"Officers, Directors, Employees Are Personally Liable for Fraud in Which They Participate", by Kevin Schlosser

In my October 16, 2017 post, set out again below, I discussed the law concerning personal liability of individuals, such as officers, directors and employees, who commit fraud on behalf of the entity in which they are affiliated. Such individuals can be personally liable for the torts they commit, even when the elements for piercing the corporate veil are not established. The Appellate Division, First Department, has rendered a new decision on the subject of personal liability for fraud, nicely analyzing the legal principles:

Gateway Intl., 360, LLC v Richmond Capital Group, LLC, 2022 NY Slip Op 00008 (1^st Dep’t Decided Jan. 4, 2022), holding in relevant part:

The fact that the alter ego allegations are insufficient does not mean that the causes of action for fraudulent inducement, fraud and conversion should be dismissed. "[A] corporate officer who participates [*3]in the commission of a tort may be held individually liable, regardless of whether the corporate veil is pierced" (Fletcher v Dakota, Inc., 99 AD3d 43, 49 [1st Dept 2012] [ellipsis and internal quotation marks omitted]; see also Pludeman v Northern Leasing Sys., Inc., 10 NY3d 486, 491 [2008]). Plaintiffs have alleged that Braun is individually liable because he engaged in a course of fraudulent and tortious conduct directed at Gateway and intentionally caused RCG, GTR, MZeed, and Orange to defraud and breach their contractual obligations to Gateway. Drawing all inferences in plaintiffs' favor (see generally Chanko v American Broadcasting Cos. Inc., 27 NY3d 46, 52 [2016]), plaintiffs have stated a claim for fraudulent inducement by alleging that Braun, on behalf of the defendant entities, misrepresented that he was "Jack Snyder" and not convicted felon Braun, that plaintiffs justifiably relied upon the misrepresentation to their detriment by doing business with defendants, because if plaintiffs had known Braun's true identity, they would not have borrowed money from defendants, and that plaintiffs were directly and proximately injured by this knowingly false representation (see e.g. GoSmile, Inc. v Levine, 81 AD3d 77, 81 [1st Dept 2010], lv dismissed 17 NY3d 782 [2011]; P & HR Solutions, 195 AD3d at 474).

Read the full article here.