Chioffi v. Martin
181 Conn. App. 111
| Conn. App. Ct. | 2018Background
- Martin and Chioffi were equal partners in Martin Chioffi LLP under a detailed partnership agreement allocating revenues to three departmental capital accounts (corporate, trusts & estates, remaining) and requiring post-distribution capital account balances to reflect ownership percentages (Martin 57%, Chioffi 43%).
- Martin gave notice to withdraw; during winding up he assigned the corporate department’s accounts receivable and works in progress to his new firm and took distributions that left capital accounts out of the 57/43 proportion.
- Chioffi sued alleging breach of contract, breach of fiduciary duty, conversion, and sought an accounting; Martin counterclaimed. The trial court found breach of the partnership agreement, awarded compensatory damages to Chioffi and attorney’s fees based on §4.03 of the agreement.
- The trial court found Martin distributed partnership assets to himself without maintaining account ratios and described his conduct as willful misconduct in a later memorandum.
- On appeal, the court affirmed breach of §3.02 (distribution rules during liquidation), reversed the finding of breach of §4.03 and vacated the §4.03–based attorney’s fees, held the trial court erred in not finding a fiduciary duty breach, and remanded to determine attorney’s fees for fiduciary breach (if appropriate). The judgment otherwise was affirmed.
Issues
| Issue | Chioffi's Argument | Martin's Argument | Held |
|---|---|---|---|
| Whether Martin breached §3.02 (distribution rule requiring capital accounts maintain ownership ratio during liquidation) | §3.02 continues through liquidation and Martin’s assignment/distributions violated the required 57/43 balance | Once dissolution occurred Martin could appropriate corporate assets for his firm without adherence to article III allocations | Affirmed: Martin breached §3.02; allocation and balancing continue through liquidation |
| Whether Martin breached §4.03 (contract restrictions and fee-shifting) | Assignment of corporate receivables violated §4.03(b) and justified fee recovery under §4.03 | §4.03 restrictions concern third-party dealings; Martin had managerial discretion and no actionable §4.03 breach occurred | Reversed: no actionable breach of §4.03; remedy would have been charging resulting losses to Martin’s capital account in any event |
| Whether damages should be paid directly to Chioffi or merely by reducing Martin’s capital account | Direct payment required to prevent Martin from escaping liability by self-distribution | Agreement and statute limit partner liability to capital-account adjustments and shield personal liability | Affirmed: court did not abuse discretion in ordering direct payment because a mere account reduction would be pointless after the distributions Martin made; express contract exception to limited liability applied |
| Whether trial court erred in not finding breach of fiduciary duty and whether attorney’s fees are available on that basis | Martin’s self-dealing in winding up (taking assets over Chioffi’s objection, no consideration, leaving Chioffi with disproportionate liabilities) breached fiduciary duty and may justify attorney’s fees/punitive damages | Partnership agreement limits fiduciary obligations; statutory limits on partner liability apply | Reversed in part: trial court erred in not finding fiduciary breach. Remanded to determine whether attorney’s fees/punitive damages are warranted for that tortious breach |
Key Cases Cited
- Schwartz v. Family Dental Group, P.C., 106 Conn. App. 765 (Conn. App. 2008) (contract interpretation rules; plenary review when language is definitive)
- Konover Development Corp. v. Zeller, 228 Conn. 206 (Conn. 1994) (factors for assessing fairness in self-dealing transactions)
- Oakhill Associates v. D’Amato, 228 Conn. 723 (Conn. 1994) (partners owe fiduciary duties; burden shifts to fiduciary to prove fair dealing)
- Spector v. Konover, 57 Conn. App. 121 (Conn. App. 2000) (diversion of partnership funds is breach of fiduciary duty)
- Rendahl v. Peluso, 173 Conn. App. 66 (Conn. App. 2017) (elements of breach of fiduciary duty)
- Landmark Investment Group, LLC v. CALCO Constr. & Dev. Co., 318 Conn. 847 (Conn. 2015) (standard for punitive damages requires reckless indifference or intentional/wanton violation)
- LaMontagne v. Musano, Inc., 61 Conn. App. 60 (Conn. App. 2000) (trial court discretion over attorney’s fee awards)