Opinion
No. X05 CV 02 0191749
November 15, 2004
MEMORANDUM OF DECISION
For nearly one hundred years E.L. Wagner has been Connecticut's preeminent swimming pool construction and service company. Founded in 1919, it is also America's oldest continuously operated swimming pool company. Historically, the company operated out of a facility located at 554 Post Road, Darien, Connecticut.
Since 1986, John Gedney (Gedney) and Mary Louise Gedney have been the sole shareholders of E.L. Wagner. In 1986, the property at 554 Post Road, Darien, Connecticut was sold to an unrelated third party, necessitating the relocation of E.L. Wagner's staging facility. The Gedneys decided to move E.L. Wagner to Bridgeport over the winter of 1986-1987. Gedney, however, wanted to maintain a Darien office to ensure continuity with lower Fairfield County customers. Accordingly, when Vincent Lopiano, a former employee of E.L. Wagner, contacted Gedney concerning forming a venture to ensure that the "Wagner" swimming pools name remained visible in Darien, Gedney was interested in his proposition. In the winter of 1986-1987, Gedney and Lopiano discussed forming a business, to which E.L. Wagner would license the use of the "Wagner" name, through a Licensing Agreement, and refer Darien-area service customers to the new business which would engage in the installation and service of swimming pools. Lopiano would handle day-to-day operations and service the new business' accounts.
Lopiano had been running a swimming pool servicing company in the Darien area known as Custom Pools Service Co., Inc. with his partner Larry Socci. Custom Pools began operations in approximately 1975 and continued in business until 1986 when Lopiano and Socci parted ways. Thereafter, Lopiano began operating a swimming pool service company known as Custom Pools, Inc.
Eventually an agreement was reached that:
a. Gedney and Lopiano would be equal shareholders in an entity to be called Wagner Pools of Darien, Inc. and would haven an equal voice in management ("Wagner Darien");
b. E.L. Wagner would grant Wagner Darien a license to use the "Wagner" name that could be terminated on 30 days notice; CT Page 17304
c. Gedney, on behalf of E.L. Wagner, and Lopiano, on behalf of Custom Pools, could refer certain swimming pools service customers in the Darien area to Wagner Darien if they desired;
d. Gedney and Lopiano would split profits from Wagner Darien equally;
e. Either party could terminate the agreement upon ninety days notice. The company would then take appropriate steps to dissolve and each party would receive one-half of the net proceeds; and
f. The agreement could only be modified in writing.
This never occurred.
Gedney, on behalf of E.L. Wagner, and Lopiano, on behalf of Wagner Darien, also entered into a License Agreement, permitting Wagner Darien to use the "Wagner" name. Gedney signed the License Agreement on behalf of E.L. Wagner. Lopiano was aware at the time Gedney signed the License Agreement that he was a 50% shareholder of E.L. Wagner, the licensor, and a 50% shareholder of Wagner Darien, the licensee.
The License Agreement required that all swimming pools constructed by Wagner Darien were to be "Wagner" Pools: "[d]uring the term of this Agreement, [Wagner Darien] shall not sell or offer to sell or construct any swimming pool other than a Wagner Pool." All construction of "Wagner Pools," also had to be in strict compliance with E.L. Wagner's specifications.
The License Agreement also specifically provided: "Upon the termination of the License Agreement for any reason, all of Licensee's [Wagner Darien's] rights shall terminate and it shall cease using the name `Wagner' or the trade name `Wagner Pools.'
All parties understood that Custom Pools would continue to operate and nothing in either of the Agreements prevented Custom Pools from entering into agreements to install or service swimming pools.
In furtherance of the new business operations, Gedney and Lopiano purchased property located at 101 Noroton Avenue, Darien, Connecticut (the "Property") as tenants in common. Gedney and Lopiano purchased the Property to serve as the principal place of business of Wagner Darien and Custom Pools. Gedney and Lopiano purchased the Property for the price of $500,000.00 and each contributed equal amounts of cash for a down payment and financed $380,000.00 by way of a Note and Mortgage with Gateway Bank n/k/a Fleet Bank. Gedney, Lopiano and their respective spouses, Mary Louise Gedney ("Mrs. Gedney") and Suzanne Lopiano ("Mrs. Lopiano"), signed the Note.
Beginning in 1991, Custom Pools and Wagner Darien occupied the property and each made a monthly payment to Gedney and Lopiano consisting of one-half of the monthly mortgage to cover the debt service. Neither Custom Pools nor Wagner Darien ever entered into an actual lease agreement with Lopiano or Gedney. The checks were deposited into an account jointly owned by Gedney and Lopiano (the "Joint Account"). Thereafter, Gedney and Lopiano paid the Debt Service using funds that had been deposited into the Joint Account. The mortgage was discharged on February 14, 2002. When the mortgage was paid off there was no agreement between Gedney and Lopiano to continue to make payments into the joint account. Title to the Property remains in the names of Gedney and Lopiano as tenants in common. At no time since they purchased the Property did either Lopiano or Gedney ever request that Custom Pools and/or Wagner Darien pay the fair rental value of the Property to Lopiano and/or Gedney.
At the time of acquisition, and as of today, the property consisted of land improved by a small building (the "Building") and a 358 square foot studio apartment (the "Apartment") located on the second floor of the Building. The Apartment is currently rented at $850.00 per month to a resident tenant.
From July 1991 through May 9, 2000, Wagner Darien used approximately 50% of the Property for its business operations. From July 1991 through the present Custom Pools used, and uses, approximately 50% of the Property for its business operations. Lopiano never prevented E.L. Wagner or Gedney from occupying the property after Wagner Darien ultimately ceased operations.
Wagner Darien and Custom Pools had separate phone lines at the property. When a call was made to the Wagner Darien phone line, a new account was opened for Wagner Darien unless the caller was a personal friend of Lopiano. Similarly, Gedney agreed to refer Darien area service customers of E.L. Wagner to Wagner Darien, unless the customer specifically requested service through E.L. Wagner (such as personal friends of the Gedneys, etc.) or if Lopiano, through Wagner Darien, was unable to service a particular customer, such as those customers who purchased pools containing technology that Lopiano was not able to service. From the inception of Wagner Darien, the parties understood that the "Wagner" name was to be advertised and promoted. While Lopiano was permitted to retain and operate Custom Pools, he did not advertise the company or have a sign for Custom Pools in front of the business. Accordingly, the sign in front of Wagner Darien's office said, "Wagner Pools of Darien, Inc." Likewise, the vehicles used by Wagner were emblazoned with the Wagner Darien name and the Custom Pools name was removed. Indeed, the purpose of the Wagner Darien venture was to leverage the "Wagner" name to attract new customers and maintain existing E.L. Wagner customers in the Darien area. Gedney would benefit because E.L. Wagner would maintain a Darien presence and Lopiano would benefit because he would receive one-half of the profits from the business that would evolve due to the "Wagner" name.
Interestingly, these trucks were owned by Custom Pools and originally had Custom Pools' name on them. Wagner Darien also purchased two additional trucks when the business began to grow. These trucks with the Wagner name were used on the two Custom Pools installation jobs and when Custom Pools was doing service jobs. Gedney was aware that Custom Pools used the trucks with the Wagner name when doing service jobs because he insisted that none of the trucks could have the Custom name. There was insufficient evidence to establish, however, whether the Custom Pools owned trucks or the Wagner Darien owned trucks were the ones used on these jobs.
In the spring of 1987, Gedney referred approximately one hundred E.L. Wagner service customers to Wagner Darien. Gedney, on behalf of E.L. Wagner, continued to refer from time to time Darien-area service customers to Wagner Darien. Lopiano ran the day-to-day operations of Wagner Darien. He ordered supplies, and had primary customer communication with Wagner Darien customers. The court also finds that Gedney is a sophisticated businessman who had knowledge and input regarding the operation of the Wagner Darien business.
Lopiano delegated the tasks of accounting and bookkeeping to his wife, Mrs. Lopiano. She handled all of the accounts payable and receivables functions, bookkeeping, tax and financial accounting. She also reconciled bank accounts and signed checks on behalf of her husband. Gedney was aware that Mrs. Lopiano was paid a fee by Wagner Darien for these services through Custom Pools.
The Wagner Darien business was successful and by agreement between Lopiano and Gedney, Wagner Darien, from time to time, distributed: (a) Lopiano's 50% share of Wagner Darien's net profits to Custom Pools; and (b) Gedney's 50% share of Wagner Darien's profits to E.L. Wagner.
From Wagner Darien's inception through May 9, 2000, with the knowledge and consent of Wagner Darien and of Gedney, Lopiano continued to service swimming pools through Custom Pools. In 1999, Gedney learned that Lopiano was also installing two pools. It is undisputed that the agreements with homeowners to build these pools were with Custom Pools, not Wagner Darien. Gedney conceded at trial that Custom Pools had the right to build pools using Custom Pools' name. There is also no dispute that the individuals buying the pools understood and in fact demanded that the pools be built by Custom Pools, not Wagner.
By letter dated May 9, 2000, from counsel for E.L. Wagner, Gedney caused E.L. Wagner to terminate the License Agreement (the "Termination Notice"), thus terminating all of Wagner Darien's rights. By virtue of the Termination Notice, Wagner Darien could not conduct its business and as a result of the Termination Notice, Wagner Darien ceased its business operations. Neither Lopiano nor Gedney ever formally sent a ninety-day written notice of termination of the Shareholders' Agreement. However, the Shareholders' Agreement did not require that notice of its termination be in writing. Additionally, both Gedney and Lopiano understood that Wagner Darien could no longer operate when the License Agreement was terminated. Both Gedney and Lopiano testified that it was their understanding that Wagner Darien had been terminated when the License Agreement was terminated.
On or about June 12, 2000, Lopiano, on the letterhead of Custom Pools, sent a notice to the customers of Wagner Darien (the "Customer Notice").
By the Customer Notice, Lopiano advised the customers that:
(a) Lopiano would no longer be affiliated with the Wagner Pool name;
(b) Future pool servicing will continue under the Custom Pools' name; and
(c) E.L. Wagner was also available to service their accounts.
In the Customer Notice, Lopiano did set forth the address and telephone number for E.L. Wagner, at its Bridgeport office. The Customer Notice also enclosed a proposed service agreement with Custom Pools, and it invited each of the customers to execute and return that agreement.
The majority of the customers who received the Customer Notice signed service agreements with Custom Pools.
In 2002, Lopiano closed the joint bank account and Lopiano opened a new account in his name. This account was used to pay expenses and take in revenues of Wagner Darien.
There were no profits for year end 2000 and therefore no distribution was made for 2000. No evidence of the amount of any payments from servicing of accounts by Custom Pools originally referred by E.L. Wagner was presented at this stage of the proceedings. There was also no evidence presented at this stage regarding whether Wagner Darien still has profits that need to be distributed.
Finally, defendants allege in the amended complaint that Lopiano misappropriated funds that belong to Wagner Darien. Instead, all of the payments made to Custom Pools, Lopiano and third parties were consistent with the business practices that Gedney and Lopiano had used to operate Wagner Darien throughout its existence and none of the payments constituted a misappropriation of funds by Lopiano. Instead, all of the payments at issue were properly made to compensate individuals for services rendered and/or products supplied.
DISCUSSION OF LAW CLAIMS AGAINST GEDNEY Declaratory Judgment I. Breach of Fiduciary Duty (Count I)
Lopiano seeks a declaratory judgment that Gedney breached his fiduciary duty to Lopiano and Wagner Darien by terminating Wagner Darien's right to use the Wagner name.
A declaratory judgment action may be maintained "in a justiciable controversy where the interests are adverse, where there is an actual bona fide and substantial question or issues in dispute or substantial uncertainty of legal relations which requires settlement, and where all persons having an interest in the subject matter of the complaint are parties to the action or have reasonable notice thereof." Milford Power Co., LLC v. Alstom Power, Inc., 263 Conn. 616, 626, 822 A.2d 196, 202 (2003); see also Practice Book § 17-55.
A fiduciary relationship is "characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other." Dunham v. Dunham, 204 Conn. 303, 322, 528 A.2d 1123, 1133 (1987), overruled on other grounds by Santopietro v. City of New Haven, 239 Conn. 207, 682 A.2d 106 (1996). Many relationships implicate fiduciary duties, including "agents, partners, lawyers, directors, trustees, executors, receivers, bailees and guardians." Konover Dev. Corp. v. Zeller, 228 Conn. 206, 222, 635 A.2d 798, 806 (1994). Because these associations are imbued with the utmost trust, the parties are bound to "act honestly, and with the finest and undivided loyalty . . ., not merely with that standard of honor required of men dealing at arm's length and the workaday world, but with a punctilio of honor the most sensitive." Id. at 215, 635 A.2d at 803. Connecticut courts have always held fiduciary duties to be "higher than that trodden by the crowd." Adams v. Williamson, 150 Conn. 105, 112, 186 A.2d 157, 160 (1962) (quoting Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546 (1928)).
Shareholders in a close corporation owe each other a fiduciary duty as do partners. Flight Servs. Group v. Patten Corp., 963 F.Sup. 158, 160 (D.Conn. 1997). As 50% shareholders in Wagner Darien, Gedney and Lopiano owed and owe each other a fiduciary duty.
Gedney, however, did not breach his fiduciary duty to Lopiano by causing the Termination Notice to be sent. Gedney had the right under the unambiguous language of the contract to terminate the license upon thirty days notice for any reason or no reason at all. Unlike the circumstances in Konover Development Corp. v. Zeller 228 Conn. 206 (1994), where only the general partner had the right to terminate the determined the project was not feasible, and therefore he had to exercise his fiduciary duty in making that determination, in this case Gedney did not need any cause or reason to terminate that license. To impose a requirement that Gedney had to have cause in making the decision to terminate the license would be to rewrite the contract and add a term that was not contemplated by or agreed to by the parties.
While Konover makes clear that if the contract required Gedney to have a reason before he terminated the Agreement that he would have owed Lopiano fiduciary duties in making that determination, that is not the case here. The Konover decision also recognized ". . . that, in general the rights and duties of partners are subject to agreement between the partners." Konover, supra at 224.
The same reasoning applies with regard to Wagner.
Moreover, as a result of terminating the license both Gedney and Lopiano lost the benefit of the Wagner Darien business. Importantly, however, under the Shareholders' Agreement, Lopiano had the right to service former Wagner Darien customers if requested to do so by the customers. In fact the vast majority of the former E.L. Wagner and Wagner Darien customers chose Lopiano to continue to provide services. Accordingly, it was Gedney and not Lopiano who suffered more as a result of the termination of the License Agreement and the decision to terminate did not have "adverse concrete financial consequences that flowed foreseeably and directly from that decision . . ." Konover, supra at 222.
For all of these reasons, the court finds by clear and convincing evidence that Gedney did not breach his fiduciary duty to Lopiano and Wagner when he terminated the License Agreement.
II. Breach of Fiduciary Duty
For all of the reasons previously stated, the court finds by clear and convincing evidence that Gedney did not breach his fiduciary duty to Lopiano.
III. Third Count (Violation of CUTPA against Gedney)
Conn. Gen. Stat. § 42-110b(a) provides that "[n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." Conn. Gen. Stat. § 42-110a(3) defines "person" as, among other things, a "corporation." The Connecticut Supreme Court has identified three criteria to determine if a practice is unfair, and therefore a violation of CUTPA:
(1) Whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise — in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers [competitors or other businesspersons] . . . All three criteria do not need to be satisfied to support a finding of [violation of CUTPA].
Macomber v. Travelers Property Cas. Corp., 261 Conn. 620, 644-45, 804 A.2d 180, 196 (2002).
As discussed above, Gedney's conduct was not unfair, immoral, unethical, oppressive or unscrupulous and therefore did not violate CUTPA. The parties had an agreement that the License Agreement could be terminated for any reason and the parties both understood that the Wagner Darien business could not continue to operate after this License Agreement was terminated. Accordingly, Gedney did not violate CUTPA when he terminated Wagner Darien's rights to use the Wagner name.
IV. Fourth Count (Injunctive Relief against Gedney)
Lopiano alleges that Gedney should be temporarily and permanently enjoined from commencing a derivative action against Lopiano. The court finds that this claim is moot in light of the fact that all of the claims of liability are being resolved in this decision.
V. Fifth Count (Breach of Fiduciary Duty, on Behalf of Wagner Darien, against Gedney)
The court refers the parties to the discussion in Section I of this decision.
VI. Sixth Count (Breach of Contract, on Behalf of Wagner Darien, against E.L. Wagner)
The elements of a breach of contract action are "the formation of an agreement, performance by one party, breach of the agreement by the other party and damages." Rosato v. Mascardo, 82 Conn.App. 396, 411 (2004).
Plaintiff alleges that E.L. Wagner terminated the License Agreement because Lopiano refused to comply with Gedney's demand that Wagner Darien abstain from any and all swimming pool construction. This is not correct factually or legally. The License Agreement clearly provides that Wagner Darien may engage in the installation and construction of swimming pools. It also provides that E.L. Wagner had the right under the License Agreement to terminate the contract without cause and exercised its right to do so. Accordingly, there was no breach of contract.
In fact E.L. Wagner opted to terminate the License Agreement because it did not want Lopiano building non-Wagner pools.
VII. Seventh Count (Breach of Implied Covenant of Good Faith and Fair Dealing, on Behalf of Wagner Darien, Against E.L. Wagner)
"It is axiomatic that the implied duty of good faith and fair dealing is a covenant implied into a contract or a contractual relationship." Hoskins v. Titan Value Equities Group, Inc., 252 Conn. 789, 793, 749 A.2d 1144, 1146 (2000). Effectively, "every contract carries an implied duty requiring that neither party do anything that will injure the right of the other to receive the benefits of the agreement." De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424, 432, 849 A.2d 382, 388 (2004) (internal quotations omitted). This implied duty "presupposes that the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party's discretionary application or interpretation of a contract term." Id. At 433, 849 A.2d at 388.
A party breaches the implied covenant of good faith and fair dealing by impeding a party's right to receive benefits that he or she reasonably expected to receive under the contract in bad faith. Id., 848 A.2d at 388. "Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive." Id., 848 A.2d at 388.
Because E.L. Wagner did not breach its contract, it did not breach any implied duty of good faith and fair dealing.
VIII. Eighth Count (Violation of Connecticut Franchise Act, on Behalf of Wagner Darien, Against E.L. Wagner)
Under Conn. Gen. Stat. § 42-133e(d), the definition of "franchisee" includes "a distributor, wholesaler or jobber or retailer who is granted the authority under a franchise to use a trademark, tradename, service mark or other identifying symbol or name."
Under Conn. Gen Stat. § 42-133e(b), a "franchise" exists where there is an agreement in which "(1) a franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor . . .; and (2) the operation of the franchisee's business pursuant to such plan or system is substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate . . ."
A franchisor may not terminate, cancel or fail to renew a franchise without good cause. Conn. Gen. Stat. § 42-133f. The franchisor has the burden of proving "good cause" to terminate the franchise. Hartford Elec. Supply Co. v. Allen-Bradley Co., 250 Conn. 334, 361, 736 A.2d 824, 839 (1999). If a franchisor does terminate a franchise, the franchisor must give the franchisee at least sixty days' notice of such termination. Conn. Gen. Stat. § 42-133f.
To determine if a business relationship constitutes a "franchise," a court must apply the two-part test articulated in Conn. Gen. Stat. 42-133e(b). The analysis under the first prong is whether the actions and words between the parties indicate a marketing plan or system that is substantially prescribed by the franchisor. Id. at 349, 736 A.2d at 833. Probative factors to show such franchisor control include franchisor approval of the franchisee's marketing plan; franchisor power over pricing; control over the franchisee's inventory; and the right to examine financial records and require audits. Id. at 350-55, 736 A.2d at 834-37.
The second prong of the "franchise" test — that the franchisee is substantially associated with the franchisor's trademark or service mark — analyzes the franchisee's use of the franchisor's name, logo, and trademark in performing its services. Id. At 361, 736 A.2d at 839. This prong is satisfied if "the franchisee is completely dependent on the public's confidence in the franchised product for most or all of its business, [and] abrupt severance of the franchise tie, without good cause and without sufficient notice, could spell ruination." Id. at 360-61, 736 A.2d at 839.
When evaluating whether the alleged franchisor prescribes the alleged franchisee's marketing plan, the court looks at the parties' written agreement as well as the conduct and course of dealing of the parties. Hartford Electric Supply, 250 Conn. at 348, 736 A.2d at 833. "There is no precise formula as to how many or which factors create the level of control indicative of a franchise, pursuant to the franchise act . . . The Federal Courts have cited the Appellate Session of the Superior Court in Consumers Petroleum of Connecticut, Inc. v. Duhan, 38 Conn.Sup. 495, 452 A.2d 123 (1982), for its list of factors establishing substantial prescription of a marketing plan or system, pursuant to § 42-133(b). That court considered whether the franchisor had control over: (a) hours and days of operation; (2) advertising; (3) lighting; (4) employee uniforms; (5) prices; (6) trading stamps; (7) hiring; (8) sales quotas; and (9) management training. Id. at 498-99. That court also looked to determine if the franchisor provided the franchisee with the financial support, audited its books, or inspected its premises." Hartford Electric, 50 Conn. at 350, 736 A.2d at 834. Of these factors, control over pricing is the most fundamental aspect of the marketing plan. Id. Petereit v. S.B. Thomas, Inc., 63 F.3d 769, 1181 (2d Cir. 1995) cert. den'd 517 U.S. 1119, 116, S.Ct 1351 (1996).
In this case, E.L. Wagner did not control the nine enumerated factors set forth in Hartford Electric Supply or Duhan. Each of these factors were either controlled by Lopiano through his day to day management of Wagner Pools of Darien, Inc. or were decisions that were jointly made between Lopiano and Gedney. Accordingly, Wagner Darien was not a franchise within the meaning of the Connecticut Franchise Act, Conn. Gen. Stat. § 42-133e(b) and there has been no violation of the Franchise Act.
IX. Ninth Count (Violation of CUTPA, on Behalf of Wagner Darien, Against Gedney and E.L. Wagner)
Based on the foregoing findings, Gedney and E.L. Wagner are not liable to Wagner Darien for a violation of CUTPA.
CLAIMS AGAINST LOPLAINO X. Breach of the License Agreement and Shareholders' Agreement (First Amended Counterclaim)
Gedney alleges that Lopiano built non-"Wagner" swimming pools, while cloaked with the authority of the "Wagner" name, and therefore breached the License Agreement. Plaintiff also alleges that Lopiano failed to wind up the affairs of Wagner Darien as required by the Shareholders' Agreement, thereby breaching it as well.A. Lopiano did not Breach the License Agreement
To ensure that any pools constructed by Wagner Darien met E.L. Wagner's high standards, the License Agreement requires that any pools constructed by Wagner Darien be "Wagner" pools using Wagner proprietary technology and construction methods.
Accordingly, if Lopiano had built pools in the name of Wagner Darien without using its technology this would have been a violation of the Agreement. That is not what occurred here. Instead, Lopiano built Custom Pools at the request of two of his customers. Again, the customers understood they were dealing with and receiving a Custom Pools product, not a Wagner Darien product. Nothing in the Agreement prevented Lopiano from building Custom pools.
Gedney has not demonstrated that the use of trucks with the Wagner name on them (some of which were originally Custom trucks) to build these two pools constituted a material breach of contract. The customers knew they were dealing with Custom Pools when Lopiano built the pools.
Likewise, while Custom Pools and Wagner Darien were operating, Gedney allowed Custom Pools to use the trucks with the Wagner name to service Custom clients. Accordingly, when he continued to engage in the same practice after Wagner Darien stopped operating, he was not breaching any agreement of the parties.
B. Lopiano Breached the Shareholders' Agreement in Part
Gedney also alleges that Lopiano breached the Shareholders' Agreement by failing to make the payments required under its termination provisions. "A shareholders' agreement is a contract between shareholders which may apply broadly to the rights of the shareholders in conducting the business of the corporation so long as their purposes are legal and not contrary to public policy." 18A Am.Jur.2d., Corporations § 748 (2004).
The court has found that the termination of the License Agreement constituted clear notice that Gedney wished to terminate his relationship with Lopiano and that both parties understood that Wagner Darien would cease operations.
Our Supreme Court has held the parties' intent to rescind or abandon contracts: "like entry into a contractual relation, depends upon the intent of the parties and that the relevant intent is to be inferred from the attendant circumstances and conduct of the parties." Smith Smith Building Corp. v. DeLuca, 36 Conn.App. 839, 843, 654 A.2d 368, 370 (1995) ( Quoting, Rowe v. Cormier, 189 Conn. 371, 372-73, 456 A.2d 277 (1983).)
Indeed, the Connecticut Supreme Court considered a case very similar to the instant action in Gaer Bros., Inc. v. Mott, 147 Conn. 411, 161 A.2d 782 (1960). In Gaer, two parties owned a warehouse as tenants in common. The written agreements between the parties provided that they were to operate their respective businesses from the same building, which the defendants purchased from the plaintiff. Their agreement was for a five-year term with automatic one-year extensions. "It could be terminated at the end of five years, or at the end of any additional term of one year, by giving written notice of an intention to terminate at least 300 days before the end of the term." Gaer, 147 Conn. at 414, 161 A.2d at 783. Thereafter, the parties stopped transacting business. The plaintiff then sued, seeking, inter alia, to delay a partition of the property.
The Supreme Court was called on to determine whether the agreement between the parties had been terminated, even though no three-hundred-day written termination notice had been sent. Interpreting the contract controlling the relationship between the parties the Supreme Court held that the plaintiff satisfied the three-hundred-day termination notice requirement, even though no written notice had been sent "[u]nder these circumstances, the plaintiff, showing by its conduct an intent to sever any and all contractual relationships, if any still existed, cannot be heard to complain that the provision in the contract calling for its termination after written notice 300 days before the end of any term had not been met." Gaer, 147 Conn. at 417, 161 A.2d at 784. The Supreme Court reasoned that the conduct of the parties with respect to their venture held greater significance than a talismanic notice:
It is true that the contract provided for a term during which it should be in force, and a method by which its life could be brought to an end. But that is not to say that the parties could not, by their conduct, abandon the contract . . . When in 1956 the parties ceased doing business together, the essential purpose of the contract was defeated.
Gaer, 147 Conn at 416, 161 A.2d at 785 (emphasis added) ( citing, Osborne v. Stevens, 132 Conn. 410, 414, 45 A.2d 160; Yale Co-operative Corp. v. Rogin, 133 Conn. 563, 570 53 A.2d 383; 6 Williston on Contracts § 5171 (Rev. Ed.); Restatement (Second) of Contracts § 406, comment b).
Like Gaer, the parties in this action expressly and impliedly manifested their intent to terminate the Shareholders' Agreement and abandon their Wagner Darien venture in 2000. Both parties' conduct demonstrates that they understood that notice of the termination of the License Agreement resulted in termination of the Shareholders' Agreement as well despite the lack of formal notice.
The court notes that the Shareholders' Agreement did not require written notice of termination.
Accordingly, the court finds that the Shareholders' Agreement was terminated upon termination of the License Agreement. It is undisputed, however, that neither Gedney nor Lopiano then took steps to formally dissolve the corporation.
The Shareholders' Agreement provides: "Upon giving such notice, the company shall take appropriate steps to dissolve and each party shall receive one-half of the net proceeds of the company. Both parties agree not to service those customers referred to the company by the other party unless requested by such customer. In such event, the referring party shall be entitled to one-half of the fees received from such customer during the following two year period."
Gedney alleges that Lopiano failed to make the payments required under this termination provision. He is in part correct. While Lopiano did not misappropriate all of the customers for Custom Pools because there was no non-solicitation clause in the Agreement and if requested by customers to continue to provide service, he was allowed to do so, it is clear under the Agreement that Gedney was entitled to one-half of the proceeds for all of the customers he had originally referred. To the extent Lopiano has not paid Gedney for any portion of the revenues generated by the customers referred by Gedney to Wagner Darien he has breached this provision of paragraph six.
However, with regard to Lopiano providing one-half of the net proceeds of Wagner to Gedney, Lopiano has not breached this provision. The plain language of the contract makes clear that such funds will be due upon dissolution of Wagner Darien which has not occurred yet.
XII. Partition Action CT Page 17317
The second counterclaim for partition has been settled by stipulation and a judgment will enter as to this counterclaim upon judgment entering as to the other claims. XIII. Lopiano did not Breach The Fiduciary Duty he Owed to Gedney and Wagner Darien and did not Usurp and Tortiously Interfere with the Corporate Opportunities of Wagner Darien (Third, Fifth, Eighth and Tenth Amended Counterclaims)Lopiano and Gedney as officers, directors and shareholders of Wagner Darien owed each other a fiduciary duty. Pacelli Bros. Transporation, Inc. v. Pacelli, 189 Conn. 401, 407-08, 456 A.2d 325 (1983); Allanach v. Integrated Technologies, Inc., 37 Conn. L. Rptr. 257, 2004 Conn.Super. LEXIS 1560 (June 15, 2004). "Stockholders in the close corporation owe one another substantially the same fiduciary duty in the operation of the enterprise that partners owe to one another." Flight Serv. Group v. Patten Corp. 963 F.Sup. 158, 160 (D.Conn. 1997) (Applying Massachusetts law).
"Once a fiduciary relationship is found to exist, the burden of proving fair dealing properly shifts to the fiduciary." Konover Development Corp. v. Zeller, 228 Conn. 206, 219, 635 A.2d 798, 805 (1994) ( quoting, Dunham v. Dunham, 204 Conn. 303, 528 A.2d 1123 (1987)). "Proof of a fiduciary relationship imposes a two-fold burden on the fiduciary. First, the burden of proof shifts to the fiduciary and second, the standard of proof is clear and convincing evidence." Spector v. Konover, 57 Conn.App. 121, 127, 747 A.2d 39, 43 (2000) ( quoting, Konover Development, 228 Conn, at 229-30, 635 A.2d at 810).
However, "the fiduciary relationship is not singular. The relationship between sophisticated partners in a business venture may differ from the relationship involving lay people who are wholly dependent upon the expertise of a fiduciary . . . simply classifying a party as a fiduciary inadequately characterizes the nature of the relationship." Konover Development, 228 Conn. at 222-23, 635 A.2d at 806. In such situations, the court must respect the parties' freedom to contract for their obligations while still preserving their fiduciary relationship by considering all of the circumstances concerning their business relationship. Id., 228 Conn. at 225-26, 635 A.2d at 808.
A. Customer Conversion
Gedney alleges that Lopiano breached his fiduciary duty to Wagner Darien and Gedney by converting Wagner Darien customers to Custom Pools. One of the principal ways in which a shareholder of a closely held business can breach his fiduciary duty is by usurping a corporate opportunity. A director of a corporate fiduciary has the burden of proving by clear and convincing evidence that he has not usurped a corporate opportunity. Plainville Electric Products Co. v. Michaud, 2000 Conn.Super. LEXIS 1717, *17 (Conn.Super., June 30, 2000). "In determining whether a cause of action for usurpation of a corporate opportunity exists . . . the dominant inquiry is whether the corporate opportunity at issue falls within the corporation's allowed business purpose." Id.; Ostrowsky v. Avery, 243 Conn. 355, 367, 703 A.2d 117 (1997).
Among the factors set forth by the Supreme Court in evaluating the claim of usurpation of corporate opportunity is "whether the business opportunity was one in which the complaining corporation had an interest or an expectancy growing out of an existing contractual right; (2) whether there was a close relationship between the opportunity and the corporation's business purposes and current activities; (3) and whether the business area is contemplated by the opportunity were readily adaptable to the corporations' existing business, in light of its fundamental knowledge, practical experience, facilities, equipment and personnel." Ostrowsky, 243 Conn. at 66 ( citing Miller v. Miller, 222 N.W.2d 71 (Minn. 1974)).
Examining the conduct of Lopiano and applying the factors enumerated above, Lopiano did not usurp Wagner Darien's corporate opportunity in derogation of Lopiano's fiduciary duty. Simply stated, because the court has found that the business of Wagner Darien had been terminated when the License was terminated, there was no corporate opportunity for Lopiano to usurp from Wagner Darien. Lopiano has therefore proven by clear and convincing evidence that he did not usurp Wagner Darien's corporate opportunity.
B. Misappropriation of Assets
The court has reviewed each of the transactions Gedney claims constituted a misappropriation of funds. The court finds by clear and convincing evidence that there was no misappropriation of funds and that all of the payments made to Mr. and Mrs. Lopiano and third parties were legitimate payments for services and/or products supplied to Wagner Darien.
C. Lopiano did not Breach His Fiduciary Duty by Permitting Custom Pools to Occupy the Property Rent Free. Lopiano Does Have a Fiduciary Duty to Remit One-Half of the Proceeds from the Apartment to Gedney CT Page 17319 Gedney alleges that Lopiano breached his fiduciary duty by failing to collect and pay over rents.The parties had no agreement to continue to make joint payments after the mortgage debt was paid off. Furthermore, the court finds that if Gedney had wanted to continue to occupy half of the space he could have done so. Accordingly, the court finds by clear and convincing evidence that Lopiano did not breach his fiduciary duty by failing to make rental payments.
However, the court also finds by clear and convincing evidence that Lopiano does have a fiduciary duty to award one-half of the rents collected from the lease of the Apartment to Gedney upon dissolution of the business as part of the net proceeds that will be due at that time.
D. Lopiano's Conduct does not Constitute a Tortious Interference with the Contracts Between Wagner Darien and its Customers
The elements of a tortious interference claim are "the existence of a contractual or beneficial relationship, the defendant's knowledge of the relationship, the defendant's intentional interference with the relationship and the plaintiff's actual loss of the opportunity or the relationship." TLC Development, Inc. v. Branford, 855 F.Sup. 555, 559 (D.Conn. 1994); Solomon v. Aberman, 196 Conn. 359, 364, 493 A.2d 193 (1985). To prove tortious interference, Gedney must also prove that Lopiano "was guilty of fraud, misrepresentation, intimidation or molestation . . . or that the defendant acted maliciously." Solomon v. Aberman, 196 Conn. at 365.
For all of the reasons previously discussed, there was no tortious interference because Wagner Darien was no longer in business and Lopiano did not engage in any fraud or misrepresentation when he sent letters soliciting former customers of Wagner Darien.
XIII. Lopiano did not Convert and Steal Assets of Wagner Darien (Sixth and Seventh Amended Counterclaim)
Gedney alleges that Lopiano converted and/or engaged in statutory theft by taking customers, trucks, assets and equipment of Wagner Darien and by withholding profits and rents.
"Statutory theft under Conn. Gen. Stat. § 52-564 is synonymous with larceny under Gen. Stat. § 53a-119. Discover Leasing, Inc. v. Murphy, 33 Conn.App 303, 309, 635 A.2d 843 (1993) ( citing Lauder v. Peck, CT Page 17320 11 Conn.App. 161, 165, 526 A.2d 539 (1987)). Pursuant to Conn. Gen. Stat § 53a-119, [a] person commits larceny when, with intent to deprive another of property or to appropriate the same to himself or a third person, he wrongfully takes, obtains or [withholds] such property from an owner." Howard v. MacDonald, 270 Conn. 111, 129 n. 8, 851 A.2d 1142, 1152 (2004) ( quoting, Suarez-Negrete v. Trotta, 47 Conn.App. 517, 520, 705 A.2d 215 (1998)).
"The tort of conversion boasts a well established definition . . . Conversion occurs when one, without authorization, assumes and exercises the right of ownership over property belonging to another, to the exclusion of the owner's rights . . . There are two general classes of conversion: (a) that in which possession of the allegedly converted goods is wrongful from the onset; (2) that in which the conversion arises subsequent to an initial rightful possession." Luciani v. Stop Shop Cos., 15 Conn.App. 407, 409-10, 544 A.2d 1238 cert. denied, 209 Conn. 809 (1988) (citation omitted). "The tort of conversion boasts a well established definition . . . Conversion occurs when one, without authorization, assumes and exercises the right of ownership over property belonging to another, to the exclusion of the owner's rights." Id.
For all of the reasons previously stated, Lopiano has not converted any property of Wagner Darien. Lopiano had the right to solicit customers of Wagner Darien when it ceased operations. The trucks and equipment were not converted because Lopiano did not exercise the right of ownership to the exclusion of Wagner Darien. First Wagner Darien was not attempting to use any of the trucks or equipment that was in part owned by Custom and in part owned by Wagner Darien because it was not doing any business. Second, Lopiano's testimony was undisputed that the trucks and equipment remained available for use by Wagner Darien at the same place it had always been.
Finally, the fees from the customers are due to Gedney not Wagner Darien and therefore Wagner Darien cannot prove conversion or theft.
The rental payments from the apartment must be paid to Gedney upon dissolution as part of the net proceeds.
XIV. Lopiano did not Violate the Connecticut Unfair Trade Practices Act (Fourth and Ninth Amended Counterclaim)
Conn. Gen. Stat., § 42-110a et seq. prohibits unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce. CUTPA defines "trade or commerce" to encompass "the advertising, sale or rent or lease, the offering for sale or rent or lease, or the distribution of any services and any property, tangible or intangible, real, personal or mixed and any other article, commodity or thing of value in this state. Conn. Gen. Stat. § 42-110a(4); Ostrowsky v. Avery, 243 Conn. 355, 374, 703 A.2d 117, 129 (1997). "The issue of whether an act or practice is unfair, in violation of CUTPA, turns on (1) whether the act . . . offends public policy as it has been established by statutes, the common law, or otherwise — whether, in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive or unscrupulous; (3) whether it causes substantial injury to consumers." Norwich Savings Society v. Caldrello, 38 Conn.App. 859, 865, cert. denied, 235 Conn. 927 (1995).
"Although purely inter-corporate conflicts do not constitute CUTPA violations, actions outside the scope of the employment relationship designed to usurp the business and clientele of one corporation in favor of another . . . fits squarely within the provenance of CUTPA" Ostrowsky, 243 Conn. at 379, 703 A.2d at 129 ( citing Fink v. Golenbock, 238 Conn. 183, 212 680 A.2d 1243 (1996)) (internal quotation marks omitted).
Because the court has found that Lopiano did not usurp the corporate opportunities of Wagner Darien or misappropriate the corporate funds of Wagner Darien or send false and deceptive letters, Lopiano has not violated CUTPA.
XV. The Court will not Order an Accounting of Wagner Darien (Eleventh Counterclaim)
"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. An action for an accounting usually invokes the equity powers of the Court, and the remedy that is most frequently resorted to . . . is by way of a suit in equity." Mankert v. Elmatco Prods., Inc., 84 Conn.App. 456, 460, 854 A.2d 766, 768 (2004) quoting 1 Am.Jur.2d 609, Accounts and Accounting § 52 (1994). "To support an action of accounting, one of several conditions must exist. There must be a fiduciary relationship, or the existence of mutual and/or complicated accounts, or a need of discovery, or some other special ground of equitable jurisdiction, such as fraud." Mankert, 84 Conn.App. at 460 ( quoting, CS Research Corp. v. Holton Co., 36 Conn.Sup. 619, 621, 422 A.2d 331 (1980).
Lopiano was an officer, director and 50% shareholder of Wagner Darien and therefore a fiduciary relationship existed between he and Gedney. However, because the court has found that Lopiano did not misappropriate Wagner Darien funds for his own benefit or those of his family members or his affiliated company, Custom Pools, equity does not require the closer scrutiny provided by a court-ordered accounting pursuant to Conn. Gen. Stat. § 52-401, et seq.
CONCLUSION
A hearing in damages is necessary on the First Amended Counterclaim for breach of contract regarding splitting the fees of former customers of Wagner Darien. The parties should contact the court officer to schedule a hearing.
CHASE T. ROGERS
SUPERIOR COURT JUDGE