Opinion
FSTCV176032763S
09-17-2019
BULLDOG INNOVATION GROUP, LLC v. Jeffrey FELDMAN et al.
UNPUBLISHED OPINION
OPINION
Hon. Edward T. Krumeich, II Judge.
Plaintiff Bulldog Innovation Group, LLC ("Bulldog") has moved for summary judgment as to liability against defendants Jeffrey Feldman ("Feldman") and EverestTV, Inc. ("EverestTV"). For the reasons stated below, the motion is denied.
The Standards for Deciding a Motion for Summary Judgment
"The standards ... [for] review of a ... motion for summary judgment are well established. Practice Book [§ 17-49] provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law ... In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party ... The party seeking summary judgment has the burden of showing the absence of any genuine issue [of] material facts which, under applicable principles of substantive law, entitle him to a judgment as a matter of law ... and the party opposing such a motion must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact ... A material fact ... [is] a fact which will make a difference in the result of the case ..." DiPietro v. Farmington Sports Arena, LLC, 306 Conn. 107, 115-16 (2012), quoting H.O.R.S.E. of Connecticut, Inc. v. Washington, 258 Conn. 553, 558-60 (2001). (Citations omitted.)
"In. seeking summary judgment, it is the movant who has the burden of showing the nonexistence of any issue of fact. The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law. The courts hold the movant to a strict standard. To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact ... As the burden of proof is on the movant, the evidence must be viewed in the light most favorable to the opponent ..." Zielinski v. Kotsoris, 279 Conn. 312, 318 (2006).
Once the movant for summary judgment has satisfied the initial burden of showing the absence of a material issue of fact, the burden shifts to the opponent to establish that there is a genuine issue of material fact: "it is then ‘incumbent upon the party opposing summary judgment to establish a factual predicate from which it can be determined, as a matter of law, that a genuine issue of material fact exists.’" Iacurci v. Sax, 313 Conn. 786, 799 (2014), quoting Connell v. Colwell, 214 Conn. 242, 251 (1990).
There Are Genuine Issues of Material Fact as to Each Count
1. Breach of Contract
Bulldog is a Delaware limited liability company which is the general partner of a venture capital fund known as the Whitney Innovation Fund ("the Fund"). Investors in the Fund are limited partners in the Fund. Defendant EverestTV was a member of Bulldog. Feldman is the sole shareholder and an officer and director of EverestTV. Until May 29, 2016, Feldman was Managing Director of Bulldog.
In the First Count Bulldog alleges that defendants violated its operating agreement ("the Agreement") which prohibits a member from competing with Bulldog; from causing any limited partner, members or others to terminate their relationship with Bulldog or to use Bulldog’s confidential or proprietary information except in the furtherance of Bulldog’s business. Bulldog asserts that Feldman solicited investors and urged them not to honor their contractual duty to invest in the Fund and to invest in a competing venture capital fund he planned to create.
Feldman was not a member of Bulldog nor party to the Agreement, although he signed the Agreement on behalf of EverestTV. As the agent of a disclosed principal Feldman is not bound by the Agreement in his individual capacity. See Computer Reporting Service v. Lovejoy, 167 Conn.App. 36, 49 (2016). Although there is evidence Feldman did encourage investors to withdraw from the Fund and to invest in a competing fund, Bulldog has not met its burden of proving that Feldman was acting as agent of EverestTV or, as discussed below, that the separate corporate form should be disregarded, so that Feldman’s conduct could be imputed to EverestTV and that Feldman may be held to have violated the terms of an agreement to which he was not party.
2. Breach of Fiduciary Duty
Under Delaware law managers and members of a limited liability company owe fiduciary duties of loyalty and care to the company. See Clinton v. Aspinwall, 2017 WL 3671353 *6 (Conn.Super. 2017) (Robaina, J.) (Del. Law). "Under Delaware law, [t]he elements of breach of fiduciary duty ... are: (1) that a fiduciary duty exists; and (2) that a fiduciary breached that duty." (Emphasis added.). Heller v. Kiernan, 2002 WL 385545, at *3 (Del.Ch. February 27, 2002), aff’d, 806 A.2d 164 (Del. 2002)." Id. As noted above, Bulldog has not met its burden of proving that Feldman’s conduct must be imputed to EverestTV or that Feldman breached fiduciary duties to Bulldog after he was no longer its Managing Director.
There are disputed issues of fact whether any fiduciary duties were violated before Feldman withdrew as Managing Director of Bulldog.
3. Tortious Interference With Contract
" ‘A claim for tortious interference with contractual relations requires the plaintiff to establish (1) the existence of a contractual or beneficial relationship, (2) the defendants’ knowledge of that relationship, (3) the defendants’ intent to interfere with the relationship, (4) the interference was tortious, and (5) a loss suffered by the plaintiff that was caused by the defendants’ tortious conduct." Appleton v. Board of Education, 254 Conn. 205, 212-13 (2000).
Bulldog has not met its burden of proof that there is an absence of issues of material fact as to whether Feldman’s conduct was "tortious." In Reyes v. Chetta, 143 Conn.App. 758, 764 (2013), the Appellate Court expounded on the requirement the underlying conduct be "tortious":
"Our case law has recognized that not every act that disturbs a business expectancy is actionable. [A] claim is made out [only] when interference resulting in injury to another is wrongful by some measure beyond the fact of the interference itself ... Accordingly, the plaintiff must plead and prove at least some improper motive or improper means ... [F]or a plaintiff successfully to prosecute such an action it must prove that ... the defendant was guilty of fraud, misrepresentation, intimidation or molestation ... or that the defendant acted maliciously ... In the context of a tortious interference claim, the term malice is meant not in the sense of ill will, but intentional interference without justification ... In other words, the [plaintiff] bears the burden of alleging and proving lack of justification on the part of the [defendant]." Reyes, 254 Conn.App. at 764, quoting American Diamond Exchange v. Alpert, 101 Conn.App. 83, 90-91 (2006).
That Feldman was organizing a competing fund would constitute justification for soliciting the Fund’s investors. Defendants have disputed the facts asserted by Bulldog and the evidence submitted is subject to different interpretations. As noted above, Bulldog has not met its burden of proving by undisputed evidence that Feldman was bound by the Agreement or that he owed fiduciary duties to Bulldog after he was no longer its Managing Director. Nor has Bulldog met its burden of proving Feldman acted on behalf of EverestTV when soliciting investor funding. Thus, the Court cannot find as a matter of law that Feldman’s conduct was tortious.
4. CUTPA
The same problems bedevil Bulldog’s CUTPA claim as it asks the Court to conflate Feldman’s conduct and EverestTV’s legal duties to Bulldog as member and the evidence submitted is not conclusive that defendants committed unfair or deceptive acts in their primary business. See McCann Real Equities Series XXII, LLC v. David McDermott Chevrolet, Inc., 93 Conn.App. 486, 523 (2006)
5. Piercing the Corporate Veil
The lynchpin of Bulldog’s case against defendants is to treat them as the same person and pierce the corporate veil so that Feldman’s conduct is imputed to EverestTV and the corporation’s legal obligations to Bulldog are imposed on Feldman. Even a sole shareholder, officer and director is entitled to the protections of a separate corporate entity unless the facts demonstrate the fictional form has been abused. See Wells Fargo Bank, N.A. v. Konover, 2011 WL 1225986 *5 (D.Conn. 2011) (Droney, J.): "[g]enerally, a corporation is a distinct legal entity that shields its shareholders from the corporation’s liabilities ... The corporate form should only be disregarded when ‘[the corporate] entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime.’" (Citation omitted.) Where the corporate entity is not used to contravene legal rights and liabilities, the corporate form should not be disregarded. See Angelo Tomasso, Inc. v. Armor Constr. & Paving, Inc., 187 Conn. 544, 559 (Conn. 1982).
In McKay v. Longman, 332 Conn. 394, 433 (2019), the Supreme Court recently cautioned against piercing the corporate veil except in extraordinary circumstances: "this court has not applied traditional veil piercing lightly but, rather, has pierced the 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.’ "
The McKay majority later re-emphasized the extraordinary nature of piercing the corporate veil in equity:
"... [V]eil piercing is not lightly imposed. [C]orporate veils exist for a reason and should be pierced only reluctantly and cautiously. The law permits the incorporation of businesses for the very purpose of isolating liabilities among separate entities ... Accordingly, the corporate veil is pierced 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." 332 Conn. at 443-44.
In traditional veil piercing the court disregards the corporate fiction to hold a shareholder or member responsible for corporate liabilities. See McKay, 332 Conn. at 433. In reverse veil piercing the corporation is held responsible for the shareholder’s or member’s liabilities. Id. at 429-30, 435 ("[t]he principle known as reverse veil piercing is an equitable remedy by which a court imposes liability on a corporation for the acts of a corporate insider" ... [i]nsider reverse veil piercing is applicable to cases in which the plaintiff is a corporate insider seeking to disregard the corporate form for his own benefit"). Here, Bulldog is attempting a double piercing: to hold Feldman responsible for EverestTV’s obligations as a member of Bulldog and to hold the company liable for Feldman’s conduct competing with the Fund.
As noted above, whether Feldman was acting as agent for EverestTV in soliciting investors is subject to dispute.
Bulldog argues that the corporate veil should be pierced under two tests endorsed by the Supreme Court: the instrumentality rule and the identity test. Bulldog primarily relies on the instrumentality rule because it argues that Feldman abused the corporate form by using the entity he dominates and controls to avoid obligations as a member of Bulldog. Bulldog invoked the oft-quoted language of the Appellate Court in Toshiba America Medical Systems, Inc. v. Mobile Medical Systems, Inc., 53 Conn.App. 484, 491 (1999): "[w]hen the statutory privilege of doing business in the corporate form is employed as a cloak for the evasion of obligations, as a mask behind which to do injustice, or invoked to subvert equity, the separate personality of the corporation will be disregarded.’" Id., quoting United Electrical Contractors, Inc. v. Progress Builders, Inc., 26 Conn.App. 749, 755 (1992).
In McKay, 332 Conn. at 441, the Supreme Court recently discussed the proof necessary to pierce the corporate veil under the instrumentality rule:
The instrumentality rule involves an examination of the defendant’s relationship, to the company and requires the court to determine whether. there exists proof of three elements: ‘(1) Control [by the defendant], 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 [the] plaintiff’s legal rights; and (3) that the aforesaid control and breach of duty must proximately cause ‘the injury or unjust loss complained of.’ (Citation omitted.)
The evidence presented by Bulldog falls short of satisfying the first, second and third prongs of the instrumentality rule to pierce the corporate veil as a matter of law. There are material issues of fact relating to whether Feldman engaged in wrongful conduct, whether he abused the corporate form in contravention of plaintiff’s rights and whether EverestTV played any role with respect to "the transaction attacked." See also Toshiba America Medical Systems, Inc., 53 Conn.App. at 491 ("[t]he instrumentality rule merely requires the trial court to find that the defendants committed an unjust act in contravention of the plaintiff’s legal rights"). Whether Feldman’s conduct constituted an "unjust act" as against Bulldog and whether that act involved EverestTV is subject to dispute. Without undisputed proof of abuse of the corporate form in the alleged misconduct that caused the loss complained of, Bulldog is not entitled to judgment as a matter of law.
The same failings of proof also preclude summary judgment under the identity rule, which requires proof "that there was such a unity of interest and ownership that the independence of the corporations had in effect ceased or had never begun, [in which case] 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." McKay, 332 Conn. at 442.
Bulldog argues that EverestTV and Feldman are the same person. A sole proprietor is not deemed to be the same person as the entity he owns and liable on that basis alone. See Computer Reporting Service, LLC, 167 Conn.App. at 56. Nor is a corporation and its owner jointly or severally liable solely on the theory that they engaged in "joint action" because corporations can only act through individuals. See Computer Reporting Service, LLC, 167 Conn.App. at 55, citing Joseph General Contracting, Inc. v. Couto, 317 Conn. 565, 577 (2015). Bulldog has not submitted evidence of the sort typically considered to invoke the identity rule to prove that EverestTV had no separate existence and that Feldman and EverestTV operated as a single enterprise in competing with Bulldog. See McKay, 332 Conn. at 442; Naples v. Keystone Bldg. and Development Corp., 295 Conn. 214, 233 (2010). As noted above, there are genuine issues of material fact concerning whether Feldman used EverestTV to wrongfully compete with Bulldog or whether. EverestTV benefited from Feldman’s activities in competition with Bulldog.
"We disagree with the notion that proving ‘joint action’ between an entity and one of its owners and officers is the basis for finding liability. Indeed, such a theory ignores the reality that this court has recognized that ‘the fact that [an owner of a corporation] acted on behalf of [the corporation] is no more than a reflection of the reality that all corporations act through individuals. It is axiomatic that while such an entity has a distinct legal life, it can act only through individuals.’" Joseph General Contracting, Inc. v. Couto, 317 Conn. at 577 (citation omitted).
Conclusion
Bulldog has not met its burden of proving the absence of dispute as to the material facts relating to its claims against defendants and that it is entitled to judgment on liability as a matter of law. The motion for summary judgment is denied.