ROBERT MANERE v. PETER COLLINS ET AL.
AC 42182
Appellate Court of Connecticut
September 29, 2020
DiPentima, C. J., and Elgo and Beach, Js.*
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Syllabus
The plaintiff, a minority member of the defendant B Co., a Connecticut limited liability company, sought to recover damages from B Co. and the defendant C for, inter alia, breach of contract, and sought the dissolution of B Co. on the ground of oppressive conduct. The plaintiff and C formed B Co. for the purposes of purchasing and operating a cafe. C received a 60 percent interest in B Co. and the plaintiff received a 40 percent interest in B Co. A hurricane caused the cafe to be closed for a period of time, and, despite an oral agreement between C and the plaintiff that neither would take any guaranteed payments from B Co. for fifty-two weeks, the plaintiff continued to take cash from B Co. during this period. C subsequently reconstructed the cafe‘s financial history, which revealed that the plaintiff had misappropriated approximately $190,000 of B Co.‘s funds. C amended the operating agreement of B Co., and terminated the plaintiff as a manager of B Co., terminated the plaintiff‘s son as an employee, stopped payment on certain checks issued to the plaintiff and changed the locks on the cafe to prevent the plaintiff from accessing the building. The plaintiff commenced the present action asserting various claims, including breach of fiduciary duty and oppression by C, and seeking the dissolution of B Co. pursuant to statute (
- The trial court properly concluded that B Co.‘s counterclaim stated a claim on which relief could be granted: B Co. pleaded facts which sufficiently alleged a claim of breach of fiduciary duty, specifically, that the plaintiff owed a fiduciary duty to B Co., that the plaintiff breached that duty by acting in a manner that would personally benefit himself in the form of using B Co.‘s funds for his own interests at the expense of the interests of B Co., and that B Co.‘s damages were a result of the plaintiff‘s conduct; the plaintiff‘s emphasis on B Co.‘s use of the term “misappropriation” was misplaced, as B Co.‘s allegation that the plaintiff misappropriated funds was simply a recitation of facts describing conduct in support of its claim for breach of fiduficary duty, rather than an attempt to state a cause of action for “misappropriation.”
- The trial court improperly applied a six year statute of limitations to B Co.‘s counterclaim: notwithstanding B Co.‘s claim that it had set forth an action for an accounting, to which a six year statute of limitations would apply pursuant to statute (
§ 52-576 ), B Co.‘s counterclaim did not allege that it either made a demand of the plaintiff to furnish an accounting or that the plaintiff refused its demand, instead merely requesting in its prayer for relief an accounting of all B Co.‘s funds that the plaintiff misappropriated; moreover, all of B Co.‘s financial information was available to it by the time it filed its counterclaim, as evidenced by its calculation of the specific amount of money that the plaintiff had misappropriated; thus, although B. Co‘s counterclaim alleged that the plaintiff breached a fiduciary duty, it did not properly allege that the plaintiff‘s breach of that duty necessitated an accounting, and the plaintiff‘s breach of his fiduciary duty to B Co. did not prevent B Co. from ascertaining the amount of money that the plaintiff misappropriated; B Co.‘s counterclaim, rather, set forth a claim for breach of fiduciary duty, which is governed by a three year statute of limitations under the applicable statute (§ 52-577 ), and, because the question of whether the plaintiff‘s tortious conduct fell within that three year period implicated issues of fact, the trial court‘s judgment was reversed and the case was remanded for further proceedings. - The trial court improperly rejected the plaintiff‘s application to dissolve B Co. on the ground of oppression pursuant
§ 34-267 (a) (5) because that court applied an incorrect legal standard in evaluating the plaintiff‘s claim: this court concluded that a new trial was warranted on the plaintiff‘s claim of oppression as to all of the complained of conduct, except for the plaintiff‘s termination of employment, as it was clear from the record that the court did not assess the plaintiff‘s claim of oppression by focusing on his reasonable expectations as a minority member of B Co.
Argued December 5, 2019—officially released September 29, 2020
Procedural History
Action seeking damages for, inter alia, breach of contract, and the dissolution of the defendant BAHR, LLC, brought to the Superior Court in the judicial district of Fairfield, where the defendant BAHR, LLC, filed a counterclaim; thereafter, the matter was tried to the court, Hon. George N. Thim, judge trial referee; judgment in favor of the defendants on all counts of the plaintiff‘s complaint and in favor of the defendant BAHR, LLC, on the second count of its counterclaim, and the plaintiff appealed to this court.
Alan R. Spirer, for the appellant (plaintiff).
Alexander H. Schwartz, with whom was Roy S. Ward, for the appellees (defendants).
Opinion
ELGO, J. The plaintiff, Robert Manere, appeals from the judgment of the trial court, rendered after a bench trial, in favor of the defendants, Peter Collins and BAHR, LLC (BAHR). On appeal, the plaintiff claims that the court improperly (1) concluded that BAHR‘s counterclaim stated a claim upon which relief could be granted, (2) applied a six year statute of limitations to BAHR‘s counterclaim, and (3) rejected his application to dissolve BAHR on the ground of oppression pursuant to
The following facts, as found by the trial court or otherwise undisputed, and procedural history are relevant to this appeal. In 2009, the plaintiff and Collins, both graduates of the same high school, reconnected during their thirtieth high school reunion. Between the time after graduation and the reunion, both had pursued professions in the food service and bar
In 2011, the plaintiff and Collins formed BAHR, a Connecticut limited liability company, for the purposes of purchasing and operating the cafe. After forming BAHR, the plaintiff and Collins executed an operating agreement drafted by an attorney who previously had represented the plaintiff in unrelated business matters. The plaintiff and Collins were the sole members of BAHR, and the operating agreement designated both as its managers. Each provided capital contributions and “priority member loans”2 to BAHR. Specifically, Collins provided a $600 capital contribution and a $149,400 priority member loan,3 and the plaintiff provided a $400 capital contribution and a $19,600 priority member loan.4 Due to the disparity in their respective loans, Collins received a 60 percent interest and the plaintiff received a 40 percent interest in BAHR. Thereafter, the plaintiff signed a lease on behalf of BAHR for the property on which the cafe is located and further provided a personal guarantee of BAHR‘s performance under the lease.
In the fall of 2011, the cafe opened under BAHR‘s ownership. Because Collins was living in New York City, where he operated a different establishment, the plaintiff and Collins agreed that the plaintiff would be primarily responsible for operating the cafe and acting as its on-site manager. Prior to its opening, Collins and the plaintiff agreed that, as compensation for acting as the cafe‘s manager, the plaintiff would be paid a weekly salary of $600. The plaintiff‘s responsibilities included hiring and paying staff, obtaining stock items such as food and liquor, and accounting for revenue and expenses. Shortly after the cafe opened, the plaintiff and Collins agreed to raise the plaintiff‘s weekly salary to $1000 per week.5 Unbeknownst to Collins, the plaintiff was also using BAHR funds to pay for personal expenses such as health insurance, car payments, and gas.
In October, 2012, Hurricane Sandy devastated the Fairfield county area and severely damaged the cafe premises. In addition to the cafe, a small house located on
In 2015, Collins and his family moved to Connecticut and began to spend more time at the cafe. Due to his more active role in the cafe, Collins began to receive a weekly salary of $1000. The plaintiff thereafter reduced his weekly salary from $1500 to $1000. Later that same year, the plaintiff, Collins, and two associates of Collins opened a restaurant called the Georgetown Saloon. BAHR was not involved in this new venture. Instead, a separate limited liability company was formed for the purposes of owning and operating the Georgetown Saloon. Like his role at the cafe, the plaintiff was tasked with operating the Georgetown Saloon and acting as its on-site manager. Unlike the cafe, however, the Georgetown Saloon proved unsuccessful and closed in July, 2016. Although he did not blame the plaintiff for the Georgetown Saloon‘s failure, Collins became concerned with the plaintiff‘s style of management based on the manner in which the plaintiff conducted himself as its manager. As a result, Collins began to increasingly question the plaintiff about cafe affairs, including its finances and daily receipts.
Dissatisfied with the information he was receiving from the plaintiff, Collins began to ask cafe employees to text or e-mail him daily revenue numbers. When Collins asked the plaintiff to provide him with BAHR‘s business records—all of which had been relocated from the on-site office to the plaintiff‘s home after Hurricane Sandy—he received partial information which was often either incomplete or unresponsive. The piecemeal information provided by the plaintiff led Collins to perform his own inquiry into BAHR‘s records. With his wife, Collins obtained records of cash receipts and payments, bank records, tax returns, and other information in an attempt to reconstruct BAHR‘s financial history. Complicating this process was the fact that Collins initially did not have access to the payroll system and, due to the plaintiff‘s disorganized storage or outright destruction of BAHR‘s financial records, had only part of BAHR‘s financial records available to him. The trial court found that Collins’ reconstruction of the cafe‘s financial history revealed that the plaintiff had misappropriated approximately $190,000 of BAHR funds. In March, 2017, Collins unilaterally amended the operating agreement.6
In the amended operating agreement, the plaintiff was terminated as a manager of BAHR. In addition, the plaintiff was removed as the liquor permittee
After taking over management of the cafe, Collins brought the building into compliance with fire safety standards. He further ensured that the cafe‘s staff were put on a payroll system for the purpose of placing the cafe in compliance with state and federal wage and hour laws. As a result, the cafe‘s revenue increased by 25 percent.
Since 2017, BAHR has not made any distributions to Collins or the plaintiff. Additionally, the plaintiff has not been provided with any information concerning BAHR‘s finances pursuant to the operating agreement, other than the information he received through the discovery process of the underlying litigation. Although Collins continued to receive a weekly salary of $1000 as of the time of the trial, no other payments have been made by BAHR to either Collins or the plaintiff.
In response to the measures taken by Collins, the plaintiff instituted the underlying action against Collins and BAHR, asserting a series of claims against both defendants including, inter alia, breach of contract by both defendants, breach of fiduciary duty by Collins, and oppression by Collins. The plaintiff also sought an accounting of BAHR‘s finances. The plaintiff further requested the dissolution of BAHR pursuant to
I
The plaintiff first challenges the propriety of the court‘s judgment in favor of BAHR on its counterclaim. According to the plaintiff, the counterclaim alleged a claim of misappropriation, a cause of action that is not recognized under Connecticut law. The plaintiff therefore argues that, based on its responsive pleading, BAHR did not state a claim upon which relief
“[I]t is well settled that the [t]he failure to include a necessary allegation in a complaint precludes a recovery by the plaintiff under the complaint . . . . As a result, [i]t is incumbent on a plaintiff to allege some recognizable cause of action in his complaint. . . . Yet [w]e previously have recognized [that] . . . if the complaint puts the defendant on notice of the relevant claims, then a plaintiff‘s failure specifically to allege a particular fact or issue is not fatal to his claims unless it results in prejudice to the defendant.” (Internal quotation marks omitted.) Sharp Electronics Corp. v. Solaire Development, LLC, 156 Conn. App. 17, 34, 111 A.3d 533 (2015). “The general rule is that [a] counterclaim should be pleaded in exactly the same way the claim would be pleaded in the complaint in an independent action.” (Internal quotation marks omitted.) 98 Lords Highway, LLC v. One Hundred Lords Highway, LLC, 138 Conn. App. 776, 796, 54 A.3d 232 (2012).
“The interpretation of pleadings is always a question of law for the court . . . . Our review of the trial court‘s interpretation of the pleadings therefore is plenary.” (Internal quotation marks omitted.) Grenier v. Commissioner of Transportation, 306 Conn. 523, 536, 51 A.3d 367 (2012). “In exercising that review, [w]e take the facts to be those alleged in the complaint . . . and we construe the complaint in the manner most favorable to sustaining its legal sufficiency. . . . Moreover, we are mindful that pleadings must be construed broadly and realistically, rather than narrowly and technically.” (Citation omitted; internal quotation marks omitted.) Sharp Electronics Corp. v. Solaire Development, LLC, supra, 156 Conn. App. 34. “[I]n determining the nature of a pleading
Upon our review, we are convinced that BAHR, in its counterclaim, properly alleged a claim of breach of fiduciary duty. Contrary to the plaintiff‘s argument, it is clear from the operative pleadings that BAHR pleaded facts which sufficiently set forth that cause of action.
“The elements which must be proved to support a conclusion of breach of fiduciary duty are: [1] [t]hat a fiduciary relationship existed which gave rise to . . . a duty of loyalty . . . an obligation . . . to act in the best interests of the plaintiff, and . . . an obligation . . . to act in good faith in any matter relating to the plaintiff; [2] [t]hat the defendant advanced his or her own interests to the detriment of the plaintiff; [3] [t]hat the plaintiff sustained damages; [and] [4] [t]hat the damages were proximately caused by the fiduciary‘s breach of his or her financial duty.” (Internal quotation marks omitted.) Chioffi v. Martin, 181 Conn. App. 111, 138, 186 A.3d 15 (2018).
Consistent with these elements, BAHR alleged, in relevant part, the following facts in its counterclaim: (1) the plaintiff held 40 percent of BAHR‘s membership interests; (2) until March, 2017, the plaintiff was entrusted with BAHR‘s day-to-day operations and control; (3) in March, 2017, Collins learned that the plaintiff had been misappropriating BAHR‘s assets and income by using such assets and income for his own personal benefit; (4) the plaintiff did not have, nor did he seek, permission to use BAHR‘s assets and income for his own personal benefit; (5) “as a member and manager of BAHR, [the] plaintiff owed the company the duty to act in good faith towards the company with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner [he] reasonably believed was in BAHR‘s best interest, not his own personal interests“; (6) “[the] [p]laintiff breached the duties he owed to BAHR by misappropriating and stealing its funds“; and (7) “on account of [the] plaintiff‘s conduct, BAHR is damaged.”
On the basis of our reading of BAHR‘s pleading, BAHR alleged (1) that the plaintiff owed a fiduciary duty to BAHR, namely, a duty to act in good faith toward the company and the company‘s best interests as opposed to his own, (2) the plaintiff breached that duty by acting in a manner that would personally benefit himself in the form of using BAHR funds for his own interests at the expense of the interests of BAHR, (3) BAHR sustained damages, and (4) BAHR‘s damages were a result of the plaintiff‘s conduct. Viewing those allegations in the light most favorable to sustaining its legal sufficiency; see Sharp Electronics Corp. v. Solaire Development, LLC, supra, 156 Conn. App. 34; we conclude that BAHR‘s counterclaim sounds in breach of fiduciary duty.
We recognize that a party “must allege breach of
fiduciary duty with specificity before liability can attach on such grounds.” Pergament v. Green, 32 Conn. App. 644, 651, 630 A.2d 615, cert. denied, 228 Conn. 903, 634 A.2d 296 (1993). There is no dispute that BAHR‘s counterclaim does not explicitly allege the phrase “breach of fiduciary duty.” Notwithstanding the absence of that phrase in BAHR‘s pleadings, “[t]here can . . . be no serious claim of surprise or prejudice by the [defendants] for the lack of these terms.” Morton v. Syriac, 196 Conn. App. 183, 192, 229 A.3d 1129, cert. denied, 335 Conn 915, 229 A.3d 1045 (2020). Indeed, nearly all of
In addition, we reject the plaintiff‘s argument that BAHR‘s allegations were an attempt to state a cause of action for “misappropriation” based on its use of that term in its pleadings to describe the plaintiff‘s conduct. As the plaintiff correctly notes, our law does not recognize misappropriation as a stand-alone tort claim. But see
tion—that the plaintiff “misappropriated” funds—is simply a recitation of facts describing conduct in support of its claim of breach of fiduciary duty. Indeed, this court has also used the term “misappropriation” to summarize factual allegations that a defendant breached his fiduciary duty by using company funds to personally benefit himself. See Papallo v. Lefebvre, 172 Conn. App. 746, 755, 161 A.3d 603 (2017) (in describing claim of breach of fiduciary duty, noting that plaintiff alleged in operative complaint “that the defendant misappropriated LLC revenues and engaged in fraudulent conduct by inaccurately reporting those revenues and expenses“). In characterizing the plaintiff‘s conduct as a misappropriation of company assets, BAHR sufficiently described “the acts or omissions it believed would support a determination of liability under [its counterclaim].” Commerce Park Associates, LLC v. Robbins, 193 Conn. App. 697, 734, 220 A.3d 86 (2019), cert. denied sub nom. Robbins Eye Center, P.C. v. Commerce Park Associates, LLC, 334 Conn. 912, 221 A.3d 447 (2020), and cert. denied sub nom. Robbins Eye Center, P.C. v. Commerce Park Associates, LLC, 334 Conn. 912, 221 A.3d 448 (2020).
On the basis of the foregoing, we find no merit in the plaintiff‘s argument that BAHR‘s counterclaim is legally insufficient for a failure to state a claim upon which relief can be granted. To the contrary, BAHR sufficiently alleged facts that state a claim for breach of fiduciary duty. Accordingly, we reject the plaintiff‘s claim.
II
The plaintiff next claims that the court improperly applied a six year statute of limitations to BAHR‘s counterclaim pursuant to
A
Before addressing the plaintiff‘s claim, we note that the parties dispute whether BAHR‘s counterclaim sounds in tort or an accounting. Because each of these causes of action is governed by a different statute of limitations, resolving the plaintiff‘s claim necessarily involves an interpretation of the pleadings, our review of which is plenary. See Grenier v. Commissioner of Transportation, supra, 306 Conn. 536. We conclude that, although BAHR has sufficiently alleged and proven a claim of breach of fiduciary duty, BAHR‘s counterclaim does not set forth a cause of action for an
accounting.
“An accounting is defined as an adjustment of the accounts of the parties and a rendering of a judgment for the balance ascertained to be due. . . . Courts of equity have original jurisdiction to state and settle accounts, or to compel an accounting, where a fiduciary relationship exists between the parties and the defendant has a duty to render an account. . . . In an equitable proceeding, the trial court may examine all relevant factors to ensure that complete justice is done. . . . The determination of what equity requires in a particular case, the balancing of equities, is [therefore] a matter for discretion of the trial court.” (Citations omitted; internal quotation marks omitted.) Papallo v. Lefebvre, supra, 172 Conn. App. 762–63. “An accounting is not available in an action where the amount due is readily ascertainable. Equity will ordinarily take jurisdiction to settle the account if the facts create a reasonable doubt whether adequate relief may be obtained at law.” (Internal quotation marks omitted.) Mankert v. Elmatco Products, Inc., 84 Conn. App. 456, 460, 854 A.2d 766, cert. denied, 271 Conn. 925, 859 A.2d 580 (2004).
“The general rule is that a prior demand by the plaintiff for an accounting and a refusal by the defendant to
As this court explained in Zuch v. Connecticut Bank & Trust Co., 5 Conn. App. 457, 461–62, 500 A.2d 565 (1985), “[w]hile there are cases which hold otherwise, the vast weight of authority in this jurisdiction requires the allegation of a demand and refusal before a party may successfully invoke the remedy of an accounting. Such a conclusion is in accord . . . with the traditional understanding of an accounting as a remedy . . . . Furthermore, the requirement of such an allegation, as a practical matter, may prevent useless litigation.” (Citations omitted.)
We believe that the legal principles espoused by this court in Zuch are dispositive. Absent from BAHR‘s counterclaim are any allegations that it either made a demand of the plaintiff to furnish an accounting or that the plaintiff refused its demand. Instead, BAHR merely requested, in its prayer for relief, “[a]n accounting of all BAHR funds [the] plaintiff misappropriated.” Although
BAHR may have requested an accounting in its prayer for relief, doing so does not convert that request into an actionable claim for an accounting in the absence of the necessary allegations. See Discover Bank v. Hill, 150 Conn. App. 164, 172–73 n.8, 93 A.3d 159 (1914) (“[t]he prayer for relief does not constitute a cause of action“), cert. denied, 312 Conn. 924, 94 A.3d 1203 (2014).
In addition, it is clear from the record that all of BAHR‘s financial information was available to it by the time it filed its counterclaim, as evidenced by its calculation of the specific amount of money that the plaintiff had misappropriated. As conceded by Collins at trial, he was able to reconstruct BAHR‘s finances both through the documents provided by the plaintiff and the records obtained by banking institutions.15 BAHR received further accounting information from the plaintiff through discovery. A claim for an accounting was, therefore, not available to BAHR because it could ascertain the amount of money that it was due from the plaintiff. See Papallo v. Lefebvre, supra, 172 Conn. App. 763 (“[a]n accounting is not available in an action where the amount due is readily ascertainable” (internal quotation marks omitted)).
Upon our plenary review of the pleadings, we reject BAHR‘s argument that its counterclaim sets forth an action for an accounting. BAHR properly alleged, and sufficiently proved, that the plaintiff breached a fiduciary duty. BAHR did not, however, properly allege that the plaintiff‘s breach of that duty necessitated an accounting. BAHR‘s failure to allege any facts that it both demanded an accounting from the plaintiff and that the
B
Having determined that BAHR‘s counterclaim sets forth a claim for breach of fiduciary duty, we now turn to the plaintiff‘s claim that the court improperly applied a six year statute of limitations. We agree.
We begin by setting forth the applicable standard of review. “The determination of which, if any, statute of limitations applies to a given action is a question of law over which our review is plenary.” Government Employees Ins. Co. v. Barros, 184 Conn. App. 395, 398, 195 A.3d 431 (2018).
In its memorandum of decision, the court rejected the plaintiff‘s special defense that BAHR‘s counterclaim was barred by the three year statute of limitations provided under
ceny under the first count of the counterclaim; see footnote 9 of this opinion; “the [three year] [statute of] limitations for an action based on a tort, [
Our courts have consistently held that because breach of fiduciary duty is an action that sounds in tort, such claims are governed by a three year statute of limitations pursuant to
III
The plaintiff next claims that the court improperly rejected his application for a dissolution of BAHR pursuant to
We begin by setting forth the legal principles governing our review of this claim. On appeal, the plaintiff challenges the legal standard employed by the trial court. As such, “the trial court‘s determination of the proper legal standard in any given case is a question of law subject to our plenary review.” Fish v. Fish, 285 Conn. 24, 37, 939 A.2d 1040 (2008).
A
pany is located, of an order dissolving the company on the grounds that the managers or those members in control of the company: (A) Have acted, are acting or will act in a manner that is illegal or fraudulent; or (B) have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the applicant . . . .”
Thus, at the outset, we note that the plaintiff‘s claim necessarily involves interpreting and constructing a statute. “When construing a statute, [o]ur fundamental objective is to ascertain and give effect to the apparent intent of the legislature. . . . In seeking to determine that meaning,
1
Turning to the statute at issue in the present case, we note that the Connecticut Uniform Limited Liability Company Act (CULLCA),
Because the text of the CULLCA is not plain, we now turn to other materials in an effort to ascertain the legislature‘s intent. See State v. Pond, 315 Conn. 451, 466–67, 108 A.3d 1083 (2015). Our research yields no definition of oppression in other related statutes. See
of the CULLCA has also afforded little guidance. “Because the statute and its predecessors
2
To begin our examination of extratextual sources, we believe it prudent to provide a review of the history of the oppression doctrine. It is important to emphasize that, in the context of corporation law, “oppression” is a strictly technical term. Black‘s Law Dictionary (11th Ed. 2019), p. 1319, defines “oppression” in this context as the “[u]nfair treatment of minority shareholders ([especially] in a close corporation) by the directors or those in control of the corporation.” The history of the oppression doctrine reflects this specialized definition. As the modern corporate world began to take form during the nineteenth century, courts recognized that a pure majority rule for evaluating majority shareholder behavior “would lead to unfair results for minority shareholders” and, as a result, “used the trust metaphor to impose on directors a fiduciary duty to serve all of the shareholders of the corporation, not just a select group.” (Emphasis in original.) D. Smith, “The Shareholder Primacy Norm,” 23 J. Corp. L. 277, 310 (1998).
By the late nineteenth and early twentieth centuries, courts developed the oppression doctrine to reach conduct that the doctrines of ultra vires, fraud, and illegality did not address. See id., 310–22 (discussing history and development of oppression doctrine). Indeed, courts remained reluctant to label majority shareholder conduct as fraudulent or to extend established legal doctrines to encompass such conduct, finding these “traditional grounds for imposing liability . . . too restrictive.” Id., 314, 319. Consequentially, courts “continued to redress the concerns of minority shareholders, increasingly under the rubric of minority oppression.” Id., 314. Well into the twentieth century, oppression was cited as a ground for dissolution in the Illinois and Pennsylvania corporations acts in 1933, the Model Business Corporation Act of 1946, and the English Companies Act of 1948. See R. Thompson, “The Shareholder‘s Cause of Action for Oppression,” 48 Bus. Law. 699, 709 (1993). Although the doctrine of oppression was founded at common law; see D. Smith, supra, 23 J. Corp. 320–21; it eventually developed into “the principal vehicle used by legislatures, courts, and litigants to address the particular needs of close corporations.” R. Thompson, supra, 708.
3
As we have previously discussed, the legislative history does little to inform us of the legislature‘s intended definition of oppression under the act. A summary of the CULLCA notes that “the bill requires considering the need to promote uniformity with other states regarding LLC law when applying and construing its provisions . . . .” Office of Legislative Research, Bill Analysis, Substitute House Bill No. 5259, An Act Concerning Adoption of the Connecticut Uniform Limited Liability Company Act (April 28, 2016); see
As stated therein, the commentary explains that the RULLCA “does not define ‘oppressively,’ but ‘oppression’ ‘is a concept [well grounded] in the law of close corporations.20 . . . In many jurisdictions the concept equates to or at least includes the frustration of the plaintiff‘s reasonable expectations.‘” (Citations omitted; footnote added.) See Rev. Unif. Limited Liability Company Act of 2006 (2013) § 701, comment, supra, 6C U.L.A. 135. Consistent with the RULLCA commentary‘s definition, in R.D. Clark & Sons, Inc. v. Clark, 194 Conn. App. 690, 706–707, 222 A.3d 515 (2019), this court recently defined “oppression,” as used in
expectations that, objectively viewed, were both reasonable under the circumstances and were central to the petitioner‘s decision to join the firm.” (Internal quotation marks omitted.)
We note, however, that the broad definition of oppression, as stated in Clark, presents a conundrum that other jurisdictions have encountered. Both courts and scholars have underlined two competing standards that have been employed for analyzing whether conduct rises to the level of oppression: the “fair dealings” standard and the “reasonable expectations” standard. See, e.g., Ritchie v. Rupe, 443 S.W.3d 856, 865 (Tex. 2014); Scott v. Trans-System, Inc., 148 Wn. 2d 701, 710–11, 64 P.3d 1 (2003) (en banc); cf. Baur v. Baur Farms, Inc., 832 N.W.2d 663, 670–71 (Iowa 2013); F. O‘Neal & R. Thompson, Oppression of Minority Shareholders and LLC Members (Rev. 2d Ed. 2011) § 7:11, pp. 7-113 through 7-117; see generally D. Moll, “Shareholder Oppression In Close Corporations: The Unanswered Question of Perspective,” 53 Vand. L. Rev. 749 (2000) (discussing competing standards used for oppression doctrine).
Under the “fair dealings” standard, oppression occurs when the conduct complained of is “burdensome, harsh and wrongful” and evinces either “a lack of probity and fair dealing in the affairs of a company to the prejudice of some of its members” or is “a visible departure from the standards of fair dealing, and a violation of fair play on which every shareholder who entrusts his money to a company is entitled to rely.” (Internal quotation marks omitted.) Ritchie v. Rupe, supra, 443 S.W.3d 865. This test has been described as a focus “on preserving the majority‘s discretion to make decisions in furtherance of a legitimate business purpose—a standard that is typically satisfied when majority actions benefit the corporation.” D. Moll, supra, 53 Vand. L. Rev. 762. Some courts employing the “fair dealings” standard have, however, cautioned that even though a majority shareholder‘s conduct was in furtherance of a legitimate business purpose, such conduct may be oppressive unless the minority shareholder “cannot demonstrate [that] a less harmful alternative” was available. Daniels v. Thomas, Dean & Hoskins, Inc., 246 Mont. 125, 137–38, 804 P.2d 359 (1990).
In contrast, the “reasonable expectations” standard analyzes the conduct at issue from the perspective of the minority shareholder. As one Connecticut Superior Court decision aptly stated, oppression under this test “should be deemed to arise only when the majority conduct substantially defeats expectations that, objectively viewed, were both reasonable under the circumstances and were central to the petitioner‘s decision to join the venture.” (Internal quotation marks omitted.) Booth v. Waltz, Superior Court, judicial district of Hartford, Docket No. CV-10-6011749-S (December 14, 2012);
see id. (defining oppression as that term appears in Connecticut Business Corporation Act,
No court has had the occasion to directly address the issue of which test applies to claims of oppression pursuant to the RULLCA. We are convinced that, under the CULLCA, the “reasonable expectations” test is the proper standard to be applied for analyzing claims of oppression under
We further note that the majority of courts in other jurisdictions have embraced the “reasonable expectations” standard, or some iteration thereof, for claims of oppression in the close corporation context. See, e.g., Baur v. Baur Farms, Inc., supra, 832 N.W.2d 673; Bontempo v. Lare, 444 Md. 344, 365–66, 119 A.3d 791 (2015); Gunderson v. Alliance of Computer Professionals, Inc., 628 N.W.2d 173, 186 (Minn. App. 2001), appeal dismissed, (Minn. August 17, 2001); Brenner v. Berkowitz, 134 N.J. 488, 506–507, 634 A.2d 1019 (1993); Matter of Kemp & Beatley, Inc., 64 N.Y.2d 63, 73, 473 N.E.2d
1173, 484 N.Y.S.2d 799 (1984); Meiselman v. Meiselman, 309 N.C. 279, 290, 307 S.E.2d 551 (1983); see also Ritchie v. Rupe, supra, 443 S.W.3d 901 (Guzman, J., dissenting) (collecting cases); F. O‘Neal & R. Thompson, Oppression of Minority Shareholders and LLC Members (2d Rev. 2011) § 7:12, pp. 7-113 through 7-117 (collecting cases and noting that Michigan appellate court‘s rejection of “reasonable expectations” standard was “out of step with interpretations in the rest of the country in this area over the last three decades“).
Like minority shareholders of a close corporation; see footnote 20 of this opinion; these unique features of an LLC therefore place a minority member in a special position, unlike his or her counterparts in a publicly traded company. As the Supreme Court of New Jersey explained in interpreting a statute with similar language, minority members of an LLC face a “unique vulnerability” for a number of reasons: “First, because the majority has a controlling interest, it has the power to dictate to the minority the manner in which the corporation is run. . . . Second, shareholders in close corporations frequently consist of family members or friends and once the personal relationship is destroyed, the company deteriorates. . . . Third, unlike shareholders in larger corporations, minority shareholders in a close corporation cannot readily sell their shares when they become dissatisfied with the management of the corporation. . . . Indeed, the discord in the corporation makes the minority stock even more difficult to sell.” (Citations omitted; internal quotation marks omitted.) Brenner v. Berkowitz, supra, 134 N.J. 505. Thus, “[f]ocusing on the harm to the minority shareholder reflects a departure from the traditional focus, which was solely on the wrongdoing by those in control, and reflects the current trend of recognizing the special nature of close corporations.” Id., 509.
Given that special nature and the unique position that a minority member holds, to focus on whether a majority member‘s conduct served a “legitimate business purpose” would, in our view, frustrate the protections that the oppression doctrine was intended to afford. See F. O‘Neal & R. Thompson, Oppression of Minority Shareholders and LLC Members (Rev. 2d Ed. 2011) § 7:12, pp. 7-116 through 7-118. Thus, even when a majority member‘s conduct serves a legitimate business purpose that directly benefits the LLC, that conduct may be in direct contravention to a minority member‘s reasons for committing to the venture or the expectations that developed over time. Those reasons may have consisted of employment, a share of company earnings, or meaningful participation in its operations. See Matter of Kemp & Beatley, Inc., supra, N.Y.2d 72–73; see also Gunderson v. Alliance of Computer Professionals, Inc., supra, 628 N.W.2d 189. The majority member‘s reasons for excluding a minority member from any of those expectations may benefit the LLC and could very well have not been achieved by less harmful means. In such circumstances, however, the minority member is left with “neither
Our conclusion is further buttressed by the fact that courts employing the “reasonable expectations” standard have looked to factors that closely track the guidance provided by the commentary of § 701 of the ULLCA. For instance, in assessing a minority member‘s reasonable expectations, courts have noted the relevance of the operating agreements of LLCs (or other written and oral agreements); see Gunderson v. Alliance of Computer Professionals, Inc., supra, 628 N.W.2d 185; whether the expectations were “substantial“; see Meiselman v. Meiselman, supra, 309 N.C. 298–99; whether those expectations were both known to and consented by the other members; see id.; whether the expectations were consistent with the reasonable expectations of all the members, including expectations pertaining to the plaintiff‘s conduct; see Gimpel v.
Bolstein, 125 Misc. 2d 45, 52, 477 N.Y.S.2d 1014 (1984); and whether the expectations were otherwise reasonable under the circumstances. See Harris v. Testar, Inc., 243 N.C. App. 33, 39, 777 S.E.2d 776 (2015).
In light of the foregoing, we are persuaded that a proper analysis of an oppression claim requires the court to assess that claim under the “reasonable expectations” standard. Accordingly, we conclude that oppression, under the
3
Having concluded that “oppression” under
There are a number of reasonable expectations that may drive a minority member to join an LLC by committing capital or expertise. “It is widely understood that, in addition to supplying capital to a contemplated or ongoing enterprise and expecting a fair and equal return, parties comprising the ownership of a close corporation may expect to be actively involved in its management and operation . . . .” (Citation omitted.) Matter of Kemp & Beatley, Inc., supra, 64 N.Y.2d 71. “In fact, because of the unique characteristics of close corporations, employment is often a vital component of a [close corporation] [member‘s] return on investment and a principal source of income.” Gunderson v. Alliance of Computer Professionals, Inc., supra, 628 N.W.2d 189; see Brenner v. Berkowitz, supra, 134 N.J. 509.
Other reasonable expectations have included “possible entitlement to dividends, voting at shareholders’ meetings, and access to corporate records.” Gimpel v. Bolstein, supra, 125 Misc. 2d 53; see also State ex rel. Costelo v. Middlesex Banking Co., 87 Conn. 483, 484–85, 88 A. 861 (1913) (“[t]he right of inspection of the books and records of a corporation at reasonable times and for proper purposes is a common-law privilege incident to the ownership of shares in a corporation“); cf.
Notwithstanding these examples, the ULLCA factors also indicate—as do other courts—that the reasonableness of a member‘s expectation at the inception of an LLC may prove unreasonable over time and under particular circumstances.22 See Meiselman v. Meiselman, supra, 309 N.C. 298 (noting that reasonable expectations can be altered over time based on conduct of shareholders). For example, a minority member may reasonably expect to be employed by the LLC when entering into the venture with other members. That expectation, however, becomes patently unreasonable when,
In providing these examples, we must emphasize that whether a minority member‘s expectation is both reasonable and was defeated “will depend on the circumstances in the individual case.” Matter of Kemp & Beatley, Inc., supra, 64 N.Y.2d 73. Consequentially, making that determination requires the court to engage in a fact intensive inquiry. See Gunderson v. Alliance of Computer Professionals, Inc., supra, 628 N.W.2d 186 (noting that “whether a shareholder‘s reasonable expectations have been frustrated is essentially a fact issue“).
4
In addition to a finding of oppression, a court must determine, pursuant to
Nevertheless, “[i]t is a basic tenet of statutory construction that the legislature [does] not intend to enact meaningless provisions. . . . Because [e]very word and phrase [of a statute] is presumed to have meaning . . . [a statute] must be construed, if possible, such that no clause, sentence or world shall be superfluous, void or insignificant.” (Internal quotation marks omitted.) Lopa v. Brinker International, Inc., 296 Conn. 426, 433, 994 A.2d 1265 (2010). In recognition of that basic principle, we conclude that the language of
Moreover, the use of the disjunctive “or” in
B
Turning to the facts of the present case, we conclude that the court applied an incorrect legal standard for assessing a claim alleging “oppression” pursuant to
In its memorandum of decision, the court made a number of factual findings to support its judgment in favor of Collins and BAHR with respect to the plaintiff‘s claim under
The court further found that Collins’ failure to provide the plaintiff with financial documents, as required by the operating
The court also rejected the plaintiff‘s oppression argument concerning Collins’ termination of the plaintiff‘s son as an employee of the cafe and concerning the filing of a report with the Secretary of the State which omitted the plaintiff as a member of BAHR. The court reasoned that the plaintiff‘s son was terminated as an at-will employee because Collins believed that the plaintiff‘s son had provided incorrect information about the cafe‘s revenue. It further noted that the failure to file an accurate report with the Secretary of the State did “not appear to have been done with any intent to harm [the plaintiff]. This omission can be easily remedied. No harm has been shown.”
Thus, the court concluded that the plaintiff failed to show that BAHR “should be dissolved under the provisions of [
To begin, the court‘s memorandum of decision reflects that it did not employ the correct legal standard for determining whether the defendants’ conduct was oppressive.24 This, of course, is understandable because no appellate court in this state has interpreted either the oppression doctrine or the term “oppression” as it appears in
Notwithstanding the court‘s use of an incorrect legal standard, we believe that a new trial on the particular issue of the plaintiff‘s termination from employment is unwarranted. See McDermott v. State, supra, 316 Conn. 611. That is so because the reasonable expectations standard applied to the evidence adduced at trial would not change the court‘s factual findings or conclusion; specifically, the plaintiff‘s misappropriation of BAHR‘s funds would render any expectation of continuing employment by BAHR or the cafe unreasonable. See Gunderson v. Alliance of Computer Professionals, Inc., supra, 628 N.W.2d 192. Upon our review of the record, the evidence strongly supports the court‘s conclusion that Collins’ assumption of control over the management of the cafe “was not oppressive . . . in light of [the plaintiff‘s] unfair dealing.” In addition, the record supports the court‘s conclusion that Collins had authority to do so pursuant to his majority stake in BAHR. The plaintiff may very well have reasonably expected to be employed by the cafe as its manager at the inception of BAHR, to remain as a manager of BAHR, and to have unobstructed access to both the cafe‘s premises and its bank accounts. Although those expectations may have, at one point, been reasonable, “it must be recognized that ‘reasonable expectations’ do not run only one way. To the extent that [the plaintiff] may have entertained ‘reasonable expectations’ of profit . . . the other shareholders also entertained ‘reasonable expectations’ of fidelity and honesty from him. All such expectations were shattered when [the plaintiff] stole from the corporation. His own acts broke all bargains. . . . Since then, the only expectations he could reasonably entertain were those of a discovered thief: ostracism and prosecution.” (Citation omitted.) Gimpel v. Bolstein, supra, 125 Misc. 2d 52.
To this end, we further note that, although it was the plaintiff‘s own misconduct which prompted the complained of acts he has alleged as oppressive, that misconduct does not obviate the need for the court to consider whether he continued to have reasonable expectations as a minority member. See Gimpel v. Bolstein, supra, 125 Misc. 2d 53 (although minority shareholder embezzled company funds, “it does not necessarily follow that the majority shareholders may treat him as shabbily as they please“). While the plaintiff cannot establish oppression based on his termination of employment—or based on his being prevented from unfettered access to the cafe or BAHR‘s bank accounts—we emphasize that the plaintiff cannot be marginalized to the extent that he would be precluded from realizing what reasonable expectation he still maintains as a minority member.26 See id., 55 (“While [the minority shareholder‘s] past misdeeds
Should the court find that the other acts taken by Collins were oppressive, the plaintiff‘s prior malfeasance should not bar his pursuit of an appropriate remedy under
The judgment is reversed with respect to the plaintiff‘s claim for a dissolution of BAHR on the ground of oppression pursuant to
In this opinion the other judges concurred.
Notes
Furthermore, we agree with the New York Court of Appeals that “[i]t would be contrary to the remedial purpose [of involuntary dissolution] to permit its use by minority shareholders as merely a coercive tool . . . .” (Citations omitted.) Matter of Kemp & Beatley, Inc., supra, 64 N.Y.2d 74. Thus, a plaintiff is not entitled to seek dissolution under
As we previously noted, the plaintiff does not challenge the court‘s conclusion that Collins had authority to unilaterally amend the operative agreement by virtue of his status as a 60 percent stakeholder in BAHR. See footnote 6 of this opinion.
In fact, during trial, the court expressly disallowed any testimony about the plaintiff‘s expectations upon forming BAHR with Collins and sustained an objection by the defendants on the basis that such testimony was irrelevant.
We further believe that the court‘s finding that the plaintiff failed to show that he was harmed does not appear to take into account the particular harms that arise from oppressive conduct relative to the plaintiff‘s status as a minority member. For instance, the court concluded that the plaintiff was not harmed by the defendants’ failure to provide him with BAHR‘s financial documents because they were produced during the discovery process. This conclusion indicates that the court not only failed to consider the unique harms suffered by the plaintiff as a minority member, but it additionally ignored the fact that the plaintiff alleged these harms as a ground for oppressive conduct. See Brenner v. Berkowitz, supra, 134 N.J. 507. It was not until litigation proceedings began that the plaintiff received the company documents he believed he was entitled to. It would contravene the purposes of
Given the atypical expectations of a minority member in an LLC, it is implausible that such a member would have committed capital to a venture in the knowledge that he or she could be entirely precluded from realizing any return on his or her investment. As one scholar on this issue has commented, a minority shareholder simply does not bargain for such a potentiality: “[I]t seems likely that minority shareholders would have refused to invest in the venture if the majority shareholder had insisted upon the retention of his freeze-out discretion. In other words, to appease the minority shareholders and to induce them to commit capital to the business, the majority shareholder would likely have had to promise that his freeze-out discretion would not be utilized.” D. Moll, supra, 53 Vand. L. Rev. 799–800.
We emphasize that dissolution is not the sole remedy for oppression of a minority member. In fact,
In Bontempo v. Lare, supra, 444 Md. 368–69, the Court of Appeals of Maryland adopted a nonexhaustive list of alternative remedies to dissolution for oppressive conduct that a court has at its disposal:
“(a) The entry of an order requiring dissolution of the corporation at a specified future date, to become effective only in the event that the stockholders fail to resolve their differences prior to that date;
“(b) The appointment of a receiver, not for the purposes of dissolution, but to continue the operation of the corporation for the benefit of all the stockholders, both majority and minority, until differences are resolved or ‘oppressive’ conduct ceases;
“(c) The appointment of a ‘special fiscal agent’ to report to the court relating to the continued operation of the corporation, as a protection to its minority stockholders, and the retention of jurisdiction of the case by the court for that purpose;
“(d) The retention of jurisdiction of the case by the court for the protection of the minority stockholders without appointment of a receiver or ‘special fiscal agent‘;
“(e) The ordering of an accounting by the majority in control of the corporation for funds alleged to have been misappropriated;
“(f) The issuance of an injunction to prohibit continuing acts of ‘oppressive’ conduct and which may include the reduction of salaries or bonus payments found to be unjustified or excessive;
“(g) The ordering of affirmative relief by the required declaration of a dividend or a reduction and distribution of capital;
“(h) The ordering of affirmative relief by the entry of an order requiring the corporation or a majority of its stockholders to purchase the stock of the minority stockholders at a price to be determined according to a specified formula or at a price determined by the court to be a fair and reasonable price;
“(i) The ordering of affirmative relief by the entry of an order permitting minority stockholders to purchase additional stock under conditions specified by the court;
“(j) An award of damages to minority stockholders as compensation for any injury suffered by them as the result of ‘oppressive’ conduct by the majority in control of the corporation.”
See also Brenner v. Berkowitz, supra, 134 N.J. 514–15 (providing similar list of nonexclusive equitable remedies, short of dissolution, for oppressed minority shareholder).
We further note that, in fashioning a less drastic remedy, “a court should take into account not only the reasonable expectations of the oppressed minority [member], but also the expectations and interests of others associated with the company.” Bontempo v. Lare, supra, 444 Md. 370. To do so necessarily requires a balancing of factors to make an equitable determination, and, therefore, is left to the sound discretion of the trial court. See T & M Building Co. v. Hastings, 194 Conn. App. 532, 551, 221 A.3d 557 (2019), cert. denied, 334 Conn. 926, 224 A.3d 162 (2020).