Scarfo v. Snow
146 A.3d 1006
| Conn. App. Ct. | 2016Background
- Scarfo and Snow formed Cider Hill Associates, LLC in December 2004, each signing an operating agreement and an amendment that made them 50% members; the LLC owned and developed a 23-lot subdivision in Cromwell.
- Scarfo provided $262,500 cash to Cider Hill at formation and took a reduced $25,000 commission as listing agent; Snow performed most development work (engineers, approvals, contractors) and arranged the accountant and bookkeeping.
- Disputes arose over recordkeeping, alleged unauthorized sale credits, lack of written bids, cost over-runs, and who contributed certain funds; Cider Hill produced disorganized records and missing documentation years later.
- Scarfo sued Snow and related entities (and Cider Hill) in 2009 claiming breach of the operating agreement, breach of fiduciary duty, spoliation of evidence, and sought an accounting and veil piercing.
- The trial court found factually that Scarfo failed to prove his claims and that evidence showed poor recordkeeping but no intentional destruction; it entered judgment for defendants.
- On appeal, the Connecticut Appellate Court sua sponte raised standing and, after supplemental briefing, held Scarfo lacked individual standing because his claimed injuries derived from harms to Cider Hill (a separate legal entity).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue individually for breaches of LLC operating agreement | Scarfo argued he suffered direct, personal injuries based on contractual duties between him and Snow (right to contribution, breaches of specific agreement terms) | Snow argued Scarfo's claims flowed from injuries to Cider Hill, so only the LLC (or a derivative suit) could pursue them | Held: Scarfo lacked individual standing; injuries were derivative of harms to Cider Hill, so the suit in his individual capacity must be dismissed |
| Standing to assert breach of fiduciary duty | Scarfo claimed fiduciary duties arose between members under the operating agreement and he sustained direct harm | Snow contended fiduciary/contract claims concerned duties to the LLC and any remedy belongs to the LLC | Held: Fiduciary/contract claims were not direct; Scarfo lacked standing individually; any claim was derivative |
| Standing to claim spoliation of evidence | Scarfo asserted Snow failed to preserve evidence owed to both Scarfo and Cider Hill, creating a personal injury | Snow and defendants argued alleged spoliation related to Cider Hill's records and litigation interests, not a separate personal injury to Scarfo | Held: Spoliation claim was derivative of the LLC’s interests; Scarfo lacked individual standing |
| Proper remedy/form of action | Scarfo sought individual damages and other relief (accounting, veil piercing) | Defendants maintained relief must be pursued by or on behalf of the LLC (derivatively) | Held: Because Scarfo sued individually for derivative harms, the form of judgment was improper; appellate court reversed and remanded with direction to dismiss for lack of subject matter jurisdiction |
Key Cases Cited
- Smith v. Snyder, 267 Conn. 456 (discusses requirement that shareholder/member show injury distinct from corporation/LLC to maintain direct action)
- Padawer v. Yur, 142 Conn. App. 812 (member may not sue individually for injury that is a wrong to the LLC)
- Wasko v. Farley, 108 Conn. App. 156 (LLC is separate legal entity; members cannot sue individually for wrongs to the LLC)
- Stystinger v. Brewster Park, LLC, 321 Conn. 312 (describes LLC as distinct entity and members’ rights under LLC statute and operating agreement)
- Litchfield Asset Management Corp. v. Howell, 70 Conn. App. 133 (corporate/LLC property and claims belong to the entity, not individual owners)