Opinion
CV176082169S
09-19-2018
Richard ATTIANESE et al. v. Laurel CALIENDO et al.
UNPUBLISHED OPINION
OPINION
Cobb, J.
The defendants, Laurel Caliendo and Village Mortgage Company, Inc. (defendant company or VMC), move to dismiss this shareholder derivative action brought on behalf of VMC by individual minority shareholders, Richard Attianese, Natalie Attianese, Raymond Madeux, Gloria Madeux, Anthony Paige, Steven Vaill, Sandra Vaill and Donna Harris. The complaint alleges counts against Caliendo for breach of fiduciary duty, statutory theft pursuant to General Statutes § 52-564, conversion and violation of the Connecticut Unfair Trade Practices Act (CUTPA). The defendants argue in their motion to dismiss that the court lacks subject matter jurisdiction over this action under General Statutes § 33-724, because VMC’s Board conducted a reasonable good faith inquiry into the shareholder’s demand which preceded the commencement of this litigation, and determined that legal action against Caliendo was not in the best interests of the corporation. The plaintiffs have objected to the defendants’ motion to dismiss and assert the opposite- that the Board’s inquiry was not in good faith, reasonable or in VMC’s best interests. Having considered the parties’ arguments, and the credible evidence presented at the hearing, the court finds the issues for the defendants, and, therefore, grants the motion to dismiss.
I
FINDINGS OF FACT
The court held a hearing over several days during which it heard testimony and accepted documentary evidence as to the factual issues related to the defendants’ motion to dismiss. Based on the credible evidence submitted at the hearing, the court makes the following factual findings relevant to the motion to dismiss.
VMC is a Connecticut corporation engaged in the real estate mortgage business. The plaintiffs are minority shareholders of the defendant company.
Caliendo is a founder of the defendant company, and has worked there for approximately nineteen years. She is also the President and CEO of VMC.
On April 12, 2016, the plaintiffs, through counsel, sent a letter (the demand) addressed to VMC in which they demanded, pursuant to General Statutes § 33-722, that it "file a lawsuit against Laurel Caliendo as a result of her theft and/or misappropriation of [the defendant corporation’s] funds, as more particularly described by the court, Moore, J., in Footnote 3 of its Memorandum of Decision, dated December 23, 2015, in connection with the lawsuit entitled, Village Mortgage Co. v. James Veneziano, Docket No. LLI-CV-12 6007694-S ..." The demand did not identify the specific actions of Caliendo upon which the demand was made, except to say "as more particularly described by Judge Moore in Footnote 3" of Judge Moore’s decision. The demand letter also stated that the plaintiffs were ready to commence a derivative action against Caliendo within ninety days, unless VMC removed her from her positions.
The court notes that the memorandum of decision which the plaintiffs appended to the demand is dated December 23, 2015. In Village Mortgage Co. v. James Veneziano, Docket No. LLI-CV-12-6007694-S, Judge Moore made two subsequent amendments to that decision. First, on December 31, 2015, and, again, on January 25, 2016. This court has specifically examined the revisions to Footnote 3 since the December 23, 2015 decision, and concludes that any alterations therein are immaterial to the outcome of this motion.
In Village Mortgage Company v. Veneziano (Veneziano action), referenced in the demand, the defendant company sued James Veneziano, a founding partner, shareholder, and former officer and director of the defendant company. That lawsuit alleged, inter alia, that Veneziano threatened VMC’s employees, and sought an injunction barring him from entering the company’s building, and harassing its employees. The action also alleged that Veneziano owed a fiduciary duty to the defendant company, and claimed that he misappropriated funds constituting conversion, statutory theft and embezzlement. The case was tried and decided by the court, Moore, J., which found for the defendant company and awarded it $2,080,185.09.
In the present case, the plaintiffs’ demand is premised on Caliendo’s alleged "theft and/or misappropriation of VMC’s funds" as described in Footnote 3 of Judge Moore’s eighty-eight-page decision in the Veneziano action. Caliendo was not a party to that action, but was a witness only. Footnote 3 of Judge Moore’s decision is located under a section entitled "INTRODUCTION," and a subsection entitled "A. No substantive defense presented." In this introductory section, Judge Moore found that Veneziano offered no valid defense to the company’s claims of theft and misappropriation, and expressly rejected Veneziano’s position that he should not be held responsible for his actions because the company fostered an environment where withdrawals of the company’s monies by its officers- and in particular Caliendo- was common place. Judge Moore determined that Veneziano’s claim that other company officials engaged in similar conduct "neither defeats the allegations of misappropriation nor provides a defense thereto." Having found that the evidence of other officers’ bad actions did not constitute a proper defense to the claims, the court held that such evidence was only considered by the court for the limited purpose of proving the element of authority under the conversion count.
In Footnote 3 of the Memorandum of Decision dated December 23, 2015, Judge Moore stated:
During the presentation of his case, the defendant marshalled compelling evidence to demonstrate that he was not the only officer accessing the plaintiff’s corporate assets as if they were his or her own. Ms. Caliendo frankly admitted that she and the defendant took advances throughout the life of the plaintiff business. The defendant’s exhibit BY sets forth a lengthy list of what the defendant believes to be personal expenditures made by or on behalf of Ms. Caliendo from the plaintiff’s resources. During trial, Ms. Caliendo testified concerning these claims, sifting business expenses from personal ones while reviewing the entirety of exhibit BY. Although the defendant misidentified many business expenses as personal, the personal expenses listed in exhibit BY that, pursuant to Ms. Caliendo’s testimony, benefitted the Caliendo family totaled more than $450,000 from 2004 through the end of 2014. Of this amount, approximately $350,000 comprised checks made payable to Laurel Caliendo, Mark Caliendo, Alyssa Caliendo (Laurel’s daughter), or Clayton Caliendo, wire transfers to Laurel, Mark and Alyssa Caliendo, and ATM withdrawals. Ms. Caliendo also testified that a significant amount of the withdrawals that she took from corporate funds were for personal vacations. The 2009 and 2010 entries alone reflect trips to Florida, Las Vegas, Hawaii, Ireland, and Great Britain. Ms. Caliendo testified that she used VMC funds for shopping, cosmetics and for her daughter’s school books. In the two years before the filing of this suit on October 16, 2012, just after Ms. Caliendo testified that the new chief financial officer (CFO), Mr. Girolimon, brought to her "attention a concern over certain withdrawals that had been made from the corporation [by the defendant]," ... $160,522.05 in checks were made payable to the Caliendo family for personal expenditures. Even after this complaint was filed, a complaint that alleges misappropriation on the part of the defendant and seeks, from the defendant, treble damages for statutory theft, more than $27,000 went to the Caliendo family for personal expenses: $9,600 wired to Alyssa Caliendo, $16,359.54 in checks made payable to Laurel, Mark, and Alyssa Caliendo, and goods purchased in the amount of $922.59 in 2013 and $206.99 in 2014. Although these facts do not diminish, in any way, the defendant’s liability, as discussed in the body of this memorandum, they demonstrate, starkly, hypocrisy on the part of Ms. Caliendo, who, along with the plaintiff’s CFO, was one of the major witnesses for the plaintiff at this trial. Ms. Caliendo testified consistently during trial that she believed that the defendant, as CFO, was keeping track of advances to officers, that she relied on him to do so and that she was aware that she would have to repay the advances someday. The court notes that the defendant retired from the plaintiff’s business in early 2010 and that many of Ms. Caliendo’s withdrawals of corporate assets for personal use, as set forth above, took place after the defendant retired from the plaintiff business. Ms. Caliendo testified that, even after his retirement, the defendant authorized her to use VMC funds for her personal benefit. This testimony is simply not credible. Even though, as discussed elsewhere, the defendant stayed involved in overseeing the plaintiff’s finances after his retirement and until early 2012, the court does not find it credible that, after Mr. Girolimon advised Ms. Caliendo, in mid- to late-2010, of large scale inappropriate advances by the defendant, Ms. Caliendo still believed that (1) the advances she had taken were appropriate and (2) that the defendant would insure that all such advances would be paid back. The court is also aware that Ms. Caliendo testified credibly that she eventually acknowledged that she took money inappropriately from the plaintiff, but she had, after an investigation led by Mr. Girolimon, calculated how much she owed the plaintiff, entered into an agreement (approved by the board of directors) to pay the plaintiff back, paid back a substantial amount to the plaintiff, and owed the plaintiff, at the time of trial, approximately $200,000. The agreement was never entered as an exhibit in this case. The court is also aware, however, that Ms. Caliendo, along with her husband, holds about one-third of the shares of the plaintiff and is likely to benefit substantially from a recovery in this case. Moreover, there was no evidence presented as to whether the negotiations between the plaintiff and Ms. Caliendo were at arm’s length, whether either side or both were represented by counsel, whether the plaintiff considered that statutory theft, if proven, could yield treble damages or, most importantly, the final terms of the settlement. The plaintiff’s board of directors may find it advisable, considering its obligations to the shareholders, to review anew Ms. Caliendo’s settlement agreement with the plaintiff, and the negotiations that led to this settlement in light of the facts found in this case. (Citations omitted.)
Upon receiving the April 16, 2016 demand letter, VMC retained Attorney Mark H. Dean, to conduct an independent evaluation of the shareholder demands and advise VMC as to those claims. Dean is a corporate attorney who is knowledgeable about corporate shareholder litigation. Dean was also familiar with VMC since he had previously investigated a June 13, 2014 shareholder demand made by James Veneziano in 2015, which occurred simultaneously with the Veneziano action initiated by VMC, in which Veneziano demanded that the company sue other directors and officers of VMC, including Caliendo, for breach of their fiduciary duties. At that time, Dean issued a twenty-three-page, single-spaced report recommending that the company decline to commence litigation.
As to the demand in this case, on May 4, 2016, Dean wrote to the plaintiffs’ attorney and explained that he had been retained by VMC to conduct an independent evaluation of the shareholder demands. Dean asked counsel to provide any documents, statements or other information pertinent to the demand within two weeks and invited counsel to call him to discuss the demand. Plaintiffs’ counsel did not provide Dean with any documents, but instead directed him to the exhibits in the Veneziano action.
Dean then received relevant exhibits and trial transcripts from the defendant company’s counsel in the Veneziano action. He also reviewed numerous other company documents including financial ledgers, the Caliendo promissory note, Board minutes, and spoke, personally and telephonically, with certain individuals including Caliendo and Vice President Justin Girolimon. Dean conducted legal research and analysis concerning the shareholders’ claims in its demand as discussed by Judge Moore in Footnote 3 of his decision.
On June 27, 2016, Dean submitted his independent evaluation report (Dean Report) of the shareholder’s demand to the defendant company’s Board of Directors. The Dean Report is lengthy, fourteen pages, single-spaced, and very thorough. The Dean Report states that the investigation and analysis was conducted pursuant to General Statutes § 33-720 et seq., governing shareholder derivative proceedings, and explained: "The Firm’s investigation here was intended to ensure that a ‘reasonable inquiry’ as contemplated by statute was conducted on VMC’s behalf, and that any recommendations or conclusions to be made were rendered in good faith. With that in mind, the Firm sought to determine whether it is in VMC’s best interest to commence a lawsuit against Caliendo or to remove her as President and CEO as sought by the demands."
The Dean Report analyzed and reviewed the issues raised by the demand and Footnote 3 of Judge Moore’s decision in the Veneziano action. Specifically, the Dean Report addressed Caliendo’s use of company funds for personal expenses, through write-offs and officer advances, and identified potential claims that could be brought against her, including breach of fiduciary duty, conversion, civil theft and unjust enrichment. The Dean Report also reviewed possible special defenses which Caliendo could assert, including accord and satisfaction, compromise and settlement, and statute of limitations.
Of particular import to Dean’s analysis of these claims and defenses was that during the course of the investigation into Veneziano’s misappropriation of company funds, it was discovered that Caliendo had also received write-offs for personal expenses over a number of years in the amount of $229,912.59, which was later determined to be $184,912.59. Caliendo accepted responsibility for her actions and offered to repay VMC the amounts she owed. On November 16, 2014, the Board agreed to allow Caliendo to repay the amounts owed by making interest-free monthly payments of $1,000 to the company. The agreement between VMC and Caliendo was formalized by the execution of a signed promissory note and subsequent amendment on December 22, 2014 and April 18, 2016, respectively.
The original promissory note signed by Caliendo and Girolimon was for $229,912.59. Later it was determined that the amount owed to the defendant company was actually $184,912.59, and on April 18, 2016, Caliendo and Girolimon signed a First Amendment to Note, reflecting the new amount. The reduction in the amount of the note was due to the defendant company’s recognition of certain funds that were not received by the company and that Caliendo had contributed $40,000 to the company in an unrelated transaction.
The Dean Report determined that VMC had valid claims for breach of fiduciary duty, conversion and unjust enrichment. Whether it could prove civil theft would depend on whether it could prove that Caliendo had the "intent to steal" the funds. The general damages as to these claims would be the amount of company funds improperly used by Caliendo and her family for personal expenses. Because she has already agreed to and was in the process of repaying the company for said funds, such general damages would not be recoverable. Other possible damages could be interest, punitive damages or treble damages for theft if the element of intent to steal could be proven.
Specifically, as to possible damages that may result from a lawsuit against Caliendo, the Dean Report stated:
Given that Caliendo has agreed to repay the sums written off, the possible advantages of bringing a lawsuit are the potential to recover interest punitive damages, or treble damages. Since punitive damages are generally the amount of a party’s reasonable attorneys fees, VMC would be looking to recover funds that it has yet to expend if legal action were commenced. That, at best, amounts to a wash and does not warrant the start of a lawsuit.
The potential to recover funds more quickly and the possibility of recovering interest or treble damages does not represent the opportunity of a more positive economic recovery. That prospect, however, needs to be balanced against the strength of Caliendo’s defenses and the cost and risks of litigation ...
The Dean Report went on to caution that the possibility of recovering additional damages against Caliendo must be weighed against the possible damage and risks to the company:
It also needs to take into account that it would likely ruin VMC’s relationship with Caliendo, VMC’s top officer who has handled its operations since the company was formed, and the loss of any future financial backing that she has historically provided to VMC. If VMC considers Caliendo to be a key, critical and essential employee and its leader upon whom VMC’s future prospects heavily rest, extreme caution is warranted in evaluating any litigation alternative.
The Dean Report then analyzed the possible defenses Caliendo could assert to such claims, including accord and satisfaction and compromise and settlement, and statute of limitations. Based on Caliendo’s agreement to repay the advanced funds used for personal expenses, the Dean Report concluded that Caliendo had strong special defenses to VMC’s possible claims. In particular, the report states: "The firm believes that Caliendo would have a strong argument that this is a binding deal that resolves all liability that she might have concerning the write-offs. The Firm also believes that the Board was justified in agreeing to the repayment plan." Additionally, some claims would be time barred by the statute of limitations as some of Caliendo’s actions took place over a ten-year time period beginning in 2004.
The Dean Report explained: "The directors are entitled to use their business judgment in deciding how to respond to the Demands. Given the Board’s acceptance of a repayment plan, evidence that Caliendo was not the person initiating the officer advance write-offs, doubts about whether Caliendo knowingly received the benefit of the write-offs, and various possible defenses, the Firm believes that the repayment plan properly resolves an issue over the officer advance write-offs and that the Board is entitled to decide not to take any further action against her."
The Report advised: "In sum, the firm recommends that VMC decline to commence litigation against Caliendo for misuse of VMC funds for personal expenses and that it ratify its prior agreement with Caliendo concerning the repayment of the funds so used." Additionally, the Dean Report concluded that: "The Firm does not recommend that VMC commence legal action against Caliendo or remove her from office."
The defendant company’s Board convened to review the Dean Report on July 6, 2016, and voted unanimously to approve the Report’s findings and recommendation not to bring legal action against Caliendo or remove her. The plaintiffs were notified of this decision through their counsel.
On or about September 17, 2017, the plaintiff minority shareholders initiated this action in four counts against Caliendo, asserting breach of fiduciary duty, violations of General Statutes § 52-564, conversion and violations of CUTPA. They seek money damages, an accounting, the appointment of a receiver, and Caliendo’s removal from the company.
As to the issues raised by this motion to dismiss, the plaintiffs allege that "VMC did not intend on conducting a reasonable or legitimate investigation in response to the Demand; the investigation was a sham in bad faith to protect Caliendo." The complaint alleges that Dean had a conflict of interest because he is a "family member" of Caliendo’s attorney, Richard Weinstein, because they are related by marriage and have worked together in the past. The complaint further claims that the Dean Report determined that Caliendo engaged in wrongdoing, yet the company overlooked her transgressions by following Dean’s recommendations. The plaintiffs allege that the Board did not engage in a reasonable inquiry, and that its decision not to sue Caliendo was neither made in good faith nor based upon reasonable business judgment.
On or about October 31, 2017, the defendants filed the present motion to dismiss asserting that the court lacks subject matter jurisdiction over this case under § 33-724(a), because the defendant company made a good faith reasonable inquiry into the plaintiffs’ demand and determined that it was not in VMC’s best interests to initiate legal action against Caliendo. The plaintiffs objected to the motion to dismiss, countering that the board of directors failed to act in the company’s best interest in failing to sue Caliendo and remove her from the company.
Because the parties agreed that the determination of the motion to dismiss required evidence outside of the pleadings, the court held an evidentiary hearing over several days, at which the parties presented testimony and submitted documentary evidence, including: the demand, Judge Moore’s decision, the Dean Report, Board minutes, the Caliendo promissory note and amendment, and exhibits from the Veneziano action. The plaintiff presented the testimony of Attorney Dean, Caliendo, and a number of board members. None of the plaintiffs testified at the hearing. The board members credibly testified that they followed the Dean Report’s recommendations; that they believed that Caliendo exercised bad judgment but that the agreement to allow her to pay back the advances from the company was fair; that suing her was not in the best interests of the company; and, that firing Caliendo would be "economic suicide" as there was no one else who was capable of running the company.
II
DISCUSSION
The defendants move to dismiss this action under § 33-724 which provides in relevant part:
(a) A derivative proceeding shall be dismissed by the court on motion by the corporation if one of the groups specified in subsection (b) or (e) of this section has determined in good faith after conducting a reasonable inquiry upon which its conclusions are based that the maintenance of the derivative proceeding is not in the best interests of the corporation.
(b) Unless a panel is appointed [by the court] pursuant to subsection (e) of this section, the determination in subsection (a) of this section shall be made by: (1) A majority vote of qualified directors present at a meeting of the board of directors if the qualified directors constitute a quorum; or (2) a majority vote of a committee consisting of two or more qualified directors appointed by a majority vote of qualified directors present at a meeting of the board of directors, regardless of whether such qualified directors constitute a quorum.
(c) If a derivative proceeding is commenced after a determination has been made rejecting a demand by a shareholder, the complaint shall allege with particularity facts establishing either (1) that a majority of the board of directors did not consist of qualified directors at the time the determination was made or (2) that the requirements of subsection (a) of this section have not been met.Section 33-724 "is part of the Connecticut Business Corporation Act ... which is a comprehensive revision of [Connecticut’s] corporations statutes designed to bring those statutes into conformity with the Model Business Corporation Act ... The Connecticut Business Corporation Act became effective January 1, 1997." Beckworth v. Bizier, 138 F.Supp.3d 144, 155 (D.Conn. 2015).
The Appellate Court explained: "Subsection (a) of § 33-724 requires courts to dismiss a derivative proceeding if a majority vote of qualified directors constituting a quorum, or a committee appointed by qualified directors, determined in good faith, after conducting a reasonable inquiry upon which its conclusions are based, that the maintenance of a derivative proceeding is not in the best interests of the corporation." Sojitz America Capital Corp. v. Kaufman, 141 Conn.App. 486, 496, 61 A.3d 566 (2013). The statute "imposes a heightened pleading standard"; id., 497; placing the burden upon the plaintiff shareholders to allege these claims with factual particularity. § 33-724(c); Frank v. LoVetere, 363 F.Supp.2d 327, 333 (D.Conn. 2005).
The plaintiffs concede that the Board of Directors was qualified, and the vote not to initiate an action against Caliendo was supported by a quorum. Thus, the court need only decide whether the Board’s decision was made in good faith after a reasonable inquiry, and in the defendant company’s best interests.
"Good faith and reasonableness [create] a floor below which the board’s actions and procedures cannot fail to be considered reasonably acceptable under the business judgment rule. Thus [the plaintiff’s] burden here is not just to show that the ... inquiry and report were flawed, or that someone else might have reached a different conclusion, but that the ... inquiry and conclusions [do not] follow logically." (Internal quotation marks omitted.) Frank v. LoVetere, supra, 363 F.Supp.2d 335. "[T]he policy reason for this limited review is that a corporation should be free to determine in its own business judgment whether litigation is in its best interest, free from unnecessary interference." (Internal quotation marks omitted.) Sojitz America Capital Corp, v. Kaufman, supra, 141 Conn.App. 506.
"What constitutes reasonable inquiry will vary with the circumstances in each case ... [T]he word inquiry has been used, rather than investigation, to make it clear that the scope of the inquiry will depend upon the issues raised and the knowledge of the group making the determination with respect to those issues. In some cases, the issues may be so simple or the knowledge of the group so extensive that little additional inquiry is required . In other cases, the group may need to engage counsel and possibly other professionals to make an investigation and assist the group in its evaluation of the issues." (Emphasis added; internal quotation marks omitted.) Id.
Based on the credible evidence presented, the court concludes that the plaintiffs have failed to meet their burden to establish with particularity that the Board failed to conduct a good faith reasonable inquiry and failed to act in the company’s best interest. The Board was already well versed in the issues presented in the plaintiffs’ demand based upon its prior actions in response to the Veneziano action in which Veneziano presented his own demand, and after which the first Dean Report was prepared to assist the Board in responding to that demand. Subsequently, the Board directly engaged in negotiations and an agreement with Caliendo to repay the amounts she owed to the defendant company resulting from improper officer advances. Consequently, the fact that the Board’s meeting to review the Dean Report, and adopt its findings, only took a short amount of time does not undermine their decision or constitute bad faith, as the plaintiff claims. See id.
The plaintiffs’ demand was based exclusively on dicta taken from a footnote in Judge Moore’s decision discussing the fact that Caliendo took officer advances for personal purposes, and which Judge Moore concluded was not relevant to Veneziano’s conduct but only as to the limited issue of authority. The court then proceeded to set forth Caliendo’s testimony concerning her actions. Judge Moore also noted that Caliendo acknowledged that she had inappropriately taken funds, determined the amount, and then offered to repay the funds to VMC. Judge Moore, however, acknowledged that his commentary of Caliendo’s actions was not supported or contradicted by relevant documentation, in particular the promissory note or amendment, or other evidence involving the circumstances under which she agreed to return the funds, and VMC’s agreement to allow the repayment.
"[D]ictum is an observation or remark made by a judge in pronouncing an opinion upon a cause, concerning some rule, principle, or application of law, or the solution of a question suggested by the case at bar, but not necessarily involved in the case or essential to its determination ... Statements and comments in an opinion concerning some rule of law or legal proposition not necessarily involved nor essential to determination of the case ... are obiter dicta, and lack the force of an adjudication." (Internal quotation marks omitted.) State v. Courchesne, 296 Conn. 622, 738 n. 79, 998 A.2d 1 (2010).
The Dean Report’s recommendation not to initiate legal action was based in large part on Caliendo’s admission that she took improper advances, and the agreement between Caliendo and the Board allowing for Caliendo to repay those funds to the company. In view of the agreement that Caliendo could repay the amounts owed to the company from the improper advances, the Dean Report determined that the possible damages to be obtained through a suit would be limited, if such damages could be proved, and that her special defenses asserting a compromise agreement under the circumstances were strong. It is not the court’s role to second guess the report, or the Board’s acceptance of it, but only to determine if the "inquiry and conclusions [do not] follow logically." Frank v. LoVetere, supra 363 F.Supp.2d 335; Sojitz America Capital Corp. v. Kaufman, supra, 141 Conn.App. 509. The court finds that they do.
This court actually had the benefit of the Dean Report, evidence of this promissory note and amendment, Board minutes, and testimony as to the circumstances of this agreement with Caliendo.
As to the Board’s acceptance of the Dean Report’s recommendation not to sue for money damages or to remove Caliendo, the Board determined, as recommended by the Dean Report, that it would not be in the best interests of the company to commence a lawsuit against Caliendo. In addition to the reasons stated in the Dean Report, several board members testified credibly that although they believed that Caliendo exercised bad judgment in taking the advances, the agreement allowing her to repay the advances was fair, and such an action would not be in the best interests of the defendant company because Caliendo’s knowledge of the company, contacts, and experience, among other things, were essential to VMC’s success.
That the defendant company elected to sue Veneziano and not defendant Caliendo does not, as the plaintiff claims, demonstrate bad faith. The Board could reasonably and logically have determined that the actions of these two officers were different and therefore, they could be treated differently. Although both improperly took officer advances for personal reasons, the total amounts of these advances were vastly different. Judge Moore awarded more than two million dollars in damages to VMC after a full trial in the Veneziano action, and there is no evidence that Veneziano acknowledged any wrongdoing, or offered to pay back the improper advances. By contrast, Caliendo acknowledged her improprieties, accepted responsibility, and agreed to repay the amount of the advances, which were of a fraction of Veneziano’s, and less than $200,000.
The court also rejects the plaintiffs’ claim that the Board acted in bad faith because it allowed a "conflicted" attorney, Attorney Dean, to conduct the investigation. The plaintiffs claim that Attorney Dean is "related" to Caliendo’s attorney by marriage, and that they have previously worked together on a related case. The plaintiff provides no authority that this situation constitutes a clear conflict and, in any event, to the extent there was a conflict the Board waived it. This waiver was reasonable in light of the fact that Attorney Dean was familiar with the issues, the players and the company, having previously conducted the investigation related to Veneziano’s shareholder demand.
The plaintiffs claim that this case requires the application of the "futility exception" to the written demand requirement in § 33-724 is also unavailing. This common-law exception to the demand requirement allows plaintiff shareholders to forego the written demand requirement if it is determined that such a demand would be futile. See Guarino v. Livery Limited, Inc., Superior Court, judicial district of New London, Complex Litigation Docket, Docket No. CV-03-012784S (November 18, 2003, Quinn, J.) (35 Conn.L.Rptr. 713, 713-14). There is no appellate authority applying this exception to the demand requirement after the passage of § 33-724. Although certain Superior Courts have continued to apply the exception, at least one federal court has determined that the statute now controls, and it does not provide for such an exception. See Beckworth v. Bizier, supra, 138 F.Supp.3d 155.
This court need not decide whether the futility exception to the demand requirement remains in effect in view of the statutory requirement in § 33-724, or whether such a requirement applies here because, in this case, the plaintiffs made a demand under § 33-724, which the defendants investigated. MBIA Inc. v. Federal Ins. Co., 652 F.3d 152, 163 n.5 (2d Cir. 2011) ("Because this case involves a situation where demands were made on the board, we do not address demand futility." [citation omitted; internal quotation marks omitted] ).
Thus, the court finds that the plaintiffs have failed to meet their burden under § 33-724 to establish with particularity that the Board failed to act in good faith, after undertaking a reasonable inquiry upon which it concluded that the maintenance of a derivative action was not in the best interest of the company.
III
CONCLUSION
For all of the foregoing reasons, the motion to dismiss is granted.