Opinion
No. CV 02 0190015 S
April 15, 2003
MEMORANDUM OF DECISION RE MOTION TO DISMISS (102.00)
The plaintiff, David A. Nadler, brings this action against the defendants to recover damages, costs, and attorneys fees arising out of his purchase of residential real property located in Westport, Connecticut. The defendants named in the complaint include: Grayson Construction Company, Inc., Annie Leepson, Saugatuck Waterfront East LLC (SWE), Saugatuck Waterfront West LLC (SWW), Green Holdings Corp., CT (Green Holdings CT), Green Holdings LLC, Starwood Group L.P. (Starwood), and Jason Green.
In his complaint, Nadler alleges that the defendants performed defective construction, renovations and improvements to the property both before and after he purchased it. (Complaint ¶¶ 17-22.) Nadler also asserts that the defendants have violated several express warranties and representations that the parties agreed upon in the contract of sale. (Complaint ¶ 27.) Within twelve months after taking possession of the property, Nadler contends that he discovered and provided the defendants with notice of the aforementioned defects and that the defendants have failed to correct them. (Complaint ¶¶ 28-29.) Based upon these facts, Nadler pleads the following nine causes of action against the defendants: breach of contract, breach of warranties, fraud and misrepresentation, negligence, nuisance, unfair trade practices, violations of statutory new home warranties, violation of Chapter 399a concerning new home construction contractors, and liability under Title 22a and other applicable environmental laws.
Pursuant to Connecticut Practice Book §§ 10-30 and 10-31, Green Holdings CT, Green Holdings LLC, Starwood Group L.P., and Jason Green move to dismiss this action on the grounds that the court lacks subject matter jurisdiction over claims against them as members and managers of SWE and SWW because they are not proper parties to this action under General Statutes § 34-134. Green Holdings LLC further moves to dismiss this action on the ground that Nadler fails to allege sufficient facts to establish personal jurisdiction over it pursuant to General Statutes § 52-59b.
Green Holdings CT, Green Holdings LLC, Starwood Group L.P., and Jason Green are hereafter sometimes referred to collectively as "the defendants."
The defendants have properly contested the court's jurisdiction by filing this motion to dismiss in accordance with Practice Book § 10-30. "[A] motion to dismiss shall be used to assert (1) lack of jurisdiction over the subject matter, (2) lack of jurisdiction over the person . . ." Practice Book § 10-31(a); see also Shay v. Rossi, 253 Conn. 134, 140 n. 8, 749 A.2d 1147 (2000). "A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction." (Internal quotation marks omitted.) Brookridge District Assn. v. Planning Zoning Commission, 259 Conn. 607, 611, 793 A.2d 215 (2002). "In ruling upon whether a complaint survives a motion to dismiss, a court must take the facts to be those alleged in the complaint, including those facts necessarily implied from the allegations, construing them in a manner most favorable to the pleader." (Internal quotation marks omitted.) Id. "The motion to dismiss . . . admits all facts which are well pleaded, invokes the existing record and must be decided upon that alone." (Internal quotation marks omitted.) Ferreira v. Pringle, 255 Conn. 330, 346, 766 A.2d 400 (2001).
DISCUSSION I. Subject Matter Jurisdiction
"A motion to dismiss shall be used to assert lack of jurisdiction over the subject matter, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court." (Internal quotation marks omitted.) Kizis v. Morse Diesel International, Inc., 260 Conn. 46, 51, 794 A.2d 498 (2002). "Subject matter jurisdiction is the power of the court to hear and determine cases . . . We start with the premise that the Superior Court has subject matter jurisdiction . . . Th[e] determination [of subject matter jurisdiction] must be informed by the established principle that every presumption is to be indulged in favor of jurisdiction." (Citations omitted; internal quotation marks omitted.) Grant v. Bassman, 221 Conn. 465, 470, 604 A.2d 814 (1992).
The defendants move to dismiss this action on the ground that the court lacks subject matter jurisdiction of the claims against them because they are not proper parties pursuant to General Statutes § 34-134. Nadler responds that the defendants misconstrue this statutory provision because his claims are not based solely on the defendants' status as members or managers of limited liability companies SWW and SWE. He also further asserts that his claims are not barred by General Statutes §§ 34-212 and 34-213; hence, they may be enforced directly against the moving defendants as distributees of SWW and SWE's assets pursuant to General Statutes § 34-214.
Section 34-134 states: "A member or manager of a limited liability company is not a proper party to a proceeding by or against a limited liability company solely by reason of being a member or manager of the limited liability company, except where the object of the proceeding is to enforce a member's or manager's right against or liability to the limited liability company or as otherwise provided in an operating agreement." (Emphasis added.)
Although there is no case law interpreting the statute, its plain language implies that a manager or a member is a proper defendant in an action that is not based solely on his status as a member or a manager. In that connection, the court finds that § 34-134 does not control whether the court has subject matter jurisdiction against Green Holdings CT and Starwood. These defendants were members of SWW and SWE, but these entities are alleged to have been dissolved on January 26, 2001. (Complaint ¶¶ 10, 12; Tirola Affidavit, Ex. C.) Therefore, the court analyzes these arguments in the context of General Statutes § 34-214 because Green Holdings CT and Starwood presumably received the assets of these entities upon their dissolution. Section § 34-214 provides: "Any claim not barred pursuant to sections 34-212 and 34-213 may be enforced by a claimant, legal representative or assignee against: (1) The dissolved limited liability company to the extent of its undistributed assets, or (2) if the assets of a dissolved limited liability company have been distributed in liquidation, against one or more members of the dissolved limited liability company to the extent of their pro rata shares of the claim or the assets of the limited liability company distributed to them in liquidation, whichever is less, but no member's total liability for all claims under this section shall exceed the total amount of assets distributed to that member."
To demonstrate that the court has subject matter jurisdiction over the claims against Green Holdings CT, Nadler alleges that Green Holdings CT is a corporation organized under Connecticut law and was a member and manager of both SWE and SWW. (Complaint ¶ 10.) Similarly, he pleads that Starwood was a member of both SWW and SWE. (Complaint ¶ 12.) As members of SWE and SWW, Green Holdings CT and Starwood would likely receive any assets owned by these entities upon their dissolution. (Nadler's memorandum, p. 10.) The court finds that these allegations are sufficient for it to exercise subject matter jurisdiction over the plaintiff's claims against Green Holdings CT and Starwood pursuant to § 34-214.
The court also finds it has subject matter jurisdiction over the claims against Jason Green. Paragraph 13 of the Complaint alleges that Green made material representations related to the sale of the premises in his individual capacity. There is also some evidence that Green was a manager of SWE and SWW because he signed the articles of dissolution of both entities in that capacity. (Tirola Affidavit, Ex. C.)
As an alternative argument to sustain subject matter jurisdiction over the claims against Green Holdings CT, Starwood and Jason Green, and as the sole argument for subject matter jurisdiction over the claims against Green Holdings LLC, Nadler contends that the court has subject matter jurisdiction over the claims against each defendant because each acted as alter ego of the others. For this reason, Nadler maintains, the court can pierce the corporate veil of each entity to assert the claims against all of them. "It is undisputed that in Connecticut a court will disregard the corporate structure and pierce the corporate veil only under exceptional circumstances, for example, where the corporation is a mere shell, serving no legitimate purpose, and used primarily as an intermediary to perpetuate fraud or promote injustice." (Internal quotation marks omitted.) SFA Folio Collections, Inc. v. Bannon, 217 Conn. 220, 230, 585 A.2d 666, cert. denied, 501 U.S. 1223, 111 S.Ct. 2839, 115 L.Ed.2d 1008 (1991). "[W]hen the corporation is the mere alter ego, or business conduit of a person, it may be disregarded . . . [A] corporation may be the alter ego of another corporation and the distinct corporate entity may be disregarded; the two corporations will be treated as one . . . The alter ego theory is applicable in contract actions as well as in tort actions . . . [O]nce the fact of alter ego is established it furnishes a means for a complainant to reach a second corporation or individual upon a cause of action that otherwise would have existed only against the first corporation." (Citations omitted; internal quotation marks omitted.) De Leonardis v. Subway Sandwich Shops, Inc., 35 Conn. App. 353, 358, 646 A.2d 230, cert. denied, 231 Conn. 925, 648 A.2d 162 (1994).
The principle of corporate veil piercing "also is applicable to limited liability companies and their members." Litchfleld Asset Management Corp. v. Howell, 70 Conn. App. 133, 147, 799 A.2d 298, cert. denied, 261 Conn. 911, 806 A.2d 49 (2002). "[T]he determination of whether to pierce the corporate veil of a stock corporation or to disregard the protections afforded a limited liability company requires the same analysis." KLM Industries, Inc. v. Tylutki, 75 Conn. App. 27, 28 n. 2, 815 A.2d 688 (2003).
"When determining whether piercing the corporate veil is proper, our Supreme Court has endorsed two tests: the instrumentality test and the identity test. The instrumentality rule requires, in any case but an express agency, proof of three elements: (1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) that such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of plaintiff's legal rights; and (3) that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of . . .
"The identity rule has been stated as follows: If a plaintiff can show that there was such a unity of interest and ownership that the independence of the corporations had in effect ceased or had never begat an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability arising out of an operation conducted by one corporation for the benefit of the whole enterprise." (Citation omitted; internal quotation marks omitted.) Id., 32-33. See also Angelo Tomasso v. Armor Construction Paving, Inc., 187 Conn. 544, 553-54, 447 A.2d 406 (1982).
In support of his contention that the court has subject matter jurisdiction over the claims against all the defendants because each acted as alter ego of each other, Nadler alleges the following: each of the defendants acted for themselves in the sale of the property, the establishment of each entity was a sham, each entity constituted an alter ego of the other and defendant Green, and each entity should be disregarded in determining liability for Nadler's damages. (Complaint ¶ 14.) Likewise, Nadler pleads facts about the status of each individual entity as alter egos of the others and their collective role in consummating the sale of the property. (Complaint ¶¶ 8-13, 15.) In addition, Nadler presents documentation attached to his counsel's affidavit to demonstrate that the defendants acted as alter egos of each other. (Tirola Affidavit and Exhibits.)
Because the court must construe these facts alleged in the manner most favorable to Nadler, the court finds that Nadler has alleged sufficient facts that, if proven, would enable a court to "pierce the corporate veil" and disregard the identity of each individual limited liability company, see Brookridge District Assn. v. Planning Zoning Commission, supra, 259 Conn. 611. Hence, this argument also constitutes an alternative acceptable basis for the court to deny the defendants' motion to dismiss for lack of subject matter jurisdiction over the claims against Starwood, Green Holdings CT and Green and as the basis for denying the motion as to Green Holdings LLC.
II. Personal Jurisdiction over Green Holdings LLC
Green Holdings LLC contends that the court lacks personal jurisdiction over it because it is an out-of-state, or foreign, entity organized as a limited liability company in New York State, and it is not subject to jurisdiction under the Connecticut "long-arm" statute.
The parties have argued this issue with the assumption that General Statutes § 52-59b is the long-arm statute applicable to foreign limited liability companies. The court concludes that this assumption is correct, although the issue is not free from doubt. Whereas Connecticut corporation law includes a special long-arm statute applicable to foreign corporations [General Statutes § 33-929 (f)], there is no comparable provision in the Connecticut Limited Liability Company Act, General Statutes §§ 34-100 through 34-242. General Statutes § 52-59b confers long-arm jurisdiction over "non resident individuals and foreign partnerships." The phrase "foreign partnership" could include within its meaning a foreign limited liability company. At least one court has applied § 52-59b in resolving the issue of long-arm jurisdiction over a New York State limited liability company. See New England National, LLC v. Kabro of East Lyme, LLC, Superior Court, Judicial District of New London, Docket. No. CV 00 0550014 (February 23, 2000, Martin, J.). In 1995, the Connecticut General Assembly enacted Public Act 95-79 which included "limited liability company" within the meaning of "person" as used in many places throughout the General Statutes, including the general interpretation provision, codified at Section 1-1 (k). However, there was no such amendment applicable to Section 52-59b. In the absence of any controlling authority, this court holds that Section 52-59b is the applicable statute.
Section 52-59b (a) (1) allows courts to exercise personal jurisdiction over a foreign limited liability company if it "[t]ransacts any business within the state." "The General Statutes do not define what the phrase `transacts any business' means in the context of 52-59b." Zartolas v. Nisenfeld, 184 Conn. 471, 474, 440 A.2d 179 (1981). Nevertheless, the Supreme Court has "construed it to embrace a single purposeful business transaction . . ." Rosenblit v. Danaher, 206 Conn. 125, 138, 537 A.2d 145 (1988). Moreover, "the term `transact any business' extends beyond the typical commercial enterprise to include the execution . . . of a warranty deed pursuant to a single sale of real property [in Connecticut]." (Citations omitted; internal quotation marks omitted.) Id., 138-39. As the Supreme Court explained in Rosenblit v. Danaher, "By owning land in Connecticut the defendants invoked the benefits and protection of Connecticut's laws of real property, including as an incident of ownership the right to sell the property. If the defendants breached their warranties, the breach occurred because of acts committed here [in Connecticut]. The warranties in the deed clearly anticipate litigation in Connecticut, which is the only forum that can determine title to Connecticut land . . . Thus, the fundamental incidents of this warranty deed render the defendants' purposeful execution of it a `transaction of any business within this state . . . [then] this state may require them to defend a Connecticut suit alleging breach of the deed's warranties." Id., quoting Zartolas v. Nisenfeld, 184 Conn. 471, 474, 440 A.2d 179 (1981). Section 52-59b (a) (4) also provides for jurisdiction over a foreign limited liability company which "owns uses or possesses" real property in Connecticut.
The plaintiff, in support of his assertion that the court has jurisdiction over Green Holdings LLC, points out two facts. First, he offers a document which is an application for a dock permit presented to the Connecticut Department of Environmental Protection allegedly made by Jason Green, which states that "Jason Green/Green Holding Co." own the property in question. The document was apparently prepared by Peter Romano, an engineer, although it was signed by Jason Green. (Tirola Affidavit, Ex D.) Second, the plaintiff points to the Residential Contract of Sale between SWE, SWW, and Nadler which gives the mailing address of both SWE and SWW as "c/o Green Holdings LLC, 1325 Avenue of the Americas, 23rd Floor, New York, New York, 10019." (Tirola Affidavit, Ex B.)
In opposition to this and in support of the motion to dismiss for lack of personal jurisdiction, Jason Green offers an affidavit stating: he is the sole member of Green Holdings LLC, the company does not own, use, or possess real property in Connecticut; and it had no involvement in the purchase, sale, or construction of the property in question. (Green Affidavit, ¶¶ 2-3.) Based on the above described evidence alone, there is no basis for asserting jurisdiction over Green Holdings LLC. The reference to Green Holding Co. in the dock application could well refer to another defendant, Green Holdings Corp. CT. The similarity of addresses of SWE and SWW on the real estate contract are not persuasive evidence that Green Holdings LLC was involved in the transactions which are the subject of the complaint, or that it had the necessary minimum contacts with Connecticut.
In the alternative, Nadler argues that personal jurisdiction can be maintained over Green Holdings LLC under the piercing the corporate veil theory set out in his complaint. Connecticut courts have recognized that this theory may be employed to sustain personal jurisdiction over a foreign individual or entity. See Corporation for Independent Living v. Charter Oak Associates, Superior Court, Judicial District of Tolland at Rockville, Docket. No. 48503 (April 10, 1992, Sferrazza, J.); Gamlestaden PLC v. Magnus Lindholm, Judicial District of Stamford/Norwalk at Stamford, CV92 0127912 (February 28, 1996, Karazin, J.); Hale Propeller, LLC v. Ryan Marine Products PTY, LTD., 98 F. Sup.2d 260 (D. Conn. 2000).
Nadler's contention that there is a basis for asserting personal jurisdiction over Green Holdings LLC is strongly opposed. In these circumstances Nadler has the burden to establish jurisdiction. Whether there are grounds to support Nadler's argument that Green Holdings LLC and one or more of the other moving defendants are "alter egos" is a question of fact which cannot be resolved on the present record. Therefore, the court determines that, as suggested during oral argument of this motion, an evidentiary hearing on the issue of personal jurisdiction over Green Holdings LLC must be held. Standard Tallow Corp. v. Jowdy, 190 Conn. 48 (1983). Counsel for the plaintiff and the moving parties should contact Mary Fortier, Court Officer (203) 965-5753 to schedule this proceeding.
TAGGART D. ADAMS
SUPERIOR COURT JUDGE