200 Conn.App. 205
Conn. App. Ct.2020Background
- CCP Equity Partners, LLC (CCP) was a manager‑managed Delaware LLC formed in 2003; each member also served as a manager and sat on the Board of Managers.
- Managers created a $3 million capital reserve in 2005; defendants (who controlled 61% of member interests) later amended §8.1 of the operating agreement in 2008 to permit distributions to be varied by unanimous member consent.
- Defendants removed first Kavanagh (2008) and then the plaintiff, Clinton, as members (2013) under §2.5 (actions requiring member approval).
- Clinton sued alleging three breaches of contract (the 2008 amendment, his removal, and the $3 million reserve) and two breach‑of‑fiduciary‑duty counts; a jury found for Clinton on all three contract counts and awarded damages; fiduciary counts were not reached.
- The trial court awarded Clinton attorney’s fees under §15.7 of the operating agreement; defendants appealed, arguing the court misread the agreement and misinstructed the jury.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §3.4 (duty language) applied to defendants’ 2008 amendment and 2013 removal | Clinton: §3.4’s duty/standards bound managers who were the same people as the members, so defendants breached §3.4 by amending and removing him | Defendants: §2.5 expressly authorizes members (by 60% consent) to amend the agreement and remove members; §3.4 governs managers’ actions, not member voting under §2.5 | Court: §3.4 applies to managers only; amendment and removal were taken as members under §2.5, so defendants could not have breached §3.4 by those actions — judgment reversed as to those two counts and judgment entered for defendants |
| Whether the second sentence of §3.4 creates an affirmative duty (to act in good faith / not grossly negligent) or is an exculpatory limitation on liability | Clinton: §3.4 requires managers to act in good faith and not engage in gross negligence or willful misconduct (an affirmative standard) | Defendants: the clause is exculpatory — it defines the circumstances in which managers are not liable; it does not create a new affirmative duty | Court: §3.4’s first sentence imposes a duty to exercise "best judgment"; the second sentence is exculpatory (limits liability unless bad faith/gross negligence/willful misconduct) |
| Whether the trial court’s jury instruction on §3.4 (stating managers were prohibited from acting in bad faith/gross negligence/willful misconduct) prejudiced the capital‑reserve verdict | Clinton: instruction correctly stated the standard and supported the jury’s finding that the reserve was maintained in breach | Defendants: instruction misstated §3.4 by treating the exculpatory language as an affirmative duty, requiring reversal or a new trial on the reserve claim | Court: instruction was legally incorrect but harmless as to the capital reserve claim; judgment for Clinton on reserve is affirmed |
| Whether attorney’s fees awarded under §15.7 were proper given partial reversal | Clinton: fees proper because at least one contract breach (capital reserve) was affirmed, entitling him to damages and contractual fees | Defendants: because two contract counts were reversed, the fee award must be reexamined (results obtained factor) and cannot simply stand | Court: entitlement to fees exists as to the affirmed reserve claim, but because two counts were reversed the fee award must be recalculated; remanded for a new hearing on fees and costs |
Key Cases Cited
- Alpha Beta Capital Partners, L.P. v. Pursuit Investment Management, LLC, 193 Conn. App. 381, 219 A.3d 801 (Conn. App. 2019) (contract interpretation as question of law when language is unambiguous)
- Connelly v. State Farm Mut. Auto. Ins. Co., 135 A.3d 1271 (Del. 2016) (elements of Delaware breach of contract claim and textualist approach)
- Sunline Commercial Carriers, Inc. v. CITGO Petroleum Corp., 206 A.3d 836 (Del. 2019) (Delaware canons of contract construction: plain meaning, read as whole, avoid surplusage)
- Fisk Ventures, LLC v. Segal, 984 A.2d 124 (Del. 2009) (interpreting exculpatory language in operating agreements as limiting liability rather than creating broad affirmative duties)
- Mahani v. Edix Media Group, Inc., 935 A.2d 242 (Del. 2007) (fee reasonableness includes consideration of amount involved and results achieved)