Opinion
X03HHDCV176079494S
10-25-2017
Federico Bragoni, Individually and Derivatively on Behalf of B& F Machine Co. et al. v. Carl Francalangia et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION RE DEFENDANTS CARL FRANCALANGIA AND MARIO FRANCALANGIA'S MOTION TO DISMISS (#107.00)
Ingrid L. Moll, Judge.
Before the court is the motion to dismiss dated June 1, 2017, filed by defendants Carl Francalangia and Mario Francalangia (together, the defendants), directed to counts two and three of plaintiff Federico Bragoni's complaint for lack of subject matter jurisdiction. (#107.00.) For the reasons stated below, the court grants in part and denies in part the defendants' motion to dismiss.
I
BACKGROUND
Counts two and three, which are the subject of the defendants' motion, allege the following facts. The plaintiff is a co-founder and the president of B& F Machine Company, Inc. (B& F) and DBF Industries, Inc. (DBF) (together, the corporations), manufacturing companies founded in the 1970s, organized under the laws of the state of Connecticut, and based in New Britain. Another co-founder is defendant Carl Francalangia (Carl), who is the vice president and secretary of B& F. The plaintiff and Carl are brothers-in-law. Defendant Mario Francalangia (Mario) is Carl's son and an hourly wage employee of B& F.
The court refers the reader to the complaint for a complete recitation of the plaintiff's allegations.
B& F specializes in close-tolerance machining and precision fabrication for the aerospace, defense, and power-generation industries. It has approximately 186 employees and annual revenue of around $70 million. The plaintiff is a 50% shareholder of B& F. Carl and Mario own the remaining 50%. DBF is functionally identical to B& F and/or acts as a mere instrumentality of B& F. DBF exists nominally as a fabrication/welding business and has one client, B& F. Transactions between DBF and B& F are not at arm's length. DBF nominally has approximately ten employees. The plaintiff is a 50% shareholder of DBF. Carl owns the remaining 50%.
The plaintiff has been frozen out of the corporations' management by the defendants. Although he is not an officer or director of either corporation, Mario has obtained an " outsize leadership role" in the corporations. With Carl's approval, but without the approval of the plaintiff, Mario directs that he receive a grossly excessive annual bonus in the range of $1.9 million to $3.2 million each year, a practice that has continued even after the plaintiff demanded that it stop. In addition, Carl and/or Mario have used company assets as their personal assets. This conduct includes, for example, in a personal capacity, using company money to make a down payment on a building in New Britain and using company personnel to assist with upgrading the building.
For at least the last five years, the corporations have been deadlocked, all efforts to resolve the deadlock have failed, and there remains no mechanism for managing the corporations' affairs, which has caused and threatens to cause further irreparable injury to the corporations and prevented the corporations from conducting their business to the full advantage of the shareholders, including the plaintiff. It has been over three decades since either corporation held a shareholders or directors meeting, contrary to Connecticut law and the corporations' bylaws. All directors' terms expired decades ago, and they were not replaced. As a result of the lack of governance and the 50/50 voting split between the plaintiff and the defendants, the corporations are unable to make decisions regarding management, financial and inventory controls, compensation, and shareholder dividends. These shortcomings create the risk of diversion and waste of company assets and compromise the corporations' ability to manufacture and deliver product effectively. These shortcomings also threaten irreparable harm to the corporations' relationships with key customers.
The defendants refuse to involve the plaintiff in management and in any significant company decision-making, including certain major company investments and transactions, such as an addition to the company building and space, the signing of major company contracts, and purchases of major new equipment. The plaintiff has been marginalized and prevented from exercising any reasonable degree of control, either as a shareholder, director, and/or officer. The mismanagement, lack of company controls, exclusion of the plaintiff from his directorship and role as president, and diversion of company assets have oppressed the plaintiff and violated his reasonable expectations as a shareholder. The plaintiff has also been prevented from " get[ting] his money out of the companies." That is, the plaintiff has insisted that the corporations distribute their substantial liquid holdings in the tens of millions of dollars, but they have refused to do so.
The plaintiff also complains that B& F has improperly remained a " C Corp" for taxation purposes, which has caused the shareholders to pay far more in taxes than if the company were an " S Corp" and has allowed B& F effectively to prevent cash distributions to shareholders. The complaint further alleges a lack of proper accounting methods, a lack of professionalism and proper accounting practices on the part of B& F's accountant, Roger Bennett (Bennett), a company " loan" to Bennett in excess of $572,000, and false reporting by B& F to the Connecticut Secretary of State. Additional facts are provided below as necessary.
The plaintiff, individually and derivatively on behalf of the corporations, commenced this action on or about April 26, 2017, with a return date of May 2, 2017. The corporations were named as nominal defendants. The initial complaint dated April 7, 2017, which is the operative complaint, is in three counts. Count one is a claim for dissolution under General Statutes § 33-896 against the corporations. Counts two and three, which sound in unjust enrichment and breach of directors' and officers' duties respectively, are brought individually and derivatively against the defendants (and the corporations nominally). On June 1, 2017, the defendants filed the instant motion and supporting memorandum. (#107.00, 108.00.) For reasons explained in the parties' court-approved June 5, 2017 stipulation (#111.00), the deadline to respond to the defendants' motion to dismiss was extended to 45 days following the completion of the parties' mediation. On September 1, 2017, the plaintiff filed his memorandum in opposition. (#122.00.) On September 15, 2017, the defendants filed their reply. (#131.00.) The court heard oral argument on September 26, 2017.
II
STANDARD OF REVIEW
Although the defendants' motion cites Practice Book § 10-31(a), it is clear that they move for dismissal pursuant to Practice Book § 10-30(a). " When a trial court decides a jurisdictional question raised by a pretrial motion to dismiss on the basis of the complaint alone, [as here, ] it must consider the allegations of the complaint in their most favorable light . . . In this regard, 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.) Conboy v. State, 292 Conn. 642, 651, 974 A.2d 669 (2009). " A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction." (Internal quotation marks omitted.) MacDermid, Inc. v. Leonetti, 310 Conn. 616, 626, 79 A.3d 60 (2013). " The plaintiff bears the burden of proving subject matter jurisdiction, whenever and however raised." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. New London, 265 Conn. 423, 430 n.12, 829 A.2d 801 (2003).
Section 10-30(a) provides: " A motion to dismiss shall be used to assert: (1) lack of jurisdiction over the subject matter; (2) lack of jurisdiction over the person; (3) insufficiency of process; and (4) insufficiency of service of process."
III
DISCUSSION
The defendants move to dismiss counts two and three of the complaint for lack of subject matter jurisdiction. Specifically, the defendants contend that: (1) the plaintiff lacks standing to assert the individual claims in counts two and three because they are premised on alleged harms to the corporations; (2) the derivative claims in counts two and three are barred because the plaintiff cannot " fairly and adequately represent[ ] the interests of the corporation in enforcing the right of the corporation, " General Statutes § 33-721, in light of the plaintiff's pursuit of involuntary dissolution of the corporations in count one; and (3) the plaintiff lacks standing to assert derivative claims on behalf of DBF for failure to make any pre-suit demand on DBF, as required by General Statutes § 33-722. The court agrees with the defendants' first and third arguments. Accordingly, the plaintiff's individual claims in counts two and three, as well as the derivative claims on behalf of DBF in counts two and three, are dismissed. The plaintiff's derivative claims on behalf of B& F in counts two and three survive.
A. Individual Claims in Counts Two and Three
The defendants first move to dismiss the plaintiff's individual claims in counts two (unjust enrichment) and three (breach of directors' and officers' duties) for lack of standing on the ground that they are premised on alleged harms to the corporations.
The court begins by reviewing the principles governing the ability of a shareholder to bring individual claims. In May v. Coffey, 291 Conn. 106, 967 A.2d 495 (2009), our Supreme Court stated the following:
In Yanow v. Teal Industries, Inc., 178 Conn. 262, 281-82, 422 A.2d 311 (1979), we stated that a distinction must be made between the right of a shareholder to bring suit in an individual capacity as the sole party injured, and his right to sue derivatively on behalf of the corporation alleged to be injured . . . Generally, individual stockholders cannot sue the officers at law for damages on the theory that they are entitled to damages because mismanagement has rendered their stock of less value, since the injury is generally not to the shareholder individually, but to the corporation--to the shareholders collectively . . . In this regard, it is axiomatic that a claim of injury, the basis of which is a wrong to the corporation, must be brought in a derivative suit, with the plaintiff proceeding secondarily, deriving his rights from the corporation which is alleged to have been wronged . . . It is, however, well settled that if the injury is one to the plaintiff as a stockholder, and to him individually, and not to the corporation, as where an alleged fraud perpetrated by the corporation has affected the plaintiff directly, the cause of action is personal and individual . . . In such a case, the plaintiff-shareholder sustains a loss separate and distinct from that of the corporation, or from that of other shareholders, and thus has the right to seek redress in a personal capacity for a wrong done to him individually . . . Thus, where an injury sustained to a shareholder's stock is peculiar to him alone, and does not fall alike upon other stockholders, the shareholder has an individual cause of action . . .
Subsequently, in Smith v. Snyder, [267 Conn. 456, 461, 839 A.2d 589 (2004)], we reaffirmed the general rule that in order for a shareholder to bring a direct or personal action against the corporation or other shareholders, that shareholder must show an injury that is separate and distinct from that suffered by any other shareholder or by the corporation . . . A shareholder--even the sole shareholder--does not have standing to assert claims alleging wrongs to the corporation . . .(Citations omitted; internal quotation marks omitted.) May, 291 Conn. at 114-15.
In order to demonstrate standing to pursue his individual claims for unjust enrichment and breach of directors' and officers' duties, the plaintiff must allege an injury that is separate and distinct from that suffered by another shareholder or the corporations. The plaintiff alleges the following in the prefatory allegations: (1) Carl and/or Mario have treated the corporations as their own personal piggy banks (see, e.g., Compl. ¶ ¶ 6, 39); (2) Mario, aided by Carl, has effectively paid himself millions of dollars in so-called bonuses from the corporations ( see, e.g., id., ¶ ¶ 2, 12, 37-38, 45, 65); and (3) the defendants refuse to distribute a dividend to the shareholders, including the plaintiff, from the corporations' significant cash reserves (see, e.g., id., ¶ ¶ 6, 43, 53). In addition to the foregoing allegations, which are incorporated by reference into counts two and three, count two adds that Carl and Mario " have unjustly and without authorization taken monies from B& F and DBF ." (Id., ¶ 85 [emphasis added].) Their " unjust taking of monies has enriched them, at the expense of B& F and DBF, and Mr. Bragoni individually, a 50% shareholder ." (Id., ¶ 86 [emphasis added].) Similarly, count three adds that Carl and Mario have " caused unauthorized and excessive monies to be paid to them from the companies' funds and used company assets for personal gain." (Id., ¶ 98 [emphasis added].)
Construing the facts alleged in the complaint, including those facts necessarily implied from the allegations, in a manner most favorable to the pleader, the court finds that the plaintiff asserts claims in counts two and three for alleged wrongs to the corporation. The monies alleged to have been taken by Carl and/or Mario belonged to the corporations, and not to the plaintiff in an individual capacity. Any harm alleged to have been suffered by the plaintiff-- for which he seeks a remedy in counts two and three --was incurred in his role as a shareholder, and, therefore, the plaintiff's individual claims in counts two and three must be dismissed. See Smith, 267 Conn. at 462 (" We conclude, therefore, that [the individual plaintiffs] lacked standing to bring this action in their individual capacities because the allegations in the plaintiffs' complaint, if true, demonstrate that [the corporation] was harmed, but that no specific shareholder sustained an injury separate and distinct from that suffered by any other shareholder or by the corporation. Accordingly, the individual claims of [the individual plaintiffs] must be dismissed").
The fact that the plaintiff is the only shareholder to bring claims for unjust enrichment and breach of directors' and officers' duties against the defendants does not require the conclusion that he should be permitted to bring such claims in an individual capacity. For example, our Supreme Court recognized in May v. Coffey, 291 Conn. at 115, that " a shareholder--even the sole shareholder--does not have standing to assert claims alleging wrongs to the corporation." And the fact that the defendants may have, as alleged, benefited from their wrongful conduct at the sole expense of the plaintiff (resulting in a disproportionate harm among the shareholders) is irrelevant to the question of standing to bring individual claims. May, 291 Conn. at 111-12. Similarly, the fact that the corporations are closely held corporations does not change the analysis. Id.
In sum, because the plaintiff has not shown an injury that is separate and distinct from that suffered by any other shareholder or by the corporations, he lacks standing to assert the individual claims in counts two and three, and, therefore, such individual claims are dismissed.
B. Derivative Claims in Counts Two and Three--Fair and Adequate Representation
The defendants move to dismiss the derivative claims in counts two and three on the ground that the plaintiff lacks standing because he cannot fairly and adequately represent the interests of the corporations while seeking dissolution of the corporations. Based on the circumstances of this case, the court disagrees.
" A shareholder's derivative suit is an equitable action by the corporation as the real party in interest with a stockholder as a nominal plaintiff representing the corporation." Barrett v. S. Conn. Gas Co., 172 Conn. 362, 370, 374 A.2d 1051 (1977). General Statutes § 33-721, entitled " Standing, " provides: " A shareholder may not commence or maintain a derivative proceeding unless the shareholder . . . (2) fairly and adequately represents the interests of the corporation in enforcing the right of the corporation." The question presented here--whether the plaintiff lacks standing to pursue derivative claims as a result of his simultaneous pursuit of the involuntary dissolution of the corporations--raises an issue of first impression.
The court first considers the applicability of Fink v. Golenbock, 238 Conn. 183, 680 A.2d 1243 (1996), in which our Supreme Court adopted an eight-factor test to determine whether a nominal plaintiff can fairly and adequately represent other shareholders in pursuing derivative claims, as required by General Statutes § 52-572j(a). Those factors are:
(1) whether the named plaintiff is the real party in interest; (2) the plaintiff's familiarity with the litigation and willingness to learn about the suit; (3) the degree of control exercised by attorneys over the litigation; (4) the degree of support given to the plaintiff by the other shareholders; (5) the plaintiff's personal commitment to the action; (6) the remedies sought by the plaintiff; (7) the relative magnitude of the plaintiff's personal interests as compared to the plaintiff's interest in the derivative action itself; and (8) the plaintiff's vindictiveness toward the other shareholders.Id. at 205. " [T]he above factors are nonexclusive and interrelated, and . . . it is frequently a combination of factors that guides a court in determining whether a plaintiff meets the requirements of fair and adequate representation . . . Not all factors will come into play in all cases, and in some cases there may be additional factors for the court to consider. The key is whether the nominal plaintiff's . . . interests and issues [are] coextensive with those of the class of shareholders he seeks to represent, and whether he is able to assure the trial court that as a representative, he will put up a real fight." (Citations omitted; internal quotation marks omitted.) Id. at 205-06.
Here, the plaintiff urges the court to apply the eight-factor test in Fink to the question of whether the plaintiff can fairly and adequately represent the corporations, as required by § 33-721. The defendants do not meaningfully challenge the application of the Fink factors to that question and contend that its application leads to the conclusion that the plaintiff in the present case cannot fairly and adequately represent the corporations by virtue of his claim for dissolution. The court returns to the Fink factors below.
The district court in Beckworth, 48 F.Supp.3d at 194-95, in which defense counsel in the present case represented the defendants in that case, noted that " [t]he parties agree that the eight-part test that the Connecticut Supreme Court adopted in Fink v. Golenbock, 238 Conn. 183, 680 A.2d 1243 (1996) guides the court in determining whether the plaintiffs are fair and adequate representatives of [ the corporations ]." (Emphasis added.)
Other courts have applied the eight-part test from Fink v. Golenbock to the question of whether a nominal plaintiff can fairly and adequately represent a corporation. See, e.g., Beckworth v. Bizier, 48 F.Supp.3d 186, 195-96 (D.Conn. 2014) (" [T]he court concludes that the sixth factor, i.e., the remedies sought by the plaintiff, weighs heavily against finding that a shareholder who brings a claim for dissolution of a corporation is a fair and adequate representative of a corporation and its shareholders. The seventh factor also weighs against such a finding here. Several of the plaintiffs' claims put their personal interests in direct conflict with those of DTC . . . Applying the eight-part test established in Fink v. Golenbock, the court finds that the plaintiffs are not fair and adequate representatives of DTC and MPI"); see also Cattano v. Bragg, 283 Va. 638, 727 S.E.2d 625, 628-30 (Va. 2012) (applying substantially similar eight-factor test under Virginia law) (p. 629: " We hold that . . . the 'totality of the circumstances' combine to show that Bragg '[f]airly and adequately represent[ed] the interests of the corporation' as required . . . The remedy sought--the return of funds, misappropriated by an officer, to the corporation--is highly appropriate for a derivative claim. There is no evidence in the record of external parties motiving Bragg, and she is intimately familiar with the litigation. Bragg's additional individual claims--breach of contract and judicial dissolution--do not reflect an inappropriate conflict of interest. Significantly, as a portion of the funds returned would go to her upon dissolution, Bragg's personal interests are in line with those of the corporation, so that the return of assets to the Firm will clearly be vigorously litigated." [alterations in original]).
Because our appellate courts have not addressed the precise question presented here, the parties rely on competing non-binding decisions. The defendants rely on Beckworth v. Bizier, 48 F.Supp.3d 186 (D.Conn. 2014), and Read v. Read, 205 Wis.2d 558, 556 N.W.2d 768 (Wis.Ct.App. 1996). The plaintiff relies on Angel Investors, LLC v. Garrity, 2009 UT 40, 216 P.3d 944 (Utah 2009), and Cattano v. Bragg, 283 Va. 638, 727 S.E.2d 625 (2012). Having considered these competing decisions, the court is persuaded in particular by the analysis of Virginia's high court in Cattano, in which the Court applied the same eight-factor test pursuant to Virginia's statutory counterpart to § 33-721.
The defendants also rely on Kasten v. MOA Investments, LLC, 2007 WI.App. 130, 301 Wis.2d 747, 731 N.W.2d 383, 2007 WL 677804 (Wis.Ct.App. 2007). However, pursuant to W.S.A. 809.23(3), as an unpublished opinion, the decision has no precedential value. Thus, the court will not consider it.
In Cattano, 727 S.E.2d at 626, the Supreme Court of Virginia squarely addressed " the standing of a dissenting minority shareholder bringing a derivative suit . . . against the majority shareholder of a two-shareholder corporation while simultaneously seeking the judicial dissolution of the corporation." The plaintiff asserted a direct claim for dissolution, as well as derivative claims. The defendant moved to strike the derivative claims on the ground that the plaintiff lacked standing because she did not fairly and adequately represent the interests of the corporation because she sought to dissolve it. Id. at 628-30. The trial court allowed the derivative claims to stand--a decision affirmed by the high court. Id. at 630. The Court held that the plaintiff's interests were in line with those of the corporation, such that the relief sought in the derivative claims, by way of the return of assets, would be vigorously pursued. Id. at 629.
The decision in Angel Investors, 216 P.3d at 948, is also of some persuasive value. In that case, the plaintiff, a minority shareholder, brought a derivative action on behalf of XanGo, against the managing members and majority owners of XanGo, alleging, among other things, that such shareholders had taken millions of dollars in personal loans, purchased minority interests in XanGo with the loaned funds, appropriated opportunities belonging to XanGo and all shareholders, paid themselves excessive compensation, and wasted corporate assets. Id. Prior to bringing the derivative action, the plaintiff brought a direct suit against XanGo, seeking both monetary damages and dissolution of the company. Id. In the derivative action, the defendants moved to dismiss for lack of standing based on, among other things, the fact that the plaintiff had brought a direct action against XanGo. The Court first determined whether " the two actions create a conflict of interest such that the shareholder cannot act in the best interest of the corporation or similarly situated shareholders." Id. at 953. The Court explained:
A possible conflict . . . is insufficient to disqualify a derivative plaintiff. The conflict must be actual. An actual conflict of interest exists, for example, when the relief sought in the direct action is incompatible with the relief sought in the derivative action. When, however, both suits are contingent upon the proof of the same nucleus of facts, then it is presumed that the plaintiff will advance both actions with the same vigor. In such a case, the plaintiff presumably will fairly and adequately represent the interests of the corporation and any similarly situated shareholders in the derivative action because doing so would serve the plaintiff's interests in the direct action.Id. Applying these principles, the Court concluded: " Angel Investors' direct and derivative suits are not in actual conflict and, therefore, the direct suit does not disqualify Angel Investors as a derivative plaintiff." Id. at 947.
Mindful that " [n]ot all factors will come into play in all cases, " Fink, 238 Conn. at 206, the court applies the Fink test to determine whether the plaintiff in the present case can fairly and adequately represent the corporations notwithstanding his claim for dissolution. With respect to the first and second factors, particularly in light of the plaintiff's background with the corporations, as alleged in the complaint, there is nothing in this record that causes the court to question that the plaintiff is the real party in interest and is familiar with the litigation. The fourth and eighth factors are not instructive when evaluating a closely held corporation, as here. With regard to the sixth factor, the remedies associated with counts two and three, though not clearly pled, would fall within the nature of the return of funds by the defendants to the corporations--remedies that are " highly appropriate for a derivative claim." Cattano, 727 S.E.2d at 629. Such relief is not incompatible with the relief sought by the plaintiff in connection with his direct claim in count one for dissolution. " If [the plaintiff] prevails [on count one and his derivative claims], then the damages that the [defendants] would pay as a result of the derivative [claims] would be paid out to all . . . shareholders in the winding up after dissolution, as sought for in [count one]. Further, in a situation of corporate looting from a closely held corporation, as [the plaintiff] alleges has been taking place here, dissolution of the corporation[s] is not necessarily against the corporation[s'] best interest. Dissolution would not only stop the looting but would also allow for a reorganization of the enterprise, such that all shareholders could receive a fairer return on their investment." Angel Investors, 216 P.3d at 954. " Significantly, as a portion of the funds returned would go to [him] upon dissolution, [the plaintiff's] personal interests are in line with those of the corporation[s], so that the return of assets to the [corporations] will clearly be vigorously litigated." Cattano, 727 S.E.2d at 629. " Whether winding up or not, it is clearly in the interest of the corporation[s] to have misappropriated funds returned . . . Judicial dissolution is a remedial mechanism that exists in addition to, rather than as a substitute for, shareholder rights." Id. at 630. Drawing from the fifth, sixth, and seventh factors, the court does not perceive any actual or potential conflict between the plaintiff's derivative claims and his claim for dissolution giving rise to the potential for abuse as articulated in Barrett v. Southern Connecticut Gas Co., 172 Conn. 362, 370, 374 A.2d 1051 (1977), and North Star Contracting Corp. v. Albright, 156 Conn.App. 311, 317-21, 112 A.3d 216 (2015). The plaintiff's allegations in support of the dissolution claim in count one on the one hand and the derivative claims in counts two and three on the other hand are often the same, and in no instance are they inconsistent. Having carefully examined the allegations of the complaint, the court " see[s] no allegations in the direct [claim] that would prevent [the plaintiff] from vigorously pursuing the allegations in the derivative [claims]." Angel Investors, 216 P.3d at 954. In sum, the court holds that a combination of the Fink factors guides the court to conclude that the plaintiff can fairly and adequately represent the corporations.
In sum, the court concludes that the plaintiff's direct claim for dissolution does not prevent him from fairly and adequately representing the interests of the corporations with respect to the derivative claims. To conclude otherwise would lead to an unworkable result, by essentially forcing upon a similarly situated plaintiff the Hobson's choice between remaining an allegedly oppressed shareholder and foregoing derivative claims against other shareholders for corporate malfeasance. The court cannot conceive of any public policy to support such a conclusion. Accordingly, to the extent the motion seeks the dismissal of the derivative claims in counts two and three on the ground that the dissolution claim in count one deprives the plaintiff of standing to bring derivative claims, the motion is denied.
C. Derivative Claims Against DBF in Counts Two and Three: Pre-Suit Demand
Finally, the defendants claim that the plaintiff lacks standing to assert derivative claims on behalf of DBF because he failed to comply with the pre-suit demand requirement of General Statutes § 33-722. The plaintiff contends in contrast that, based on a common-law exception, written demand is excused when demand would be futile. The court agrees with the defendants.
The plaintiff does not allege in his complaint that he made a pre-suit demand on DBF, and he acknowledges that he did not.
Because this issue raises a question of statutory interpretation, the court begins by applying the plain meaning rule, as set forth in General Statutes § 1-2z, which provides: " The meaning of a statute shall, in the first instance, be ascertained from the text of the statute itself and its relationship to other statutes. If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered." General Statutes § 1-2z. " The test to determine ambiguity is whether the statute, when read in context, is susceptible to more than one reasonable interpretation . . ." Comm'r of Pub. Safety v. FOIC, 301 Conn. 323, 338, 21 A.3d 737 (2011).
Accordingly, the court turns to the text of § 33-722. Section 33-722 provides:
No shareholder may commence a derivative proceeding until: (1) A written demand has been made upon the corporation to take suitable action; and (2) ninety days have expired from the date delivery of the demand was made unless the shareholder has earlier been notified that the demand has been rejected by the corporation or unless irreparable injury to the corporation would result by waiting for the expiration of the ninety-day period.
General Statutes § 33-722. By its express terms, subdivision (1) of the statute makes clear that a shareholder derivative suit may not be commenced until a written demand has been made upon the corporation. There is no excepting language (e.g., a subordinate clause such as " unless . . . ") to suggest that there are circumstances when the demand requirement need not be followed. In contrast, subdivision (2) of the statute, relating to the 90-day waiting period, contains two subordinate " unless" clauses that permit a shareholder to commence a derivative proceeding within the 90-day waiting period if (1) " the shareholder has earlier been notified that the demand has been rejected by the corporation" or (2) " irreparable injury to the corporation would result by waiting for the expiration of the ninety-day period."
As stated by our Supreme Court, " [§ ]33-722 is part of the Connecticut Business Corporation Act (Conn. Gen. Stat. § § 33-600 through 33-998), which is 'a comprehensive revision of [Connecticut's] corporations statutes designed to bring those statutes into conformity with the Model Business Corporation Act.' Thomason v. Chem. Bank, 234 Conn. 281, 292, 661 A.2d 595 (1995). The Connecticut Business Corporation Act became effective January 1, 1997." Beckworth, 138 F.Supp.3d at 155. The United States Supreme Court has acknowledged that the Model Business Corporation Act " abolishes the futility exception to demand." Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 105, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991).
Neither Connecticut's appellate courts nor the Second Circuit Court of Appeals have addressed whether there is a common-law futility exception to the demand requirement of § 33-722. Several trial courts, even after the enactment of § 33-722, have recognized a futility exception to the statutory demand requirement. See, e.g., Budney v. Budney Industries, Inc., No. CV13-6023734, 2014 WL 2021998, at *3 (Conn.Super. Apr. 11, 2014) (" The court finds in examining the allegations of the complaint demand upon the LLC would be futile"), Guarino v. Livery Limited, Inc., No. X04-CV03-0127824, 2003 WL 22853728, at *1 (Conn.Super. Nov. 18, 2003) [35 Conn. L. Rptr. 713, ] (recognizing common-law futility exception to demand requirement of § 33-722). At least one federal district court, however, has held that " Connecticut law does not provide a futility exception to the written demand requirement" in § 33-722. Beckworth v. Bizier, 138 F.Supp.3d 144, 156 (D.Conn. 2015). As stated by Judge Thompson in Beckworth :
The court finds Judge Thompson's comprehensive analysis in Beckworth with respect to this issue to be particularly instructive.
The court finds unpersuasive the cases in which Connecticut Superior Courts have, after the enactment of Section 33-722, recognized a futility exception to the written demand requirement. These decisions recognize the exception in dicta, rely on cases that predate Section 33-722, or cite to cases that do one or both of the foregoing . . .(Citations omitted.) Beckworth, 138 F.Supp.3d at 156-57. Having reviewed the post-1997 cases recognizing a futility exception, the court joins the district court's analysis and conclusion on this issue. See also id. at 158. (" [T]he Official Comment to Section 7.42 of the Model Business Corporation Act makes it clear that even a demand that would be 'futile' serves a purpose in a statutory scheme like that found in the Connecticut Business Corporation Act in that it gives the board of directors the opportunity to reexamine the act complained of in light of a potential lawsuit and take corrective action and it also eliminates the time and expense involved in litigating whether demand is required.")
The court concludes that the demand language in § 33-722 is plain and unambiguous. See Beckworth, 138 F.Supp.3d at 156 (" Here, the meaning of Section 33-722, read in context of the Connecticut Business Corporation Act, is plain and unambiguous: a shareholder must make a written demand upon the corporation to take suitable action before commencing a derivative proceeding. There is no statutory support for the proposition that demand is excused where it would be futile, either in Section 33-722 or any other section of the Connecticut General Statutes. The statute's silence as to a futility exception to the written demand requirement is insufficient, standing alone, to render the statute susceptible to more than one reasonable interpretation. See Trevek Enterprises, Inc. v. Victory Contracting Corp., 107 Conn.App. 574, 583, 945 A.2d 1056 (2008) (declining to 'engraft an exemption on the text of' Section 33-921)"). Although the statute contains certain excepting language, it does not contain a futility exception. " Such a rule does not lead to results that are 'absurd' or 'unreasonable.'" Beckworth, 138 F.Supp.3d at 156. Accordingly, the court has no justification for considering extratextual evidence. General Statutes § 1-2z.
During oral argument, plaintiff's counsel expressly disavowed any claim of ambiguity within § 33-722.
The plaintiff argues that pre-suit demand on DBF was not necessary in the first instance because the complaint alleges that DBF " is functionally identical to B& F, has no separate existence from B& F and/or acts as a mere instrumentality of B& F, " Compl. ¶ 10, such that the demand that was made on B& F is sufficient. No authority is cited in support of this argument, and the court concludes it is without merit.
Because the plaintiff failed to comply with the statutory demand requirement in § 33-722 with respect to DBF, he lacks standing to assert derivative claims on its behalf. See, e.g., Weed v. Sherwood, No. FST-CV13-6018235S, [62 Conn. L. Rptr. 48, ] 2016 WL 1552880, at *1 (Conn.Super. Mar. 23, 2016). (" Because the plaintiff did not make such a demand on the Association's board, she lacks standing to bring this case, and the court grants defendants' motion to dismiss"), reargument denied, [62 Conn. L. Rptr. 414, ] 2016 WL 3451806, at *4 (Conn.Super. May 31, 2016); Musto v. OptiCare Eye Health Centers, Inc., No. CV99-0359863S, 1999 WL 439348, at *2-4 (Conn.Super. June 15, 1999). Accordingly, the plaintiff's derivative claims on behalf of DBF in counts two and three are dismissed for lack of standing.
IV
CONCLUSION
For the foregoing reasons, the defendants' motion to dismiss (#107.00) is granted in part and denied in part. The plaintiff's individual claims in counts two and three, as well as the derivative claims on behalf of DBF in counts two and three, are dismissed for lack of standing. The plaintiff's derivative claims on behalf of B& F survive.