of the evidence,” and that plaintiff failed to meet this burden at trial. Id. at 14.
However, the current matter is not at the summary judgment or trial stage. At this time, Plaintiffs
do not need to show that Defendants violated the statute by a preponderance of evidence. Rather,
Plaintiffs only need to plead allegations with particularity that make it plausible that Defendants
violated the statute. See Twornblv, 550 U.S. at 570; Fed. R. Civ. p. 9(b).
The Complaint makes numerous allegations consistent with a violation of the IFPA.
Specifically, Plaintiffs allege that “[Defendants] purposely or knowingly made a false or
misleading statement, representation or submission for the purpose of evading the full payment of
premium.” FAC ¶J 66-67. Additionally, Plaintiffs allege specific factual instances of Defendants’
conduct to support the element of knowledge. See, e.g., FAC

¶J

7$(a)-(k) (alleging specific

instances of misrepresentations made by Defendants in order to obtain a lower workers’
compensation premium). Therefore. Plaintiffs state a claim against Defendants under the IFPA.
See Virginia Stir. Co. v. Macedo, No. 08-5586, 2011 WL 1769858, at *16 (D.N.J. May 6,2011)

(finding that a complaint stating that defendants “prepared a writing containing materially false
statements

.

.

.

in order to support [their] insurance claims” was sufficient to state a claim under

the IFPA).
Count Ill
Next, Plaintiffs bring a claim for common law fraud. In New Jersey, common law fraud
requires a party to show: “(1) a material misrepresentation of a presently existing or past fact; (2)
knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it;
(4) reasonable reliance thereon by the other person; and (5) resulting damages.” Dewey v.
Volkswagen AG, 55$ F. Supp. 2d 505, 525 (D.N.J. 2008).

10

Defendants allege that Plaintiffs cannot sustain a claim for fraud because Defendants
merely estimated the number of employees that fell within the various classification codes. Def.
Br. at 19. Defendants cite to Granite State Ins. Co. v. UJEX, Inc., No. 03-1220, 2005 WL 1618792,
at *8 (D.N.J. July 11, 2005), for the proposition that defendants cannot be liable for common law
fraud when “the figures which the defendants communicated to the insurer were preliminary and
were based only on the employers’ best estimates.” Id. at 17. Additionally, Defendants argue that
Liberty cannot show that it reasonably relied on Defendants’ alleged misrepresentations, therefore,
Plaintiffs cannot state a claim for common law fraud. Id. at 19.
Defendants’ arguments focus on whether the alleged misrepresentations were merely
“estimates” and therefore not material misrepresentations of fact and whether Plaintiffs have pled
reasonable reliance. Granite State supports the proposition that good faith, reasonable estimates
cannot give rise to a claim of common law fraud. 2005 WL 1618792, at *8. In that case, the
plaintiff workers’ compensation insurer alleged that the defendants materially misrepresented
employment and payroll figures, as well as employment classification codes in their applications
for workers’ compensation insurance. Id. at *7 Discovery revealed that “the figures [d]efendants
communicated to [p]laintiffs in their applications for insurance were preliminary and based only
on [d]efendants’ best estimates, which

.

.

.

were reasonable.” Id. at *8. Since estimates are

“inherently imprecise and incapable of absolute exactitude,” the court detennined that they “were
an expression of [defendants’] opinions,” which cannot form a basis for common law fraud. Id.
Plaintiffs respond that they have provided dates of misrepresentations in the amended
complaint that were made after the initial application. P1. Opp’n at 26. This, Plaintiffs suggest,
shows that Defendants never intended to “provide true and correct information, or to cooperate

11

fully with Liberty as an assigned carrier, and to promptly inform Liberty of changes in the
underwriting information provided to it.” Id.
As noted, Plaintiffs allege that Defendants promised accuracy in their application and
subsequently misrepresented: (1) their remuneration to OCIP carriers, (2) their reported payroll to
the NYSIF, and (3) the misclassification of their employees for purposes of determining workers’
compensation premiums. FAC

¶J

61-62. Specifically, Plaintiffs allege that Defendants made

misrepresentations between February 2007 and September 2013. See Id. These misrepresentations
include, among others, (I) that remuneration on OCIP totaled $333,650 for three projects, (2) that
All-Ply reported $490,467 of the payroll to the NYSIF, (3) that Stanislaw Jedryczka and Stanislaw
Skupien did not work on roofs, and (4) that Edward Poterala was strictly an office employee. Id.
Therefore, Plaintiffs’ claims are not merely based on “estimates” made on the initial application,
but rather an alleged continuing fraud by the Defendants. Thus, Granite State is inapplicable.5
These statements, including the dates on which they occurred, meet the particularity requirement
for pleadings of fraud. See In re Pntdential Ins. Co. ofAm. Sales Practices Litig., 975 F. Supp.

584, 595 (D.N.J. 1996) (finding that “allegations of date, place or time” satisfy the “particularity”
requirement).
Additionally, Plaintiffs allege that they reasonably relied on these misrepresentations
regarding the premium amounts, which is the basis for damages in this suit. See FAC

¶

92.

Assuming these allegations are true, Plaintiffs’ allegations plausibly assert a claim for common

Additionally, the court in Granite State based its decision to dismiss the plaintiffs’ common law
fraud claim on the fact that the complaint contained only broad generalizations related to the
allegations of fraud. 2005 WL 1618792, at *$• Since Rule 9(b) requires pleading with
particularity, the court found that plaintiffs could not meet the heightened standard. Id. Here,
Plaintiffs have pled their fraud allegations with sufficiently particularity to meet the requirements
of Rule 9(b).
12

law fraud. See Virginia Stir. Co., 2011 WL 176985$, at *17 (finding allegations that defendants
submitted a false questionnaire, insurance claims, W-2 form and construction contract to secure
workers’ compensation benefits was sufficient to plead a claim of common law fraud).
Count V
Plaintiffs bring Count V against James Durante, All-Ply’s President, Treasurer, and Chief
Financial Officer. Thus, Count V attempts to “pierce the corporate veil” and hold Durante
personally liable for his actions at All-Ply. Generally, “shareholders and members of a corporate
entity are shielded from individual liability.” State Capital Title & Abstract Co. v. Pappas Bits.
Servs., LLC, 646 F. $upp. 2d 668, 680 (D.N.J. 2009). However, “[pjiercing the corporate veil is

an equitable remedy through which a court may impose liability on an individual or entity normally
subject to the limited liability protections of the corporate form.” The Mall at IV Grp. Props., LLC
v. Roberts, No. 02-4692, 2005 WL 3338369, at *3 (D.N.J. Dec. 8, 2005). “Although veil-piercing

is not a separate cause of action, but rather a basis for a cause of action against particular
individuals, on a motion to dismiss

[] a court must examine.

.

.

whether the facts pleaded.

.

.

state

a cause of action on a theory of piercing the corporate veil.” Accttrso v. Infra-Red Sen’s., Inc., 23
F. Supp. 3d 494, 510 (E.D. Pa. 2014) (internal quotation marks omitted).
In New Jersey, two elements must be shown to pierce the corporate veil: (1) “there must
be such unity of interest and ownership that the separate personalities of the corporation and the
individual no longer exist;” and (2) “the circumstances must indicate that adherence to the fiction
of separate corporate existence would sanction a fraud or promote injustice.” The Mall at IV Grp.
Props., LLC, 2005 WL 3338369, at *3 The Third Circuit instructs district courts to consider the
presence of the “Pearson factors” to determine whether the corporation and individual “function[]
as a single entity and should be treated as such.” Pearson v. Component Tech. Coip., 247 F.3d

13

471, 485 (3d Cir. 2000) (internal quotation marks omitted). The following factors should be
considered:
(1) Gross undercapitalization of the corporation; (2) failure to
observe corporate formalities; (3) nonpayment of dividends; (4)
insolvency of a debtor corporation; (5) siphoning of funds from the
debtor corporation by the dominant stockholder; (6) nonfunctioning
of corporate officers and directors; (7) absence of corporate funds;
and (8) whether the corporation is merely a façade for the operations
of the dominant stockholder.
Id. at 484—85; see also Jztrista v. Amerinox Processing, Inc., 492 B.R. 707, 769 —770 (D.N.J. 2013)

(considering “whether any of the Pearson factors set forth by the Third Circuit are present []to
justify the actual piercing of the veil.”)
Defendants argue that the FAC “entirely omits the required allegation that there was

[] a

unity of interest and ownership that the separate personalities of [All-Ply] and Durante ceased to
exist.” Def. Br. at 22. Additionally, Defendants contend that the complaint does not set forth any
of the Pearson factors as required by the Third Circuit. Id.
The Court agrees with Defendants. Throughout the FAC. Plaintiffs contend that Durante
was All-Ply’s President, Treasurer, and Chief financial Officer, and that it was Durante who made
false and misleading statements on behalf of All-Ply. FAC

¶ 4, 62. Further, Plaintiffs aver that

Durante “used All-Ply to perpetrate fraud or injustice, or to otherwise circumvent the law.” Id.

¶

98. However, Plaintiffs fail to set forth sufficient facts to allege any of the Pearson factors. See,
e.g., Zarichny v. Complete Payment Recovery Servs., Inc., 80 F. Supp. 3d 610, 619 (E.D. Pa. 2015)

(refusing to pierce the corporate veil when plaintiff alleged none of the Pearson factors); State
Capital Title & Abstract Co., 646 F. Supp. 2d at 680 (dismissing the complaint as to individual
shareholders when plaintiff failed to allege any of the necessary factors). Thus, Plaintiffs fail to

14

allege what is legally necessary to pierce the corporate veil of All-Ply and hold Durante personally
liable. Count V is therefore dismissed.
V. CONCLUSION
In sum, the Court DENIES Defendants’ motion as to Counts I, II, III and IV. The Court
GRANTS Defendants’ motion as to Count V without prejudice. Plaintiffs have thirty (30) days
to file an amended complaint, if they so choose. An appropriate Order accompanies this Opinion.

Date: April 5, 2017

JOH MICHAEL
UNITED STATES DIST

15

CT JthGE