193 Conn.App. 381
Conn. App. Ct.2019Background
- Alpha Beta Capital Partners (plaintiff) was a limited partner in Pursuit Capital Master/PCM and executed a confidential settlement agreement (CSA) in 2011 withdrawing from PCM while preserving its pro rata interests in two contingent assets (UBS litigation proceeds and an LBIE claim). The CSA included holdbacks ($250k for UBS litigation expenses, $200k for fees) and a clause that continued governance of contingent assets under the PCM limited partnership agreement (LPA).
- Shortly after the CSA, the LBIE claim was realized and partial proceeds were disbursed to plaintiff (totaling ~$1.72M), but the UBS litigation later settled for $36M (2015) and plaintiff received no portion of those UBS proceeds.
- Plaintiff sued in Connecticut Superior Court for breach of contract, breach of the implied covenant, conversion, unjust enrichment, statutory theft (§ 52-564), CUTPA, and conspiracy; defendants counterclaimed. The trial court found certain defendants liable for breach of the CSA and covenant and awarded ~$5.42M plus interest; it struck the statutory claims under the CSA’s New York choice-of-law clause.
- On appeal, parties contested (a) contract interpretation (whether LPA allowed withholding/reinvestment of contingent proceeds), (b) material breach and counterclaims, (c) which defendants were liable (corporate signatories, general partner, or individuals), (d) damages calculations (allocations, performance fee, holdback exhaustion), and (e) increase of a prejudgment remedy during appeal under § 52-278k.
- Appellate court affirmed liability for breach of contract and implied covenant as to the defendants that both assumed the obligation and had ability to pay (PCM, PIM, and Northeast), rejected conversion and statutory claims, reversed trial court insofar as it held all CSA signatories and certain individuals personally liable, and upheld the trial court’s damages calculations and upward modification of the prejudgment remedy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CSA §4 (contingent assets) permitted defendants to withhold/reinvest UBS proceeds under LPA discretion | CSA withdrawal made plaintiff a former limited partner entitled to its pro rata share of contingent proceeds “in cash as soon as practicable” per withdrawal provision of LPA | LPA governs contingent assets and gives general partner discretion to withhold/reinvest, so CSA did not create immediate cash obligation | Held for plaintiff: CSA + LPA read together meant withdrawal triggered prompt cash distribution; defendants breached by withholding UBS proceeds |
| Whether plaintiff materially breached CSA (confidentiality) relieving defendants | Plaintiff acted to protect its contractual rights (contacted SEC re investigation; filed 2013 NY action to enjoin use of holdback) — not material | Plaintiff violated confidentiality §7 (contacting third parties, Schneider Group) so defendants excused | Held for plaintiff: trial court’s finding plaintiff’s actions were not a material breach was not clearly erroneous; defendants’ prior material breach (delayed LBIE payment) excused any claimed plaintiff breach |
| Whether extracontractual claims (statutory theft, CUTPA) are barred by CSA choice-of-law §12 | Connecticut statutory remedies should be available despite choice-of-law | §12 ("Any disputes or litigation arising out of this agreement shall be governed by New York law") is broad and covers claims arising out of CSA | Held for defendants: §12 barred plaintiff’s Connecticut statutory claims because they arose out of the CSA |
| Which defendants are liable for nonpayment of UBS proceeds (all signatories, general partner only, or specific entities) | All signatory defendants and individual signatories should be liable (or via veil/alter-ego theories, all Pursuit entities/individuals) | Only the party with the obligation and ability to pay should be liable (e.g., general partner/Northeast) — not POF or individual officers | Held: Trial court erred in holding all signatories individually liable; appellate court held liable those that both undertook obligation and had ability to pay — PCM (owner of interest), PIM (paid certain amounts on behalf of funds), and Northeast (general partner) were liable; POF, Schepis, and Canelas were relieved on counts 1–2 |
Key Cases Cited
- Joseph General Contracting, Inc. v. Couto, 317 Conn. 565 (Conn. 2015) (standard and review for contract interpretation; when language is definitive review is plenary)
- Sun Val, LLC v. Commissioner of Transportation, 330 Conn. 316 (Conn. 2018) (courts must decide whether contract interpretation conclusions are legally and logically correct and supported by the record)
- Excess Ins. Co. Ltd. v. Factory Mutual Ins. Co., 3 N.Y.3d 577 (N.Y. 2004) (under New York law, intention of parties controls; interpret entire agreement and purpose)
- Currier, McCabe & Associates, Inc. v. Maher, 75 App. Div. 3d 889 (App. Div. 2010) (contract terms read in context; form should not prevail over substance)
- Turtur v. Rothschild Registry Int'l, Inc., 26 F.3d 304 (2d Cir. 1994) ("arising out of" choice-of-law language can be broad enough to cover tort claims)
- Dormitory Auth. v. Samson Constr. Co., 30 N.Y.3d 704 (N.Y. 2018) (breach of contract is not a tort absent a duty independent of the contract)