Opinion
No. X04 CV 04 4000302 S
November 18, 2005
RULING
The plaintiff corporation has alleged in its complaint that the defendant Frank Magnotta converted funds from the corporate till and fraudulently conveyed funds to the other defendants. Magnotta has filed a pleading including an answer, special defenses and cross claims and counterclaims (#171). The counterclaims and cross claims have been asserted against the plaintiff corporation and Robert Bascom individually. Bascom and Magnotta had been co-owners of the stock of the plaintiff corporation. The plaintiff corporation has moved to strike the answer as well as several special defenses and counterclaims (#173). Bascom has moved to strike several cross claims (#174). Magnotta has agreed to replead several of the allegations; those will not be considered at this point. As to those still in dispute, the following rulings are made:
I. Plaintiff's motion to strike answer.
The motion is denied. Considerable latitude is allowed in pleading; see, e.g., Zanoni v. Hudon, 1992 WL54643 (Schaller, J.) (1992); at least where the circumstances are not egregious. Cf. Tolland Bank v. Larson, 28 Conn.App. 332, 336 (1992).
II. Motion to strike defense of "unclean hands."
The plaintiff has moved to strike the first special defense on the ground that the facts alleged in the defense do not state a ground which would, if true, defeat the plaintiff's alleged causes of action. The plaintiff has alleged, essentially, that Magnotta misappropriated funds from the corporation. The defense alleges that, in a variety of ways, the corporation treated Magnotta unfairly and Bascom preferentially. It alleges, for example, that the plaintiff forced him to resign under duress and illegally and treated him unfairly thereafter in the dissolution of the corporation's business. It alleges that Bascom was allowed to use corporate assets for his own business and that he was allowed to do less work than Magnotta for the corporation. Similarly, the defense claims that the corporation authorized its attorney and its accountants to act improperly as to Magnotta's interests. Finally, it alleges that Bascom was allowed to retain substantially all of the corporate assets and that it refused to recognize Magnotta's claims.
A special defense, of course, is a group of facts which, if true, will avoid liability to the plaintiff, even if the plaintiff's claims are true. See Practice Book § 10-50. The doctrine of "unclean hands" is properly applied more narrowly than its title might imply. If Magnotta's allegations are true, then the corporation's conduct is not to be commended, and, in a broad sense, its hands would be "unclean." In order for the doctrine to provide an effective defense, however, the party seeking to invoke the doctrine must show (1) that the other side engaged in willful misconduct with respect to the subject matter of the litigation so that the integrity of the court would be impugned by granting relief to the party; see Polvereri v. Peatt, 29 Conn.App. 191, 202 (1992); A B Auto Salvage, Inc. v. Zoning Board of Appeals, 189 Conn. 573, 578 (1983); and (2) that the plaintiff's position relies on its own fraud or transgression in order to present its cause of action. See Thompson v. Orcutt, 257 Conn. 301, 308-12 (2001). In the present situation the first element arguably has been pled, but the second has not. None of the alleged transgressions on the part of the corporation form a predicate for the bringing of the action against Magnotta. Though the corporation may have acted badly, such claims more properly may be grist for a counterclaim. Some of the facts alleged may be relevant to a valuation and distribution of corporate assets, should such a calculation be relevant. But they do not constitute a valid special defense, and the motion to strike the defense is granted.
For the present I am assuming that the defense of "unclean hands" may be asserted in law or in equity. There is authority to the contrary.
III. The special defense of breach of contract.
The motion to strike the third special defense, breach of contract, is granted. If the allegations are true, they do not necessarily defeat the plaintiff's claim. They may, again, properly be asserted as a counterclaim.
IV. The special defense of accord and satisfaction.
The motion to strike the special defense of accord and satisfaction is granted, but only because it is not clear that all the elements have been pled. See, e.g., Munroe v. Emhart Corp., 46 Conn.App. 37, 42-43 (1997).
V. The CUTPA counterclaim.
The fifth count of the counterclaim asserts a violation of the Connecticut Unfair Trade Practice Act, ("CUTPA") General Statutes §§ 42-110a et seq. The defendant alleges that at a meeting on December 24, 2003, the plaintiff threatened to take criminal action against Magnotta unless he resigned, which he did under duress. The count further alleges the conduct forming the basis of the "unclean hands" special defense, various breaches of implied covenants, accord and satisfaction, and the remainder of the special defenses which the defendant has agreed to replead. The plaintiff claims that the facts alleged do not constitute a proper claim under CUTPA, because the claims allege only intracorporate matters and do not allege unscrupulous conduct in the trade or business.
As to some of the allegations in the CUTPA count, the plaintiff is undoubtedly correct. The act does not apply to purely intracorporate or internecine squabbles, where there is no substantial effect on customers, consumers or other business people. If a dispute is essentially private, the conduct is not subject to the act. Russell v. Russell, 91 Conn.App. 619, 646-47 (2005). To be cognizable, the claim must present some nexus with public policy, and the actions of course must be undertaken in connection with a trade or business. Muniz v. Kravis, 59 Conn.App. 704, 711, 715 (2000). Thus, those portions of the count which deal with the allegedly unscrupulous circumstances of Magnotta's resignation, for example, presumably do not give rise to CUTPA violations.
Our case law supports the proposition, however, that conduct which transcends matters of internal governance and instead places the alleged violator in competition with the interest of the business organization may be subject to relief pursuant to the act. See Spector v. Konover, 57 Conn.App. 121, 133-34 (2000); Russell v. Russell, supra. In Spector, the diversion of partnership assets to one partner could constitute a violation. Almost directly on point is Fink v. Golenbock, CT Page 14643 238 Conn. 183, 212-15 (1996), in which one owner apparently "froze out" another owner and, while personally retaining the assets of the business, began a new practice on his own. Our Supreme Court held that such conduct could constitute a violation of CUTPA. Id. It would appear, then, that some of the alleged conduct, such as the alleged siphoning of assets to Bascom so that he retained all the benefits of the corporation, may state a claim on which relief may be granted pursuant to CUTPA. The motion to strike the fifth count of the counterclaim is denied.
VI. Bascom's motion to strike the CUTPA count.
The motion to strike this count is denied, on the same reasoning as stated above.
VII. Bascom's motion to strike the sixth count.
The sixth count of the counterclaim claims breach of contract as to Bascom and the corporation. Bascom has moved to strike on the ground that no contract has been alleged. Magnotta argues that several contracts have been alleged. I have examined the allegations of the count and, though it is not entirely clear, a liberal interpretation of the pleading suggests that Bascom may have been a party to an alleged contract. If any set of facts admissible under the pleadings can afford relief, a motion to strike should be denied. Though the issue may be revisited in a more factually intensive atmosphere, the motion is, at this stage, denied.