Harris Beach attorneys Stanley Goos and Marina Plotkin successfully moved the New York Supreme Court, Bronx County to dismiss individual officers and shareholders in an action alleging exposure to lead-based paint, establishing that a violation of the Administrative Code of the City of New York does not automatically entail personal liability for officers and shareholders of a corporate owner.

Plaintiff’s Complaint named the individual officers/shareholders of the companies with ownership interest in the building where lead-paint violations were issued by the City of New York Department of Housing Preservation and Development. The individual defendants moved to dismiss, arguing that plaintiff cannot pierce the corporate veil and there was no “commission of a tort” which would impose personal liability.

Lead-paint violations do not automatically implicate shareholders

In opposition, plaintiff contended that the individuals are personally liable because they are “owners” of the building under the city’s Administrative Code. Under 27-2114(e) of the Code, if a multiple dwelling has been declared a public nuisance, those persons who own more than 10 percent of the issued and outstanding stock of the corporation may be held jointly or severally liable for all injuries as a result of that nuisance. Plaintiff argued the individuals are personally liable under the Housing Maintenance Code because the lead-paint violations in the subject apartment constitute a nuisance.

The court sided with the individual defendants, finding this section of the Code inapplicable. The judge agreed that a lead-paint violation is not automatically a nuisance, and a nuisance has not been publically declared in the present case. The Decision and Order heavily relied on Worthy v. New York City Hous. Auth., 21 A.D.3d 284, 287 (1st Dept. 2005), stating “no case has been brought to this Court’s attention that supports the imposition of liability for a lead-paint violation on an employee of a corporate ‘owner,’ as defined in the Housing Maintenance Code, absent a finding that the violation has been declared to be a public nuisance.”

Managing agent doctrine held inapplicable

Plaintiff’s alternative theory for personal liability was that the individuals acted as the managing agents of the corporate owners. The judge similarly disposed of this theory, absent any indication that the individuals had “complete and exclusive control” which “displaced” the corporation’s duty to manage the building. Although one individual defendant handled the day-to-day management of the building, including rent collection and arranging for repairs, he acted strictly in a corporate capacity.

Failed attempt to pierce the corporate veil

Lastly, the court noted plaintiff could not pierce the corporate veil based on mere attorney affirmations without any factual support. Individuals’ affidavits attesting to adherence to corporate formalities, and the maintenance of corporate minutes, records, and a separate bank account, conclusively established that the cause of action was not viable.

Plaintiff’s opposition improperly implied that forming a corporation to protect against personal liability is illegal.. Again, precedent from Worthy v. New York City Hous. Auth. was invoked (21 A.D.3d at 287): “[I]t is perfectly legal to incorporate for the express purpose of limiting the liability of the corporate owners.” Plaintiff had neither alleged nor submitted any evidence that the privilege of conducting business in the corporate form was abused.

This alert does not purport to be a substitute for advice of counsel on specific matters.

Harris Beach has offices throughout New York State, including Albany, Buffalo, Ithaca, Melville, New York City, Rochester, Saratoga Springs, Syracuse, Uniondale and White Plains, as well as New Haven, Connecticut and Newark, New Jersey.