244 Conn. 85 | Conn. | 1998
Lead Opinion
Opinion
This appeal involves the interpretation of the term “back end payments” as used in a settlement agreement between the plaintiff investor class
One year later, the United States attorney for the District of Connecticut entered into an agreement (criminal agreement) with Arthur Andersen and Company (Arthur Andersen), an accounting firm under investigation for its involvement with Colonial Realty limited partnerships, and specifically, Colonial Constitution.
A dispute subsequently arose between the plaintiff and the defendant as to whether awards received by individual investors from the Arthur Andersen settlement fund should be considered back end payments within the terms of the settlement agreement. Unable to resolve that dispute, the defendant moved for an order to enforce the settlement agreement and for a declaration that moneys received from the settlement fund were back end payments within the meaning of the settlement agreement. The trial court denied the defendant’s motion based on its conclusion that the funds were not back end payments. The defendant appealed from the judgment of the trial court to the Appellate Court, and we transferred the appeal to this court pursuant to Practice Book § 4023 and General
The defendant claims that the trial court improperly engrafted additional terms onto the definition of back end payments contained in the settlement agreement by requiring that such payments be derived directly from the plaintiffs initiative or affirmative act. We agree.
Paragraph 1.5 of the settlement agreement between the parties defines back end payments as “any recoveries, either by settlement or court award, by any Class Member on any claim against any party, other than the [defendant], arising out of or relating to any Colonial partnerships.” The trial court construed the term “recovery” to mean any recovery “brought by or brought about” by any class member. (Emphasis in original.) Accordingly, the trial court held that the Arthur Andersen funds were not back end payments because “[t]he class members, parties to th[e] agreement, did not bring about, negotiate, or in any way influence the [Arthur] Andersen agreement. That settlement and recovery were not as a result of their efforts or ‘by any class member.’ ” The court reasoned that the class members had “agreed that if they were instrumental in securing additional] funds from parties that they might pursue, then those funds, fruit of their efforts, would be shared with [the defendant] in accordance with th[e] agreement.”
Our resolution of the defendant’s claim is guided by the general principles governing the construction of contracts. “A contract must be construed to effectuate the intent of the parties, which is ‘determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction. . . . [T]he intent of the parties is to be ascertained by a fair and reasonable construction
First, our review of the record leads us to conclude that the trial court’s interpretation is not supported by the contract language. The settlement agreement provides a clear and unambiguous definition of back end payments. Paragraph 1.5 does not contain any language restricting recoveries to only those initiated by class members. Rather, the definition of back end payments is global and expansive, seeking to encompass any recoveries on any claims against any party arising out of any Colonial partnerships. Although the parties may not have envisioned that the class members would be able to avail themselves of funds derived from the efforts of a third party, “a court cannot import into the agreement a different provision nor can the construction of the agreement be changed to vary the express limitations of its terms. Collins v. Sears, Roebuck & Co., 164 Conn. 369, 374, 321 A.2d 444 (1973). ‘We assume no right to add a new term to a contract, though it were clear that had the attention of the parties been called to it in all probability it would have been inserted.’ ”
Our analysis therefore is limited to the plain language of the clause. After careful review of the text of the definition, we conclude that the trial court improperly engrafted additional terms into the construction of the term “recoveries.” Under the clear language of the settlement agreement as applied to the facts of the present case, we conclude that the term “recoveries” is not limited to funds derived solely by the efforts of the class members, and therefore encompasses the Arthur Andersen funds available to the class members. Our construction is consistent with the purpose of the agreement, which is to provide for the sharing of future revenues with the defendant in exchange for the forgiveness of a significant portion of the plaintiffs promissory notes.
Notwithstanding that the Arthur Andersen funds constitute a recovery, the plaintiff argues that these funds are not back end payments for purposes of the settlement agreement because: (1) they are not a recovery by settlement; and (2) they do not derive from a claim by a class member.
Specifically, the plaintiff asserts that: (1) the termination of the criminal investigation of Arthur Andersen by the United States attorney’s office does not constitute a
The Arthur Andersen fund was created as part of the resolution of the investigation conducted by the government into Arthur Andersen’s involvement with two Colonial Realty limited partnerships. By its very terms, the criminal agreement between the government and Arthur Andersen provided for an exchange — the cessation of the investigation in return for the creation of a fund for injured investors. Indeed, paragraph seven of the criminal agreement provides that “[tjhis agreement is entered, on the conditions set forth herein, for the sole and exclusive purpose of settling and ending the Investigation.” We conclude that the funds paid by Arthur Andersen for distribution to particular Colonial Realty investors constitute a settlement within the definition of back end payments.
The plaintiff next claims that the term “settlement” refers to civil rather than criminal settlements. The plaintiff argues that the definition of back end payments contained in paragraph 1.5 of the settlement agreement must be read in conjunction with article eleven, which contains the specific procedure for allocation of these payments between the parties. Paragraph 11.4 does refer to civil actions and provides in relevant part that “to the extent that the [defendant] learns of any civil action brought by Class Members wherein such Class Members are represented by counsel other than counsel signing this Agreement, the [defendant] may supply
Finally, the plaintiff argues that the Arthur Andersen funds are not back end payments because they do not derive from a claim by a class member. The trial court agreed, concluding that “[t]he Govemmentfs] [decision] to share its recovery with all those ‘Colonial’ investors who were injured as a result of the involvement of [Arthur] Andersen with the two Colonial partnerships” did not constitute a claim by class members. (Emphasis in original.)
As support, the plaintiff cites the definition of the term “claim” as “[a] cause of action. . . . Demand for money or property as of right .... Right to payment . . . .’’Black’s Law Dictionary (6th Ed. 1990). The plaintiff claims that this definition does not apply to any conduct involved in its receipt of payment from the Arthur Andersen fund. As the defendant correctly notes, however, the plaintiff necessarily does make a claim because, in order to obtain any share of the Arthur
We conclude that the payments that the plaintiff might receive from the Arthur Andersen fund as a result of submitting a claim form to the fund fall squarely within the definition of back end payments contained in the settlement agreement between the plaintiff and the defendant.
The judgment is reversed and the case is remanded to the trial court with direction to grant the defendant’s motion to enforce the order and judgment of final settlement approval.
In this opinion BORDEN and KATZ, Js., concurred.
The plaintiff, George Pesino, brought and the trial court certified, this case as a class action on behalf of himself and all similarly situated individual investors. Hereafter, we refer to the class members collectively as the plaintiff.
Colonial Realty, a Connecticut generalpartnership consisting of Jonathan Googel, Benjamin Sisti and Frank Shuch as general partners, was a national real estate syndication firm consisting of numerous limited partnerships. The limited partnership of Colonial Constitution purchased the property of Constitution Plaza, which consisted of five office buildings, a pedestrian plaza, and two parking garages in downtown Hartford, and offered it in a public syndication. In 1990, involuntary petitions in bankruptcy were filed against Colonial Realty, Googel and Sisti. As a result, several thousand investors sustained substantial losses. Several individuals involved in Colonial Realty were charged with federal crimes in connection with this illegal Ponzi scheme, including Sisti, Googel and Shuch.
Arthur Andersen prepared financial analyses called private placement memorandum in connection with the public offering by Colonial Constitution of Constitution Plaza.
The criminal agreement provided that it was not to be an acknowledgment or admission by Arthur Andersen that it had acted improperly.
The plaintiff, however, argues that the trial court’s interpretation is a question of fact that is subject to reversal on appeal only if it is clearly erroneous. The plaintiff contends that the trial court was familiar with the agreement because it was the same court that presided over the fairness hearing, approved the class settlement and agreement, and rendered the judgment. Therefore, the plaintiff asserts that when the court was presented with the issue of determining the scope of back end payments, it was able to draw upon its knowledge of the agreement, the parties and the history of the case in determining the intent of the parties. The record, however,
The record is silent on whether Arthur Andersen will seek to offset its damages to the plaintiff in the pending civil litigation by the amount distributed to the plaintiff from the $10.3 million settlement fund.
Dissenting Opinion
with whom BERDON, J., joins, dissenting.
Central to the Colonial Realty fraud was a deliberate and grossly exaggerated valuation of Colonial Realty properties. Based on those figures, the principals of Colonial Realty, Jonathan Googel, Benjamin Sisti and Frank Shuch, promised the plaintiff investors in Colonial Constitution Limited Partnership, in which Colonial Realty was a general partner, a large return on their partnerships in those properties. They also required those investors to sign millions of dollars in notes that were endorsed over to the defendant, which provided financing for Colonial Realty properties. The defendant then gave Colonial Realty loans far exceeding the real value of its properties. Arthur Andersen and Company (Arthur Andersen), an accounting firm, furnished audits supporting Colonial Realty’s extravagant claims. When Colonial Realty collapsed, Googel and Sisti were arrested and prosecuted for federal crimes and Shuch committed suicide after his arrest. The United State’s attorney for the District of Connecticut also began a criminal investigation of Arthur Andersen.
The plaintiff investors, facing the prospect of the defendant seeking to recover on the outstanding notes, brought suit in 1991 against the defendant, alleging that the defendant knowingly participated in the fraud.
In 1996, the United States attorney and Arthur Andersen entered into an agreement (criminal agreement) whereby Arthur Andersen established a restitution fund of $10 million for the benefit of the innocent investors, including the plaintiffs. In exchange, the United States government deferred and later closed its criminal investigation and Arthur Andersen was not prosecuted.
The sole issue before us now is whether $5 million of the $10 million restitution fund created by Arthur Andersen constituted a “back end payment” within the meaning of the settlement agreement. I agree with the majority that “ [a] contract must be construed to effectuate the intent of the parties, which is ‘determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction.’ ” Lawson v. Whitey’s Frame Shop, 241 Conn. 678, 686, 697 A.2d 1137 (1997).
The restitution by Arthur Andersen is not a “recovery” within the meaning of the settlement agreement. The usual meaning of recovery is the “restoration or vindication of a right existing in a person, by the formal judgment or decree of a competent court, at his instance and suit.” Black’s Law Dictionary (6th Ed. 1990). The amount to be received from Arthur Andersen does not result from an action brought by the plaintiff investors.
Furthermore, the purpose of the $10 million restitution fund reveals that it was not a settlement with respect to the plaintiff investors. The criminal agreement was between the United States government and Arthur Andersen and concerned only the criminal prosecution of Arthur Andersen. Prosecution could have resulted only in Arthur Andersen’s punishment with a criminal fine and not in any award to the plaintiff investors or an adjustment of their claims. Nor was the government forced to require the establishment of a restitution fund for certain of Colonial Realty’s investors, the innocent victims of Colonial Realty’s crimes. The government gratuituosly chose to require the large restitution fund to warn business professionals engaged
Nothing arising from the United States government’s charity toward the innocent plaintiff investors, many of whom lost their life savings and faced financial ruin, requires that one half of this restitution fund be paid to the defendant. The defendant entered into the settlement agreement with the plaintiff investors due to allegations that it had participated in the Colonial Realty fraud. The United States government chose not to make the defendant an innocent victim to share in the restitution fund, but nonetheless, the defendant now becomes, by this decision, the largest single beneficiary of Arthur Andersen’s payment to the plaintiff investors. Justice here goes awry to the tune of five million dollars.
I respectfully dissent.
This case was before a panel of five justices of this court, one of whom disqualified himself during oral argument. The parties then entered into a written agreement that the case be decided by the four remaining justices. While the case was under consideration, a fifth justice was added but reargument before the full panel, as required by General Statutes § 51-209, did not occur. We should, I believe, have provided counsel, in these circumstances, with an opportunity to be heard as to the applicability of General Statutes §§ 51-183 (e) and 51-209, and Practice Book § 4111, the provisions of which conflict.
The majority concludes that because the criminal agreement states that it was “entered . . . for the sole and exclusive purpose of settling and ending the Investigation” by the United States government of Arthur Andersen, it then becomes a settlement by the plaintiff investors. There is nothing in the wording of the criminal agreement nor in logic to support this conclusion.
See “Review of Developments in State Securities Regulation,” 51 Bus. Law. 223, 269 (1995), describing a similar arrangement in a massive stock fraud case regarding Prudential Securities, Inc., a large brokerage house.
Arthur Andersen reserved the right to argue for a credit for its restitution. The plaintiffs, however, did not agree to such a credit, and it is far from certain it will be allowed.