19 Conn. App. 256 | Conn. App. Ct. | 1989
The defendants
The plaintiffs, Glenn Banks and Erving Arnold, as minority shareholders of the defendant corporation, instituted an action against the corporation and two individual defendants alleging in an amended complaint
Upon commencing suit, the plaintiffs sought an ex parte prejudgment remedy allowing attachments on the real estate of the individual defendants in the amount of $100,000 each. The trial court, Shaughnessy, J., granted the prejudgment remedy. The defendants thereafter moved to dissolve the attachments. After a full hearing, the trial court, D. Dorsey, J., denied the defendants’ motion to dissolve the prejudgment remedy. The defendants filed a motion for rehearing, which the trial court, D. Dorsey, J., denied. This appeal ensued.
The defendants contend that the court erred in finding (1) that the plaintiffs established probable cause that the individual defendants were personally liable on the basis of the breach of fiduciary duties owed to the plaintiffs, or, in the alternative, the breach of a promoter’s agreement, and (2) that the plaintiffs had suffered damages of $100,000 each for which they could recover in an individual action rather than in a derivative action. We find no error.
The following facts are relevant to the disposition of this appeal. Prior to December, 1985, the four parties entered into an agreement whereby they would form a corporation. The two defendants were to provide the
In June, 1986, the four agreed that the corporation had become profitable and, at that time, each party received a proportionate share bonus. In addition, the plaintiffs began receiving proportionate weekly compensation checks in the amount of $250. In October, 1986, the defendants offered to purchase the plaintiffs’ interests for $5000 each. When the plaintiffs declined the offer, the weekly compensation payments ceased, they lost their positions as officers and directors and were replaced by the defendants’ spouses, and they were denied access to the corporation’s books.
The plaintiffs introduced uncontroverted evidence that, after the plaintiffs were removed as officers and directors, the defendants (1) awarded themselves bonuses of $20,000 each, (2) set up a pension plan that had a contribution of $20,000 and named the defendants as trustees, and (3) increased their weekly com
The trial court concluded that, on the bases of a breach of the oral promoter’s agreement entered into by the parties and of a breach of the defendants’ fiduciary duty to the minority shareholders as majority shareholders, there was probable cause to continue the attachments. Accordingly, the court denied the motion to dissolve the attachments.
The applicable law concerning prejudgment remedies is contained in General Statutes §§ 52-278a through 52-278n. An ex parte attachment is an available remedy pursuant to General Statutes § 52-278e. Upon the granting of an ex parte attachment, the defendant is entitled to file a motion to modify or dissolve the attachment, at which time the court is directed “to hear and determine such motion expeditiously.” At that hearing, the plaintiff has the burden of demonstrating that there is probable cause to sustain the validity of the claim. Goodwin v. Pratt, 10 Conn. App. 618, 620, 524 A.2d 1168 (1987). “The hearing in probable cause for the issuance of a prejudgment remedy is not contemplated to be a full scale trial on the merits of the plaintiff’s claim.” Three S. Development Co. v. Santore, 193 Conn. 174, 175, 474 A.2d 795 (1984).
In Goodwin v. Pratt, supra, 620-21, this court reiterated what our Supreme Court in Three S. Development Co. v. Santore, supra, set forth as to the meaning of probable cause: “ ‘ “The legal idea of probable cause
“Our review of the action taken by the trial court with regard to prejudgment remedies is ‘very circumscribed. It is not to duplicate the trial court’s weighing process, but rather to determine whether its conclusion was reasonable.’ ” Goodwin v. Pratt, supra, 621. “In the absence of clear error, this court should not overrule the thoughtful decision of the trial court, which has had an opportunity to assess the legal issues which may be raised and to weigh the credibility of at least some of
Keeping in mind this limited standard, we turn to the defendants’ claim that the trial court erred in finding probable cause to support personal liability of the individual defendants on the basis of breach of fiduciary duty or breach of a promoter’s agreement.
Authority exists in this state for officers, directors, and majority shareholders to be held personally liable for breach of fiduciary duty when evidence shows a misappropriation of corporate funds for personal benefit and subsequent fraudulent concealment. See Pacelli Bros. Transportation, Inc. v. Pacelli, 189 Conn. 401, 407-409, 456 A.2d 325 (1983). As our Supreme Court has stated, “ ‘[t]hou shall not steal’ is basic. Not only the theft, but also [the] failure to disclose it [are] violations of the trust imposed upon him in that capacity. ‘An officer and director occupies a fiduciary relationship to the corporation and its stockholders.’ Katz Corporation v. T. H. Candy & Co., 168 Conn. 201, 207, 362 A.2d 978 (1975).” Pacelli Bros. Transportation, Inc. v. Pacelli, supra, 407. “If the controlling majority stockholder seeks to injure the minority stockholder through the means of looting the corporation or so wrecking it that the minority stockholder would get nothing out of his assets, the claim resulting therefrom is sufficient to constitute an individual action. Davis v. United States Gypsum Co., 451 F.2d 659, 662 (3d Cir. 1971).” Yanow v. Teal Industries, Inc., 178 Conn. 262, 282 n.9, 422 A.2d 311 (1979).
In a more recent decision, this court upheld a judgment in favor of the plaintiff who alleged that the defendant, an officer and director of a corporation, violated the trust and confidence conferred upon him in this capacity, committed fraud, and fraudulently concealed his acts by preventing the plaintiff from gain
The evidence presented concerning unaccounted petty cash expenditures, unaccounted commissions, failure to distribute weekly compensation to the plaintiffs, and increases in the defendants’ compensation, taken together with the loss of access to financial information about the corporation, constitute a reasonable basis for the finding of probable cause based on a breach of fiduciary duty for which the individual defendants can be held personally liable.
The defendants correctly argue that only rarely should the corporate veil be pierced. The rare and acceptable legal basis for this piercing occurs when there is a sufficient basis for a claim of breach of fiduciary duty based on fraudulent acts of individuals who occupy a fiduciary relationship. See Angelo Tomasso, Inc. v. Armor Construction & Paving, Inc., 187 Conn. 544, 559, 447 A.2d 406 (1982); Zaist v. Olson, 154 Conn. 563, 573-74, 227 A.2d 552 (1967). Whether the plaintiffs, in a trial on the merits, will prevail on the issue of breach of fiduciary duty is not now before us. The plaintiffs presented sufficient evidence, however, for us to conclude that the trial court did not err in finding probable cause to hold the individual defendants personally liable and, accordingly, there is no reason to address the defendants’ second claim of error based on breach of an oral promoter’s agreement.
This, however, does not end the inquiry because we still must determine whether the dollar amount of the prejudgment remedy order entered by the trial court was proper. See Solomon v. Aberman, supra, 379. The plaintiff must establish the probable amount of damages involved. Mullai v. Mullai, 1 Conn. App. 93, 94, 468 A.2d 1240 (1983).
The defendants are correct in their assertion that the plaintiffs’ affidavit was defective in seeking the individual attachments in an amount based on the plaintiffs’ ownership in the corporation. See Davis v. United States Gypsum Co., supra. That defective affidavit, however, was not fatal. Even if a court erred in granting an ex parte real estate attachment because of a defective affidavit, the plaintiff may still prove probable cause at a hearing to dissolve or modify the attachment. Lengyel & Lengyel Builders, Inc. v. Hill, 1 Conn. App. 349, 351, 471 A.2d 975 (1984); accord Glanz v. Testa, 200 Conn. 406, 408, 511 A.2d 341 (1986). At the hearing, the plaintiffs presented uncontroverted evidence of specific amounts of individual injury they sustained as shareholders.
Because the plaintiffs may recover individually in an amount similar to the amount of the attachments, the
There is no error.
In this opinion the other judges concurred.
The defendants are Russell Vito and Russell D’Agostino, individually, and R & R Transportation Services, Inc., the corporate defendant. Only the individual defendants are parties to this appeal.
The amendment was dated March 18,1988. The defendants’ objection was overruled by the trial court, Maiocco, J., on May 23,1988, subsequent to the memorandum of decision on the motion to dissolve filed April 8,1988. A trial court, in its discretion, may allow an amendment to pleadings, before, during, or after trial to conform to the proof. Cabinet Realty, Inc. v. Planning & Zoning Commission, 17 Conn. App. 344, 348, 552 A.2d 1218 (1989); see Practice Book § 178.
The third count of the original complaint was directed against the defendant corporation only.
The evidence included (1) denial of weekly compensation that totaled $13,000 each per annum, (2) denial of pension profits, (3) denial of additional bonuses, and (4) denial of access to the corporation’s records. See 13 Fletcher, Corporations (1970 Rev.) §§ 5913-15, 5921-22, for types of actions that permit recovery by individuals.