Opinion
MMXCV196024088S
06-27-2019
Judy W. ANDERSON v. ESTATE OF Mark W. WEISS et al.
UNPUBLISHED OPINION
OPINION
Domnarski, J.
The defendants, Estate of Mark W. Weiss, Valerie Weiss, and Riverdale Farm Campsite, Inc. (Riverdale) have moved to dismiss this derivative action on the grounds that the plaintiffs Judy W. Anderson, individually and derivatively on behalf of Riverdale, have not made a demand upon the subject corporation, Riverdale, as required by General Statutes § 33-722. The defendants also maintain that the plaintiff, Judy Anderson, a shareholder, lacks standing to bring individual claims against the corporation. The plaintiff maintains that demand has been made, or alternatively argues that a demand would be futile. Anderson also claims that she has standing to bring her individual claims against the corporation.
General Statutes § 33-722 provides: "No shareholder may commence a derivative proceeding until: (1) A written demand has been made upon the corporation to take suitable action; and (2) ninety days have expired from the date delivery of the demand was made unless the shareholder has earlier been notified that the demand has been rejected by the corporation or unless irreparable injury to the corporation would result by waiting for the expiration of the ninety-day period."
In summary, the complaint alleges that the plaintiff, Judy Anderson, owned one of the ten outstanding shares of stock in Riverdale. The other nine shares are owned as follows: Estate of Mark Weiss, 6 shares; Kurt Weiss, one share; Kim W. Anderson, one share; George Townsend, one share. Judy Anderson is the only shareholder plaintiff. The defendants in this action are the Estate of Mark Weiss and his widow, Valerie Weiss. Mark Weiss served as a president and director of Riverdale, now Valerie Weiss serves as president and director. Anderson alleges that Mark and Valerie Weiss breached their fiduciary duty to shareholders and used Riverdale to advance their personal interests to the detriment of the shareholders of Riverdale. Anderson also alleges that Mark Weiss and Valerie Weiss converted and/or stole the assets of Riverdale and/or made unlawful distributions which violated General Statutes § 33-757. Moreover, Anderson alleges that Valerie Weiss has been unjustly enriched from the assets of Riverdale. In her claims for relief, Anderson, individually and derivatively, seeks money damages, punitive damages, the removal of Valerie Weiss as a director, and the appointment of a receiver over Riverdale.
It is undisputed that Anderson has not made a formal demand in accordance with § 33-722. In fact, the plaintiff does not refer to § 33-722 in her complaint. The plaintiff does allege that after the death of Mark Weiss, several shareholders requested, through counsel, an opportunity to inspect corporate records, an inventory, an accounting, information regarding the list of shareholders, and that a corporate meeting be held.
With her opposition brief, Anderson submitted numerous exhibits, which include correspondence between her counsel, and counsel for the estate of Mark Weiss and Riverdale. The topics discussed in the exhibits include the identity of the shareholders of Riverdale, inventory and value of the estate of Mark Weiss, the valuation of Riverdale, and inspection of the corporate records of Riverdale. In an application for extension of time to file claim, submitted to the Saybrook Probate Court, minority shareholders of Riverdale stated that an inspection of the records of Riverdale indicated that Mark Weiss may have wrongfully converted Riverdale’s assets, which would possibly give rise to a claim against the estate.
Based upon the information submitted, the court cannot find that Anderson has made a demand which complies with § 33-722. That section requires that a shareholder make a written demand for the corporation "to take suitable action."
"In the context of a shareholder derivative dispute, a ‘demand’ is a mechanism for a shareholder to voice his objection regarding the management of a corporation and place the board of directors on notice of his complaints prior to the filing of a formal shareholder derivative lawsuit. ‘The purpose of requiring a pre-complaint demand is to protect the directors’ prerogative to take over the litigation or to oppose it ... Thus, the demand requirement implements the basic principle of corporate governance that the decisions of a corporation- including the decision to initiate litigation- should be made by the board of directors or the majority of shareholders.’ (Citations omitted; internal quotation marks omitted.) Kamen v. Kemper Financial Services, Inc., 500 U.S. 90, 101, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991)." Stutz v. Shepard, 279 Conn. 115, 118 n.5, 901 A.2d 33 (2006).
The exhibits submitted by the plaintiff are bereft of any request or demand that the corporation take the action that the plaintiff seeks in her complaint. A fair reading of the correspondence indicates that Anderson first sought to establish her shareholder interest in Riverdale. Thereafter, she requested a valuation of Riverdale, or in the alternative, information from which she could obtain her own valuation of Riverdale. Although Anderson suggested that Mark Weiss may have wrongfully converted assets of Riverdale, the court cannot find any request in the exhibits, directed to Riverdale or its officers, to take action against the estate of Mark Weiss. Also, there is no request to Riverdale to remove Valerie Weiss as an officer or director. The prior correspondence between the parties does not comply with the demand requirement of § 33-722.
The plaintiff argues that under the circumstances of this case, a demand pursuant to § 33-722 would be futile. There are several Superior Courts that have concluded that there is a futility exception to the demand requirement contained in § 33-722, however, this court declines to adopt that conclusion. The court agrees with the reasoning and conclusion of Judge Moll in the case of Bragoni v. Francalangia, Superior Court, judicial district of Hartford, Docket No. CV-17-6079494S (October 25, 2017, Moll, J.) .
Judge Moll observed: "Neither Connecticut’s appellate courts nor the Second Circuit Court of Appeals have addressed whether there is a common-law futility exception to the demand requirement of § 33-722. Several trial courts, even after the enactment of § 33-722, have recognized a futility exception to the statutory demand requirement. See, e.g., Budney v. Budney Industries, Inc., [Superior Court, judicial district of New Britain, Docket No. CV-13-6033734 (April 11, 2014, Swienton, J.)] (‘The court finds in examining the allegations of the complaint demand upon the LLC would be futile’), Guarino v. Livery Limited, Inc., [Superior Court, judicial district of New London, Docket No. CV-03-0127824 (November 18, 2003, Quinn, J.)] (recognizing common-law futility exception to demand requirement of § 33-722). At least one federal district court, however, has held that ‘Connecticut law does not provide a futility exception to the written demand requirement’ in § 33-722. Beckworth v. Bizier, 138 F.Supp.3d 144, 156 (D.Conn. 2015). As stated by Judge Thompson in Beckworth: ‘The court finds unpersuasive the cases in which Connecticut Superior Courts have, after the enactment of Section 33-722, recognized a futility exception to the written demand requirement. These decisions recognize the exception in dicta, rely on cases that predate Section 33-722, or cite to cases that do one or both of the foregoing ...’ (Citations omitted.) Beckworth v. Bizier, supra, 138 F.Supp.3d, 156-57. Having reviewed the post-1997 cases recognizing a futility exception, the court joins the district court’s analysis and conclusion on this issue. See also id. at 158. (‘[T]he Official Comment to Section 7.42 of the Model Business Corporation Act makes it clear that even a demand that would be "futile" serves a purpose in a statutory scheme like that found in the Connecticut Business Corporation Act in that it gives the board of directors the opportunity to reexamine the act complained of in light of a potential lawsuit and take corrective action and it also eliminates the time and expense involved in litigating whether demand is required’).
"The court concludes that the demand language in § 33-722 is plain and unambiguous. See Beckworth, 138 F.Supp.3d at 156 (‘Here, the meaning of Section 33-722, read in context of the Connecticut Business Corporation Act, is plain and unambiguous: a shareholder must make a written demand upon the corporation to take suitable action before commencing a derivative proceeding. There is no statutory support for the proposition that demand is excused where it would be futile, either in Section 33-722 or any other section of the Connecticut General Statutes. The statute’s silence as to a futility exception to the written demand requirement is insufficient, standing alone, to render the statute susceptible to more than one reasonable interpretation. See Trevek Enterprises, Inc. v. Victory Contracting Corp., 107 Conn.App. 574, 583, 945 A.2d 1056 (2008) (declining to "engraft an exemption on the text of Section 33-921)" ’). Although the statute contains certain excepting language, it does not contain a futility exception. ‘Such a rule does not lead to results that are "absurd" or "unreasonable." ’ Beckworth, 138 F.Supp.3d at 156. Accordingly, the court has no justification for considering extratextual evidence. General Statutes § 1-2z." Bragoni v. Francalangia, supra, Superior Court, Docket No. CV-17-6079494-S.
Because the plaintiff did not make a demand upon Riverdale pursuant to § 33-722, she lacks standing to pursue her derivative claims against Riverdale, thus those claims must be dismissed. The derivative claims are alleged in the first, second, third, fourth, fifth, sixth, seventh, eighth, ninth, and eleventh counts.
The defendants maintain that the plaintiff, as a shareholder, lacks standing to bring claims against Riverdale in her individual capacity. In determining this issue, the court is guided by the following: "In Yanow v. Teal Industries, Inc., 178 Conn. 262, 281-82, 422 A.2d 311 (1979), we stated that ‘[a] distinction must be made between the right of a shareholder to bring suit in an individual capacity as the sole party injured, and his right to sue derivatively on behalf of the corporation alleged to be injured ... Generally, individual stockholders cannot sue the officers at law for damages on the theory that they are entitled to damages because mismanagement has rendered their stock of less value, since the injury is generally not to the shareholder individually, but to the corporation- to the shareholders collectively ... In this regard, it is axiomatic that a claim of injury, the basis of which is a wrong to the corporation, must be brought in a derivative suit, with the plaintiff proceeding secondarily, deriving his rights from the corporation which is alleged to have been wronged ... It is, however, well settled that if the injury is one to the plaintiff as a stockholder, and to him individually, and not to the corporation, as where an alleged fraud perpetrated by the corporation has affected the plaintiff directly, the cause of action is personal and individual ... In such a case, the plaintiff-shareholder sustains a loss separate and distinct from that of the corporation, or from that of other shareholders, and thus has the right to seek redress in a personal capacity for a wrong done to him individually.’ (Citations omitted; internal quotation marks omitted.) Thus, ‘where an injury sustained to a shareholder’s stock is peculiar to him alone, and does not fall alike upon other stockholders, the shareholder has an individual cause of action.’ Id., at 282 n.9, 422 A.2d 311.
"Subsequently, in Smith v. Snyder, supra, 267 Conn. 461, we reaffirmed the general rule that ‘[i]n order for a shareholder to bring a direct or personal action against the corporation or other shareholders, that shareholder must show an injury that is separate and distinct from that suffered by any other shareholder or by the corporation ... [A] shareholder- even the sole shareholder- does not have standing to assert claims alleging wrongs to the corporation.’ (Citation omitted; internal quotation marks omitted.)" (Emphasis added.) May v. Coffey, 291 Conn. 106, 114-15, 967 A.2d 495 (2009).
In this case, the allegations in the pleadings demonstrate that Anderson’s purported individual claims of wrong against the corporation are in actuality duplicates of the claims she alleges Riverdale has suffered. This is evident from Anderson’s allegations in the complaint where her "individual" claims are contained in the same counts which contain her "derivative" claims. In counts one through nine, and in count eleven, Anderson has failed to allege a harm she has suffered personally, separate and distinct from the alleged harm to the corporation.
As noted earlier, there are three other minority shareholders in Riverdale who each own one share of stock. Although required by May v. Coffey, Anderson has failed to allege an injury that is separate and distinct from that suffered by any other shareholder. Based upon the foregoing, the individual claims alleged in the first, second, third, fourth, fifth, sixth, seventh, eighth, ninth, and eleventh counts are dismissed.
The motion to dismiss is granted as to the first, second, third, fourth, fifth, sixth, seventh, eighth, ninth, and eleventh counts. The court notes that in counts ten and twelve, Anderson alleges individual claims against Valerie Weiss; the motion is denied as to those counts.