CINDY L. KAREN v. WILLIAM P. LOFTUS
(AC 46184)
Clark, Seeley and Prescott, Js.
September 17, 2024
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Syllabus
The plaintiff appealed following the trial court‘s denial of her motion to open the dissolution judgment to allow discovery on her claim that the defendant had fraudulently procured an arbitration award that was incorрorated into that judgment pursuant to statute (
The trial court had subject matter jurisdiction to adjudicate the plaintiff‘s motion to open, even though it was filed outside the applicable statutory (
The trial court improperly denied the plaintiff‘s motion to open the judgment based on fraud, as the plaintiff presented evidence of the defendant‘s making of false statements or his failure to disclose facts, which was sufficient to establish probable cause to substantiate her claim of fraud, thereby warranting discovery and further proceedings.
Argued January 29—officially released September 17, 2024
Procedural History
Action for the dissolution of a marriage, and for other relief, brought to the Superior Court in the judicial district of Fairfield, where the court, Hon. Gerard I. Adelman, judge trial referee, approved the stipulation of the parties to enter into binding arbitration as to certain disputed matters; thereafter, the arbitrator issued a decision, and the court, Sommer, J., incorporated the arbitrator‘s decision into its judgment dissolving the marriage and granted certain other relief in accordance with the parties’ separation agreement; subsequently, the court, Hon. Eddie Rodriguez, Jr., judge trial referee, denied the plaintiff‘s motion to open the judgment, and the plaintiff appealed to this court, Elgo, Suarez and Palmer, Js., which reversed the trial court‘s judgment and remanded the case for further proceedings; thereafter, the court, Truglia, J., denied the plaintiff‘s motion to open the judgment, and the plaintiff appealed to this court. Reversed; further proceedings.
Anthony L. Cenatiempo, with whom, on the brief, was Norman A. Roberts, for the appellee (defendant).
Opinion
PRESCOTT, J. This marital dissolution matter, which requires the resolution of jurisdictional and merits relatеd issues arising from the arbitration of a specific aspect of the parties’ prenuptial agreement, returns to us for a second time. Following the dissolution of the parties’ marriage, the plaintiff, Cindy L. Karen, has endeavored to open that judgment for the limited purpose of allowing discovery with respect to her claim that the arbitration award, which subsequently was incorporated into the dissolution judgment, was procured by fraud committed by the defendant, William P. Loftus.1 In this appeal, the plaintiff
In our prior decision, we set forth the following relevant facts and procedural history. “The plaintiff and the defendant were married in June, 2007. Prior to the marriage, on May 14, 2007, the рarties entered into a prenuptial agreement . . . . Paragraph 6 (B) of the [prenuptial] agreement provides: If, at the time that an action for dissolution of marriage, annulment or legal separation is commenced, [the defendant] has left his employment with Merrill Lynch under an arrangement that is in any fashion tantamount to a sale of his interest in Merrill Lynch, i.e. a transaction under which [the defendant] receives any property, real or personal, including but not limited to a sum of money, by way of a sign-on bonus or otherwise, a premium bonus, and/or restricted stock or other ownership interest (Sale Proceeds), to work for another entity for any reason whatsoever, including his bringing a book of business and/or a clientele and/or a book of other assets to a prospective employer, then [the defendant] shall first be entitled to set aside the value of $75,000, or $75,000 from the Sale Proceeds, and the balance of such Sale Proceeds, whenever received or receivable by [the defendant], shall be divided between [the defendant] and [the plaintiff] according to the Allocation. . . . If the Sale Proceeds have been invested in other assets, the Parties shall maintain a record of all such investments, and each Party shall be entitled to the value of such Sale Proceeds so invested and any proportional gain or loss that is associated with such investment according to the Allocation. . . .”
“In December, 2014, the plaintiff commenced a dissolution action against the defendant . . . . The parties disagreed as to whether the defendant‘s obligation to pay the plaintiff pursuant to paragraph 6 (B) was triggered by the sрecific circumstances
“The parties agreed to have C. Ian McLachlan, a retired justice of the Connecticut Supreme Court, act as the arbitrator of their dispute.5 Beginning on February 16, 2017, McLachlan held a two day hearing wherein both parties testified. On April 27, 2017, McLachlan issued a decision in which he concluded that the defendant‘s departure from Merrill Lynch was not tantamount to a sale under the [prenuptial] agreement. In his memorandum of decision, McLachlan found that, in October, 2008, sixteen months after the parties wеre married, the defendant and three colleagues left Merrill Lynch and formed a business known as LLBH. Each partner invested between $10,000 and $15,000 to start LLBH.
“Shortly after the business was formed, Focus Financial (Focus) purchased an option to buy an interest in LLBH for $2 million, which was shared equally among the partners. Focus subsequently exercised its option, there was a corporate reorganization, and Partner Wealth Management, LLC, was created. When Focus exercised its option, the defendant
“McLachlan further found that, at the time of the [prenuptial] agreement, the defendant had certain benefits incident to his employment with Merrill Lynch, including restricted stock units, which he forfeited by leaving Merrill Lynch. This practice of forfeiture was very common in the financial services industry and was one of the reasons that brokers were generally paid a sign-on bonus when changing jobs by the new employer. Additionally, brokers were being paid [by their new employers] for their book of business which, in effect, represented their customers. The plaintiff and the defendant negotiated the [prenuptial] agreement, specifically paragraph 6 (B), to account for this possibility.
“Additionally, McLachlan concluded that the evidence did not support the plaintiff‘s claim that the defendant contemplated leaving Merrill Lynch at the time the [prenuptial] agreement was made. The defendant did not leave Merrill Lynch until sixteen months after the date of the marriage, and there was no mention of the defendant starting his own business in the [prenuptial] agreement. Ultimately, McLachlan determined thаt paragraph 6 (B) was drafted in contemplation of the defendant leaving Merrill Lynch and going to a competitor that would compensate him for both the employment benefits that he was forfeiting from Merrill Lynch and the contracts and business that he would bring to the new company. Instead, the defendant left Merrill Lynch to start his own company and invested his own money into the venture. An option to invest in that new venture was sold, and more than one year later, the business created by the venture itself was sold. According to McLachlan, this scenario is substantially different than the situation where an employee leaves a brokerage house and is compensated by the new employer.” (Footnotes added; internal quotation marks omitted.) Karen v. Loftus, 210 Conn. App. 289, 291-94, 270 A.3d 126 (2022).
On May 12, 2017, the plaintiff filed a motion to confirm the arbitration award, which the court subsequently granted. On June 16, 2017, the trial court, Sommer, J., incorporated (1) the terms of the prenuptial agreement with respect to the division of real estate, personal property, debts and liabilities, (2) the August 1, 2016 agreement, which the court found to be fair and equitable, regarding the timing of the defendant‘s alimony payments to the plaintiff, and (3) McLachlan‘s arbitration award into a final judgment of dissolution. Id., 294.
On April 3, 2018, the plaintiff filed a motion to open the dissolution judgment on the ground that the defendant had made fraudulent representations and failed to disclose material facts to McLachlan during the arbitration. Specifically, she claimed that the defendant‘s contentions that LLBH was a new business, and that business was not sold to Focus when he and his partners left Merrill Lynch, were “wholly contradicted by evidence presented in a subsequent trial concerning the same business . . . .” The plaintiff further alleged that the defendant‘s representations to McLachlan that (1) when leaving Merrill Lynch, he did not contemplate taking his contacts and clients with him to LLBH, (2) the defendant and his partners did not contemplate an agreement with Focus until after the May 14, 2007 execution of the prenuptial agreement, and (3) the agreement and transaction with Focus did not constitute a sale, were materially false. “The essence of the plaintiff‘s argument in her motion to open is that the defendant testified falsely during the arbitration and that McLachlan relied on the
After additional filings by the parties, the court, Hon. Eddie Rodriguez, Jr., judge trial referee, held a hearing on May 6, 2019, to consider the plaintiff‘s motion to open the dissolution judgment. Id., 296. The purpose of this hearing was to determine whether a sufficient basis existed to open the judgment for the limited purpose of proceeding with discovery on the allegations of fraud set forth by the plaintiff. See Spilke v. Spilke, 116 Conn. App. 590, 593-94 and n.6, 976 A.2d 69 (2009); Oneglia v. Oneglia, 14 Conn. App. 267, 269-70, 540 A.2d 713 (1988).
On September 25, 2019, the court denied the plaintiff‘s motion to open, stating in relevant part: “[T]he plaintiff is mistakenly claiming a second bite at the apple. She is attempting to open a judgment by filing a motion which is well beyond [the] permissible four [month] window to open civil judgments and she is claiming fraud. The exception to opening judgments outside of the initial four months does not apply to cases where a party wants to [relitigate] issues already litigated and decided. She seeks to reopen the judgment and obtain a new trial based on what she attempts to characterizе as newly discovered evidence. However the evidence she references as newly discovered is evidence which was available during the arbitration and it would have been cumulative of the evidence offered at the arbitration. The plaintiff‘s claim fails because the evidence relied upon was not in fact newly discovered evidence and the plaintiff has failed to demonstrate that the evidence could not have been discovered and produced at the former trial by the exercise of due diligence. Also, it does not appear to this court that a different result would be had at another trial.” (Internal quotation marks omitted.) Karen v. Loftus, supra, 210 Conn. App. 296.
The plaintiff then appealed to this court from the denial of her motion to open, claiming that the trial court had utilized an incorrect legal standard when it rejected her claim. Id., 296-97. We agreed and identified the proper standard as follows: “[T]he court was required to make a preliminary determination of whether there was probable cause to believe that the judgment was obtained by fraud before it could consider the merits of the claim. If the court found probable cause to believe that the judgment was obtained by fraud, then the court was required to conduct an evidentiary hearing to determine whether, in fact, there was fraud.” Id., 302. As a result of the trial court‘s failure to make this preliminary determination, we reversed the judgment and remanded the case for further proceedings. Id., 303.
Pursuant to our remand, the court, Truglia, J., held a hearing on September 9, 2022, and January 4 and 5, 2023, for the purpose of determining whether probable cause existed to open the judgment for the limited purpose of рroceeding with discovery as to the plaintiff‘s claim of fraud. After hearing testimony and considering the submitted exhibits, the court orally denied the plaintiff‘s motion, stating that it did not “see any fraud . . . any fraud whatsoever [and that] [t]here‘s no proof, there‘s no compelling evidence that [the defendant] misled . . . McLachlan.” (Emphasis added.) On February 1, 2023, the court issued a “statement of decision” that contained a brief synopsis of the case and concluded that it had “found no evidence of
On appeal, the plaintiff claims that the trial court improperly concluded that she had failed to establish probable cause that the arbitration award, which subsequently was incorporated into the judgment of dissolution, was obtained by fraud. Specifically, the plaintiff argues that she presented ample evidence of the defendant‘s misrepresentations and failure to disclose material facts and evidence to McLachlan that resulted in the defendant‘s fraudulently obtaining an arbitration award in his favor. The defendant counters that the trial court lacked jurisdiction to consider the plaintiff‘s motion to open and, in the alternative, properly denied the plaintiff‘s motion to open. We disagree with the defendant‘s arguments and conclude that the court improperly determined that the plaintiff had failed to meet her preliminary burden of demonstrating that probable cause existed to warrant discovery and an evidentiary hearing as to her allegation of fraud.
I
Before considering the merits of this appeal, we must first address the defendant‘s claim that the trial court lacked subject matter jurisdiction over the plaintiff‘s motion to open the judgment. Specifically, he argues that the plaintiff‘s April 3, 2018 motion to open constitutes an untimely attempt to vacate the April 27, 2017 arbitration award and that, consequently, the trial court did not have jurisdiction to consider it pursuant to
We begin our analysis of this issue by setting forth the relevant legal principles regarding the opening of a dissolution judgment based on fraud. It is a well established principle that a court has the inherent authority to open a judgment, subject to certain limitations. See, e.g., Jonas v. Playhouse Square Condominium Assn., Inc., 173 Conn. App. 36, 39, 161 A.3d 1288 (2017). “Within four months of the date of the original judgment, Practice Book [§ 17-4] vests discretion in the trial court to determine whether there is a good and compelling reason for its modification or vacation.” (Internal quotation marks omitted.) McGovern v. McGovern, 217 Conn. App. 636, 645-46, 289 A.3d 1255 (2023), cert. denied, 346 Conn. 1018, 295 A.3d 111 (2023); see also
This rule serves to further the compelling interest in the finality of judgments. Strauss v. Strauss, 220 Conn. App. 193, 203-204, 297 A.3d 581 (2023), cert. denied, 348 Conn. 914, 303 A.3d 602 (2023). “Finality of litigation is essential so that parties may rely on judgments in ordering their private affairs and so that the moral force of court judgments will not be undermined. The law favors finality of judgments . . . . This court has emphasized that due consideration of the finality of judgments is important and that judgments should only be set aside or opened for a strong and compelling reason. . . . It is in the interest of the public as well as that of the parties [that] there must be fixed a time after the exрiration of which the controversy is to be regarded as settled and the parties freed of obligation to act further in the matter by virtue of having been summoned into or having appeared in the case. . . . Without such a rule, no judgment could be relied on.” (Internal quotation marks omitted.) Id., 204; see also Bruno v. Bruno, 146 Conn. App. 214, 229, 76 A.3d 725 (2013).
Our appellate courts, however, have recognized that
We now turn to the defendant‘s specific jurisdictional claim, made for the first time in this appeal.8 He argues that the plaintiff‘s challenge to the underlying arbitration award was untimely because she did not file an application to vacate the award within thirty days of the issuance of notice of the award. As a result, the defendant contends that the trial court lacked subject matter jurisdiction to open the judgment that incorporated the arbitration award pursuant to
“[S]ubject matter jurisdiction involves the authority of the court to adjudicate the type of controversy presented by the action before it. . . . [A] court lacks discretion to consider the merits of a case over which it is without jurisdiction . . . . Furthermore, [j]urisdiction of the [subject matter] is the power [of the court] to hear and determine cases of the general class to
Under the circumstances in the present case, the question of whether the court lacked jurisdiction over the motion to open is a question of law because it requires us to interpret the statutory provisions relied on by the parties. See, e.g., Davis v. Davis, 200 Conn. App. 180, 201, 238 A.3d 46 (2020), cert. denied, 335 Conn. 977, 241 A.3d 130 (2020); Malpeso v. Malpeso, 165 Conn. App. 151, 165, 138 A.3d 1069 (2016). Moreover, we note that there are no jurisdictional facts in dispute regarding the defendant‘s subject matter jurisdictional claim that would require adjudication by the trial court. See, e.g., Sessa v. Reale, 213 Conn. App. 151, 158, 278 A.3d 44 (2022); cf. Conboy v. State, 292 Conn. 642, 652-53, 974 A.2d 669 (2009) (if question of jurisdiction is intertwined with merits of case, court cannot resolve jurisdictional question without evidentiary hearing).
We turn then to the relevant statutory provisions.
Our Supreme Court‘s decision in Wu v. Chang, 264 Conn. 307, 823 A.2d 1197 (2003), warrants discussion because the court in that case addressed whether an arbitration award could be attacked outside the thirty day time period of
After an unsuccessful attempt at mediation, the parties agreed to sell the assets of the companies and have their respective shares conclusively determined by binding, nonappealable arbitration. Id., 308-309. The arbitrator determined that the respective share of each party in the proceeds from the sale of assets would be equal to their respective capital contributions. Id., 309. Notice of the arbitration award was sent to the parties. Id.
After receiving the arbitration award, the plaintiffs filed an application to confirm the arbitration award pursuant to
Our Supreme Court first explained that the trial court properly granted the plaintiffs’ timely motion to confirm the arbitration award because the defendant‘s motion to vacate had not been filed within the thirty day limitation period of
Ultimately, our Supreme Court agreed with the reasoning of the trial court that a motion to vacate an arbitration award based on any of the grounds set forth in
Salutary policy reasons typically support the strict time requirements that limit a party‘s ability to attack an arbitration award. As a general rule, “[a]rbitration is favored by courts as a means of settling differences and expediting the resolution of disputes. . . . There is no question that arbitration awards are generally upheld and that we give great deference to an arbitrator‘s decisions since arbitration is favored as a means of settling disputes.” (Internal quotation marks omitted.) Clasby v. Zimmerman, 191 Conn. App. 143, 155, 213 A.3d 1144 (2019), cert. denied, 333 Conn. 919, 217 A.3d 1 (2019); see also Garrity v. McCaskey, 223 Conn. 1, 4, 612 A.2d 742 (1992); Jenkins v. Jenkins, 186 Conn. App. 641, 645, 200 A.3d 1193 (2018). “The core principles of Connecticut‘s arbitration law are set forth in . . .
Additionally, our Supreme Court has explained: “Judicial review of arbitral decisions is narrowly confined. . . . When the parties agree to arbitration and establish the authority of the arbitrator through the terms of their submission, the extent of our judicial review of the award is delineated by the scope of the parties’ agreement. . . . Because we favor arbitration as a means of settling private disputes, we undertake judicial review of arbitration awards in a manner designed to minimize interference with an efficient and economical system of alternative dispute resolution. . . .”
“Where the submission does not otherwise state, the arbitrators are empowered to decide factual and legal questions and an award cannot be vacated on the grounds that . . . the interpretation of the agreement by the arbitrators was erroneous. Courts will not review the evidence nor, where the submission is unrestricted, will they review the arbitrators’ decision of the legal questions involved. . . .”
“Even in the case of an unrestricted submission, we have . . . recognized three grounds for vacating an award: (1) the award rules on the constitutionality of a statute . . . (2) the award violates clear public policy . . . [and] (3) the award contravenes one or more of the statutory proscriptions of
In proceedings such as the present case, however, in which an arbitration award is incorporated into a marital dissolution judgment rendered by the trial court, competing policies exist that are inherent in the statutes that apply to family matters. We start with a review
of
We next turn to subsection (e) of
Pursuant to this statutory language, the parties may choose to use arbitration as a means to resolve some or even all of the disputed financial and custody issues relating to the dissolution of their marriage. If they choose to do so, the court must first find that the agreement to arbitrate was entered into voluntarily and is fair and equitable under the circumstances. If the court permits the arbitration, that arbitration is conducted in accordance with the provisions of chapter 909 of the General Statutes. Finally, subsection (e) provides that an arbitration award that is incorporated into an order or decree of the court is enforceable and modifiable to same extent as an agreement of the parties that is incorporated into an order or decree of the court pursuant to subsection (c) of
Principles of statutory construction further inform our analysis. As
Further, in construing these statutes together, it is important to remember that marital dissolution proceedings are essentially equitable in nature. Leonov v. Leonov, 201 Conn. App. 285, 304, 242 A.3d 713 (2020), cert. denied, 336 Conn. 906, 244 A.3d 146 (2021). For example, in Foisie v. Foisie, 335 Conn. 525, 239 A.3d 1198 (2020), our Supreme Court described the opening of a dissolution judgment for the purpose of reconsidering financial orders on the basis of an allegation of fraud as follows: “[I]n family matters, the court exercises its equitable powers. . . . While an action for divorce or dissolution of marriage is a creature of statute, it is essentially equitable in its nature. . . . The trial court has considerable discretion to balance equities in a dissolution proceeding. . . . The power to act equitably is the keystone to the court‘s ability to fashion relief in the infinite variety of circumstances which arise out of the dissolution of a marriage. Without this wide discretion and broad equitable power, the courts in some cases might be unable fairly to resolve the parties’ dispute . . . . For that reason, equitable remedies are not bound by formula but are molded to the needs of justice. . . . [I]n some situations, the principle of protection of the finality of judgments must give way to the principle of fairness and equity.” (Citations omitted; internal quotation marks omitted.) Id., 543-44; see also Baker v. Baker, 187 Conn. 315, 323, 445 A.2d 912 (1982) (trial court in dissolution of marriage action sits as court of law and of equity). Simply stated, the only remedy available to a defrauded party in a marital dissolution case is to have the court open and reconsider the judgment as a matter of equity. Weiss v. Weiss, 297 Conn. 446, 467 n.15, 998 A.2d 766 (2010).
Our Supreme Court has explained that the principle of complete disclosure “is consistent with the notion that the settlement of a marital dissolution case is not like the settlement of an accident case. It stamps with finality the end of a marriage. . . . Courts simply should not countenance either party to such a unique human relationship dealing with each other at [arm‘s] length. Whatever honesty there may, or should, have been during the marriage should at least be required at its end.” (Citation omitted; internal quotation marks omitted.) Billington v. Billington, supra, 220 Conn. 221. Further, this court has observed that, “[u]nlike civil litigants who stand at arm‘s length from one another, marital litigants have a duty of full and frank disclosure analogous to the relationship of fiduciary to beneficiary . . . .” (Internal quotation marks omitted.) Mensah v. Mensah, 145 Conn. App. 644, 652, 75 A.3d 92 (2013). These equitable concerns do not apply with the same vigor to arbitration proceedings that occur in commercial and other civil contexts.15
II
Having concluded that the trial court had jurisdiction over the plaintiff‘s motion to open, we now turn to the merits of her appeal. The plaintiff claims that the court improperly concluded that she had failed to establish probable cause as to the existence of fraud that would permit the court to open the judgment for the limited purpose of conducting discovery on that claim. See Spilke v. Spilke, supra, 116 Conn. App. 593-94; Oneglia v. Oneglia, supra, 14 Conn. App. 269-70. Specifically, she argues that, contrary to the court‘s determination that there was “no evidence” to support her fraud claim, she presented sufficient evidence that established probable cause to warrant further discovery and additional proceedings. We agree with the plaintiff.
The following additional facts and procedural history are relevant to our resolution of this claim. On April 3, 2018, the plaintiff moved to open the judgment on the
On January 5, 2023, at the conclusion of the hearing, Judge Truglia stated that the plaintiff had failed to prove that the defendant had misled McLachlan at the arbitration and therefore denied the motion to open. Approximately one month later, the court issued a “statement of decision” that provided in relevant part: “The gravamen of the plaintiff‘s motion to open is that the defendant made material statements during thе arbitration . . . that were false, and that the defendant knew were false. The plaintiff alleges in her motion that [McLachlan] relied on these false statements in reaching a decision that was unfavorable to her. Had the defendant not made false statements during the arbitration proceedings, the plaintiff further alleges, the outcome of the arbitration would have been different. . . .
“The court heard approximately nine hours of testimony from both parties in this case and two other witnesses over the three days of evidentiary hearing. The court carefully reviewed and weighed the testimony presented. The court also carefully reviewed all of the exhibits submitted by the plaintiff in support of her motion. The court found no evidence of fraud.” (Citation omitted; emphasis added.)
As an initial matter, we review the relevant legal principles. “In Oneglia v. Oneglia, [supra, 14 Conn. App. 267], this court held that, in considering a motion to open on the basis of fraud, a court must first make a preliminary determination of whether there is probable cause to believe that the judgment was obtained by fraud. Oneglia and its progeny are grounded in the principle of the finality of judgments. . . . [T]he finality of judgments principle recognizes the interest of the public as well as that of the parties [that] there be fixed a time after the expiration of which the controversy is to be regarded as settled and the parties freed of obligations to act further by virtue of having been summoned into or having appeared in the case. . . . Without such a rule, no judgment could be relied on. . . . Oneglia carefully balanced that interest in finality with the reality that in some situations, the principle of protection of the finality of judgments must give way to thе principle of fairness and equity. . . . The court in Oneglia thus ratified the gatekeeping mechanism employed by the trial court, whereby a court presented with a motion to open by a party alleging fraud in a postjudgment dissolution proceeding conducts a preliminary hearing to determine
Stated differently, “a party seeking to obtain discovery related to allegedly fraudulent conduct that transpired prior to the entry of judgment must, consistent with the aforementioned precedent, (1) move to open that judgment and (2) demonstrate to the trial court that the allegations of fraud are founded on probable cause. Absent such evidence, the court lacks authority to permit postjudgment discovery on such matters.” Brody v. Brody, 153 Conn. App. 625, 634, 103 A.3d 981, cert. denied, 315 Conn. 910, 105 A.3d 901 (2014); see also Nolan v. Nolan, 76 Conn. App. 583, 585, 821 A.2d 772 (2003). This is because, until the judgment has been opened, there is no active civil matter, discovery is permitted only when there is a cause of action pending, and “there is no such thing as postjudgment discovery in a vacuum.” (Internal quotation marks omitted.) Bruno v. Bruno, supra, 146 Conn. App. 231.
Next, we identify the applicable stаndard of review. Generally, our decisions have applied a discretionary standard of review to the denial of a motion to open. “Our review of a court‘s denial of a motion to open [based on fraud] is well settled. . . . In an appeal from a denial of a motion to open a judgment, our review is limited to the issue of whether the trial court has acted unreasonably and in clear abuse of its discretion. . . . In determining whether the trial court abused its discretion, this court must make every reasonable presumption in favor of its action. . . . The manner in which [this] discretion is exercised will not be disturbed so long as the court could reasonably conclude as it did.” (Internal quotation marks omitted.) Cimino v. Cimino, 174 Conn. App. 1, 5, 164 A.3d 787, cert. denied, 327 Conn. 929, 171 A.3d 455 (2017).
In this appeal, however, the specific legal issue raised by the plaintiff warrants the application of a less deferential standard of review. Here, the plaintiff claims that the trial court improperly determined that she had failed to establish probable cause to substantiate her fraud allegations. Our Supreme Court has stated that “[w]hether particular facts constitute probable cause is a question of law.” (Internal quotation marks omitted.) Journal Publishing Co. v. Hartford Courant Co., 261 Conn. 673, 682, 804 A.2d 823 (2002); Paranto v. Ball, 132 Conn. 568, 571, 46 A.2d 6 (1946). Accordingly, we apply the plenary standard of review to the plaintiff‘s claim. See Rousseau v. Weinstein, 204 Conn. App. 833, 853, 254 A.3d 984 (2021); see also State v. Smith, 344 Conn. 229, 244, 278 A.3d 481 (2022); Falls Church Group, Ltd. v. Tyler, Cooper & Alcorn, LLP, 281 Conn. 84, 94, 912 A.2d 1019 (2007); Nowak v. Environmental Energy Services, Inc., 218 Conn. App. 516, 530, 292 A.3d 4 (2023).
With our standard of review in mind, we turn to the relevant legal principles regarding the standard of probable
We next turn to the evidence offered by the plaintiff in support of this standard. We first recognize that the fraud inquiry was made more difficult because no transcript exists from the arbitration proceeding, as it was not held on the record. We must, therefore, rely on other documents, including the defendant‘s April 3, 2017 arbitration brief, the arbitration decision itself, the testimony from the motion to open hearing, and McLachlan‘s December 19, 2022 deposition, to determine whether the plaintiff has met her burden to establish probable cause as to the existence of fraud.
The issue at the February 16 and 17, 2017 arbitration concerned the interpretation of paragraph 6 (B) of the prenuptial agreement and whether the defendant had “left his employment with Merrill Lynch under an arrangement that is in any fashion tantamount to a ‘sale’ of his interest in Merrill Lynch, i.e. a transaction under which [the defendant] receives any property, real or personal, including but not limited to a sum of money, by way of a ‘sign-on’ bonus or otherwise, a premium bonus, and/or restricted stock or other ownership interest (‘Sale Proceeds‘), to work for another entity for any reason whatsoever, including his bringing a book of business and/or a clientele and/or a book of other assets to a prospective employer, [and, if so] then [the defendant] shall first be entitled to set aside the value of $75,000, or $75,000 from the Sale Proceeds, and the balance of such Sale Proceeds, whenever received or receivable by [the defendant], shall be divided between [the defendant and the plaintiff].” (Emphasis added.)
In the defendant‘s arbitration brief, he claimed that neither his prior employment at Merrill Lynch nor his “book of business” had anything to do with the formation of LLBH. Additionally, he maintained that his business at LLBH bore “no resemblance to his prior business at Merrill Lynch,” and he “did not bring [former Merrill Lynch] clients to LLBH and LLBH did not bring those clients.” He also stated that Focus purchased an option to buy a minority interest in LLBH for $2 million ”soon after its formation . . . .” (Emphasis added.) He described LLBH as a “startup company” and that he was self-employed in a new industry at Focus. The defendant further indicated that Focus purchased this option after LLBH had been formed and was open for business, and, because the defendant and his three partners had already left Merrill Lynch, the option bought by Focus was not material to his departure from that company. Finally, the defendant maintained that Focus’ option to purchase ”was a transaction which has no nexus to the defendant‘s leaving the employ of Merrill Lynch, was not ‘tantamount to a sale’ of his interest in Merrill Lynch, and as such does not implicate the provisions of [the parties’ prenuptial agreement].” (Emphasis added.)
In his arbitration award, McLachlan found that, when the defendant and his partners left Merrill Lynch and formed LLBH, each invested approximately $10,000 to $15,000 into the startup of this business. He further determined that Focus purchased the option to buy an interest
McLachlan then determined that the language of paragraph 6 (B) of the parties’ prenuptial agreement did not apply to the defendant‘s departure from Merrill Lynch and the formation of a new business with his partners. “The only conclusion one could reach is . . . that [paragraph 6 (B)] was drafted in contemplation of [the defendant] leaving Merrill Lynch and going to a competitor who would pay him to come not only in recognition of the Merrill Lynch employment benefits he would be forfeiting, but because some of the contacts and business that he would be bringing with him . . . . The сontext, as it actually occurred, was [the defendant] leaving initially with three (3) partners to form a new business. He and his partners were not paid to go to LLBH but, in fact, each paid into the venture to start it. . . . This is substantially different than the situation where an employee leaves a brokerage house and is compensated by the new employer. [The defendant‘s] new employer was a company that he owned a portion of and in which he had invested. The new employer was not in a position to, and in fact, did not give him any property, real or personal, including, but not limited to, a sum of money by way of a ‘sign-on’ bonus or otherwise, a premium bonus and/or restricted stock or other ownership interest. [The defendant] acquired an ownership interest in LLBH because he invested in it. This transaction is not tantamount to a sale. He was then able to sell a portion of that ownership interest to Focus.” (Emphasis added.) The arbitration decision, therefore, accepted the defendant‘s testimony about the timeline of events regarding his departure from Merrill Lynch and forming LLBH.
At the hearing on the plaintiff‘s motion to open, however, the defendant acknowledged that Focus paid him and his three partners $2 million at the same time LLBH was formed. The defendant admitted that the option agreement with Focus was signed on the same day that he resigned from Merrill Lynch. He also conceded that the negotiations with Focus had occurred prior to his leaving Merrill Lynch and that Focus was committed to supporting their new business venture. The defendant further admitted that he received $500,000 from Focus at the time he left Merrill Lynch. The defendant then conceded that, during a prior deposition, he had stated that “no one gave [him] any money” when he formed LLBH with his partners. Several aspects of the defendant‘s testimony were contrary to his prior statements and the evidence presented to McLachlan during the arbitration hearing.
Additionally, during a July 27, 2016 deposition that was taken as a part of the marital dissolution proceeding and utilized at the hearing before Judge Truglia, the defendant had testified that he and his three partners left Merrill Lynch and “put our own money into LLBH. . . . We set up our firm. We put our own capital in, and we set up a business.” Later in that deposition, the defendant stated: “For the record, for the record, I did not sell anything. . . . I started a business. No one—no one gave me any money. I got no consideration. I put my own money into a . . . new company, took [an] inordinate amount of risk at the absolute peak of the financial crisis, had no way of knowing that my clients would come with me, [and] walked away from . . . millions of dollars . . . .” (Emphasis added.)
option contact had occurred prior to October 17, 2008, and he knew he would receive payment once the contract was executed. The defendant then admitted, during a September 26, 2016 deposition during the dissolution proceedings, that he had stated that he started LLBH “on day one with nothing” and set up a new company that did not pay him “anything.”
At the January 4, 2023 hearing, the plaintiff‘s counsel read from the defendant‘s testimony in a separate lawsuit19 in which he had testified that the option contract with Focus had been contemplated before leaving Merrill Lynch, and he described his receipt of $500,000 as a “payment.” In this prior testimony, he also stated that he and his LLBH partners, over the course of three months, brought over approximately $375 million in assets to manage from former Merrill Lynch clients.
The plaintiff testified at the hearing on her motion to open that she, her attorney and McLachlan had not been in possession of the Focus option agreement at the time of the arbitration, and that she did not learn of its existence, or the subsequent asset purchase agreement, until “[l]ong after” the arbitration.20 She also stated that, at the arbitration hearing, the defendant had testified that it was not until “sometime after” he left Merrill Lynch and formed LLBH “that Focus came around in any way.” She also recalled that his testimony before McLachlan was that he and his partners had no contact with Focus before leaving Merrill Lynch. She further indicated that, at the time of his departure from Merrill Lynch, the defendant had worked to transfer client accounts to the new enterprise.
Pursuant to an agreement of the parties, the court admitted into evidence a transcript of McLachlan‘s December 19, 2022 deposition. During his deposition, McLachlan was shown a copy of the October 17, 2008 Focus option agreement, and he testified that he did not rеcognize it and that he knew that it was not part of the record during the arbitration proceeding. He specifically stated that he was unaware “when [he] issued [his] award that [the defendant] and his partners had executed an option agreement with Focus . . . on the very day they left Merrill Lynch to open their own business.” On the basis of the evidence presented during the deposition, which differed from what had been presented during the arbitration proceeding, McLachlan concluded that this transaction had occurred on the same day that the defendant left Merrill Lynch, contrary to his statement
During cross-examination by the defendant‘s counsel during his deposition, McLachlan described his recollection of the defendant‘s theory of the case: “Well, he said first of all he wasn‘t being paid—this is as I recall his theory—he wasn‘t being paid for bringing the clients, the book of business with him, he was bеcause what he was doing was different, that he—I am not sure if he represented—if he was advising corporations when he was at Merrill Lynch that went to advising individuals, but that it wasn‘t really the same as just bringing a book of business because he started a new business. And his theory was that he started this new business, he and his partners, that it wasn‘t as though they went to [an existing competitor of Merrill Lynch].” McLachlan later was asked: “[I]n your mind, [were] there any efforts made to obfuscate the existence of the option, the $2 million payment, $500,000 of which went to [the defendant] or it‘s temporal connection with the group of men leaving Merrill Lynch?” He responded: “Well, I would say yes. I think there was, I—I mean, I think, you know, [the defendant] didn‘t want to represent that [he] walked out the door and somebody gave [him] $500,000. You know, whether or not that would still be within [paragraph 6 (B) of the prenuptial agreement] is a separate issue, but he certainly didn‘t say that [he] had a deal with Focus, that when [the four partners] left they were going to [be paid] $2 million.” McLachlan also stated that, had he known this information regarding the timing of the Focus option agreement, he would have asked more questions and that the facts ultimately were different from the impression that he had formed at the arbitration proceeding, and based on these facts, it looked “more like they were going to work for Focus than starting their own business.”
We now turn to the legal principles governing fraud in the context of a motion to open filed in a marital dissolution action. We emphasize that, at this stage of the proceedings, the plaintiff is not required to prove the existence of fraud but, rather, must demonstrate only probable cause as to the еxistence of fraud in order for the court to open the judgment for the limited purpose of proceeding with discovery. See, e.g., Longbottom v. Longbottom, 197 Conn. App. 64, 72, 231 A.3d 310 (2020). Additionally, “[t]his preliminary hearing is not intended to be a full scale trial on the merits of the [moving party‘s] claim. The [moving party] does not have to establish that he will prevail, only that there is probable cause to sustain the validity of the claim. . . . If the moving party demonstrates to the court that there is probable cause to believe that the judgment was obtained by fraud, the court may permit discovery.” (Emphasis added; internal quotation
“Fraud consists in deception practiced in order to induce another to part with property or surrender some legal right, and which accomplishes the end designed. . . . The elements of a fraud action are: (1) a false representation was made as a statement of fact; (2) the statement was untrue and known to be so by its maker; (3) the statement was made with the intent of inducing reliance thereon; and (4) the other party relied on the statement to his detriment. . . .
“Fraud by nondisclosure, which expands on the first three of [the] four elements [of fraud], involves the failure to make a full and fair disclosure of known facts connected with a matter about which a party has assumed to speak, under circumstances in which there is a duty to speak. . . . A lack of full and fair disclosure
of such facts must be accompanied by an intent or expectation that the other party will make or will continue in a mistake, in order to induce that other party to act to her detriment. . . . In a marital dissolution case, the requirement of a duty to speak is imposed by
The plaintiff presented evidence that, during the arbitration proceeding, the defendant represented to McLachlan that he and his partners left their employment at Merrill Lynch essentially to start a new company, LLBH, and that they did not receive any funding from Focus until after its formation. The defendant specifically had argued to McLachlan that the Focus payment of $2 million constituted a transaction without a nexus to his departure from Merrill Lynch. Indeed, during a deposition taken earlier in this proceeding, he stated that he did not sell anything, nor did he receive any money or consideration from a third party; he used his own money to create a new business. He also failed to provide the plaintiff or McLachlan with a copy of the Focus option agreement. The plaintiff presented further evidence that showed that the defendant and his partners had been working with Focus prior to their departure from Merrill Lynch, and they executed the option agreement with Focus on the same day they formed LLBH. The group also brought over former Merrill Lynch clients and their assets worth approximately $375 million.
Applying the flexible, commonsense standard of probable cause that would warrant a person of ordinary caution, prudence and judgment to entertain a bona fide belief in the existence of the claim of fraud, we conclude that the plaintiff had satisfied her “modest” burden at this preliminary stage of the proceedings by substantiating her allegations to warrant discovery and further proceedings.
We determine that the plaintiff presented evidence that satisfied the probable cause standard that the defendant had made false statements, or failed to disclose facts, regarding the details of the end of his emplоyment at Merrill Lynch and the formation of LLBH in an effort to deprive her of money she may have been entitled to under the terms of the parties’ prenuptial agreement. Such conduct, if proven, would result in a situation “in which one party held a valuable asset, the true worth and nature of which only that party knew.” Weinstein v. Weinstein, supra, 275 Conn. 690. Efforts to hide or obfuscate material facts in a marital dissolution proceeding are incompatible with our jurisprudence, and we will not countenance such an attempt to unfairly bypass the conditions of a prenuptial agreement to the detriment of the plaintiff. See Id., 695; see also Miller v. Appleby, 183 Conn. 51, 57 n.1, 438 A.2d 811 (1981) (when false representations are made for purpose of inducing act to another‘s injury, necessarily there is plain implication that such representations were made with intent to deceive). We conclude, therefore, that the court improperly denied the plaintiff‘s motion to open the judgment based on fraud. As a result, we reverse the trial court‘s judgment denying the plaintiff‘s motion to open and remand the case with direction to open the judgment for the limited purpose of allowing further discovery in conjunction with the plaintiff‘s claim of fraud.
The judgment is reversed and the case is remanded for further proceedings in accordance with this opinion.
In this opinion the other judges concurred.