Personal Liability of Corporation President in New York
In Nigro v. Dwyer (438 F.Supp.2d 229 S.D.N.Y. 2006), plaintiffs sued a corporation's president personally for breach of contract, alleging that he was personally liable because he signed the agreement on behalf of the corporation while the corporation was dissolved.
Addressing the personal liability of the president, the Southern District Court explained:
. . . .The Poritzky court concluded that the facts before it smacked of possible fraud and abuse by the officers of closely-held corporations. The court expressed concern that "a former officer of a dissolved corporation could obtain credit and then upon subsequent discovery of the nonexistence of the corporation, by merely paying arrears in franchise taxes, could shift the personal liability which the law would otherwise impose upon him, back to the corporation." . . . For that reason, the Poritzky court held Wachtel personally liable for debts he had incurred in the name of the corporation while it was dissolved.
Poritzky has been relied upon repeatedly over the years. In addition to WorldCom, Annicet Associates, Inc. v. Rapid Access Consulting, Inc., 171 Misc.2d 861, 864, 656 N.Y.S.2d 152 (Sup.Ct. Rockland County 1997). . . cites Poritzky's concern about fraud as the basis for not permitting an individual to avoid liability after a corporation is reinstated.
. . . in Lodato v. Greyhawk N. Am., L.L.C., 10 Misc. 3d 418, 422, 807 N.Y.S.2d 818 (Sup.Ct. Kings Co.2005) , the court, after endorsing Poritzky's reasoning, suggested a number of factors that a court should consider in deciding whether or not liability should shift back to the corporation retroactively following reinstatement. According to Lodato, liability should shift back to the corporation only when the officer did not know about the corporation's dissolution; the dissolution was "truly inadvertent," rather than a result of neglect; and the corporation quickly sought reinstatement. Id. The Lodato court stated that a corporate officer could not be held liable for debts incurred on behalf of a reinstated corporation unless the plaintiff made "a showing of fraud or misrepresentation." Id.
In Prentice, the individual defendant, Martin, was the president and chief operating officer and principal shareholder of Related Industries, Inc. Related was dissolved for failure to pay franchise taxes on June 24, 1981 and was reinstated to corporate status on January 2, 1985. After dissolution and before reinstatement, defendant, purporting to act on behalf of Related, entered into two contracts with plaintiff Prentice Corp. which contracts were later breached.
. . . the court concluded that, absent fraud, a party who dealt with a corporation that was involuntarily dissolved for failure to pay franchise taxes had no remedy except against the corporation once it was reinstated, because reinstatement validated the acts taken during the period of dissolution "as if the charter had never been repealed." Nigro, 438 F.Supp.2d at 234-236).
After discussing the various cases, the Second Circuit denied summary judgment against the corporation's president, in light of the factual issues "concerning the circumstances of the dissolution and reinstatement and the president's behavior during the interim period-including, specifically, his conduct at or about the time the contract was signed and his knowledge of the corporation's status at that time."