Opinion
FSTCV156026069S
07-31-2017
Claridge Associates, LLC v. Pursuit Partners, LLC
UNPUBLISHED OPINION
MEMORANDUM OF DECISION RE MOTIONS FOR SUMMARY JUDGMENT (#263.00 AND #266.00)
As discussed in the body of the decision, the defendants blended a motion to strike and a motion for summary judgment, with a single supporting brief and evidentiary submission in support of the motions. With a minimal qualification, the court is treating the filings as a motion for summary judgment.
Kenneth B. Povodator, J.
Background
This is a lawsuit brought by a group of investors against a " hedge fund, " and the very nature of the " hedge fund" is a central issue. This is one of a number of cases involving Pursuit Partners, the " family" of entities comprising the hedge fund being sued by the plaintiffs. In addition to this and related proceedings in this court, the evidence presented makes it clear that there have been numerous disputes in New York, both involving litigation and arbitration.
At the center of the current dispute is separate litigation that was brought by Pursuit Partners against UBS and Moody's, relating to the packaging and marketing of collateralized debt, which was a major component of the financial crisis of the last decade. In simple terms, the plaintiffs are claiming entitlement to a portion of the proceeds of the settlement of the UBS litigation, in addition to older claims, more moderate in magnitude.
This case started as an application for injunctive relief, seeking to prevent distribution of the proceeds of the settlement of the UBS litigation. Hearings were conducted over an extended period of time, resulting in a change of focus--initially, the focus was on preventing distribution of the anticipated proceeds of the settlement, whereas the current focus is on obtaining the portion of the proceeds to which the plaintiffs claim they are entitled, given the actual distribution of the proceeds in the interim.
Special mention must be made of a related case, Alpha Beta Capital Partners L.P. v. Pursuit Investment Management LLC, FSTCV155014970S, a case in which the plaintiff also was claiming a right to a share of the proceeds of the UBS litigation. That case went to judgment several months ago, and in a comprehensive memorandum of decision, the court, Genuario, J., provided a detailed factual background, including the relationships among the parties, recognizing that the Alpha Beta plaintiffs and the plaintiffs in this action were the only " outside" parties asserting any claim to the UBS proceeds. In lieu of an extended description of the background, the court incorporates by reference the background as stated in the Alpha Beta memorandum of decision, the link to which decision is set forth in the footnote below.
http://civilinquiryjud.ct.gov/DocumentInquiry/DocumentInquiry.aspx?DocumentNo=11291638.
As described in the Alpha Beta decision, there are a number of Pursuit Partner entities that comprise the hedge fund in question and a significant issue is whether the plaintiffs are pursuing the proper parties. The Pursuit entities are related, and the control is generally in the two individual principals directly or indirectly, but for purposes of this litigation, the defendants challenge the plaintiffs' identification of the proper entities to sue.
Complicating matters is the manner in which the defendants have chosen to attack/challenge the plaintiffs' claims. The defendants filed a composite brief in support of their motion to strike and motion for summary judgment, including specific references to the affidavits and other materials being submitted in support of both motions. With the exception of a motion to strike predicated on non-joinder or misjoinder, a motion to strike is limited to consideration of the existing record, almost always just the complaint filed by the plaintiffs. The court cannot consider supplemental information such as contained in the defendants' submissions.
This hybridization makes the analysis of claims more difficult, particularly to the extent that the defendants at times claim that the failure of the plaintiffs to include allegedly necessary allegations warrants the granting of summary judgment or, in the alternative, the striking of certain claims. This is something of a reversal of the approach recognized in Larobina v. McDonald, 274 Conn. 394, 404-05, 876 A.2d 522 (2005), allowing summary judgment to be used to challenge legal sufficiency when the claimed defect was not amenable to correction by subsequent pleading. Here, the focus is not on the impossibility of corrective pleading but rather the simple omission of claimed necessary allegations, with the " taint" of reliance on evidentiary matters outside the record, precluding a true motion-to-strike analysis as an alternative.
The original motion to strike did not set forth any grounds for the claim that the entire operative complaint should be stricken (#264.00). In an order addressing a number of issues presented by the proposed composite motions (#265.01), the court noted the reliance on matters outside the record and the absence of specific grounds for the motion to strike, eliciting something of a corrected motion (#276.00 and #277.00). The defendants continue to rely on a composite brief (#278.00) which does not clearly distinguish matters of record in this case from information based on supplemental sources, including factual issues presented and decided in the Alpha Beta decision. Under the circumstances, particularly given the simultaneous reliance on evidentiary insufficiency for the plaintiffs' claims, the court will focus on the summary judgment aspects of the defendants' challenges to the operative complaint (#230.00).
Practice Book § 10-39(b) provides: " Each claim of legal insufficiency enumerated in this section shall be separately set forth and shall specify the reason or reasons for such claimed insufficiency." A motion that fails to comply with this requirement is defective. Meredith v. Police Commission, 182 Conn. 138, 140, 438 A.2d 27 (1980); Stuart v. Freiberg, 102 Conn.App. 857, 861, 927 A.2d 343 (2007). The defendants' attempt to correct this deficiency after it was identified by the court in its order does not appear to be a matter of right, under the circumstances.
While the court recognizes that there may have been a perception that presenting both motions at the same time might have advantages, the difficulty in isolating pure legal (motion to strike) issues when presented in an augmented evidentiary context outweighs any possible advantage. For example, it makes little or no sense to consider whether the record is sufficient to allow consideration of the merits of a statute of limitations defense under the limitations of a motion to strike, when the court simultaneously has been presented with an evidentiary record of approximately 2, 000 pages, which can be considered in connection with the motion for summary judgment.
This is further compounded by the defendants' brief. As noted, the defendants filed a composite brief--the brief initially filed substantially exceeded the rule-based page limit. The defendants simultaneously filed a motion for permission to file a brief exceeding the normal page limit. The court denied that motion, because, inter alia, the composite nature of the presentation would hinder rather than facilitate issue resolution and the composite brief was not substantially shorter than two separate briefs would have been. Despite the denial, no subsequent separate briefs were filed.
Still further, as recited in footnote 1 of the defendants' brief, their evidentiary submission was a standardized appendix that had been prepared for use in a number of pending proceedings, such that the court was presented with an unknown number of documents that were not being claimed as needed for resolution of the issues currently before the court. In instances where references to the submitted documents were inaccurate or inadequate, that required the court to wade through an unnecessary volume of documents. The defendants did file a subsequent brief (#278.00); although it satisfied the page limit requirement, it missed the perhaps inadequately-articulated principal point in the denial of the motion for permission to file a lengthier brief--separation of the arguments as to legal sufficiency and evidentiary insufficiency. For example, the court had noted that it would be acceptable to incorporate by reference, as appropriate, arguments made in one brief into the other brief. The court did not intend to mandate (or even signify its approval of) a composite brief. Given the " confusion" in this regard, the court has relied upon the initial " uncompressed" brief filed by the defendants.
Discussion
Certain threshold or overarching issues properly should be identified and considered at the outset. The defendants treat as effectively dispositive, the absence of Pursuit Capital Management Fund I, LP, as a party. (" It is of the outmost importance for the Court to fully grasp the fact that Plaintiffs admit that the only `Pursuit' entity they had any contractual relationship with was non-party Pursuit Capital Management Fund I, LP. (See Para. 1 of Complaint) This admission ends Plaintiffs' case.") The defendants do address the concept of unitary entity/fund that had been identified initially in the underlying UBS litigation--the notion that the individual technically-distinct corporate entities comprise a single hedge fund enterprise--and argue that that concept is not meaningful, but even if their arguments on that front were persuasive, they do not adequately address the corollary claim being asserted by the plaintiffs, that the defendants are not truly distinct:
27. The Pursuit Hedge Fund operates as a unitary entity, each of the integrated entities is an alter-ego of the others, and all are controlled by Schepis and Canelas. Accordingly, none of the Pursuit Hedge Fund entities are entitled to the protections typically flowing from the corporate form.
Further, there are claims that the defendants made representations in their capacities as representatives of the Fund and its component entities, and engaged in misconduct relating to claimed property or property interests of the plaintiffs. For purposes of summary judgment, the burden is on the defendants to disprove the plaintiff's allegations, to the requisite level of certainty (no material issue of fact), before any burden shifts to the plaintiffs. The defendants' speculations at the bottom of page 2 of their memorandum, as to why the plaintiffs chose to sue certain parties and not others, is not a substitute for establishing the absence of any material issue of fact.
The defendants contend that because certain claims were dismissed/rejected in the Alpha Beta litigation, the same result must apply to the analogous claims here, asserting:
Judge Genuario dismissed all the other causes of action against defendant Pursuit Investment Management, LLC, including for the same claims made herein for Unjust Enrichment, Conversion, and Civil Conspiracy. (A-1053-1058) Since Alpha Beta was an investor in the same limited partnership as the Plaintiff, non-party Pursuit Capital Management Fund I, LP, Judge Genuario's dismissal against Pursuit Investment Management, LLC on those causes of action acts to collaterally estop Plaintiffs from pursuing any of the Counts alleged in the Complaint, which are the exact same claims and derivations thereof.
Even assuming that the claims are analogous or identical, the court fails to see how the invoked decision can be treated as collateral estoppel as to these plaintiffs, given the lack of privity or other basis for treating the Alpha Beta litigation as binding on them. The lack of a mutuality/privity requirement for collateral estoppel allows a non-privity party to assert collateral estoppel against a party who has litigated the issue, or who is in privity with a party who has litigated the issue; it does not allow a stranger to the original litigation to be bound by the result, notwithstanding no opportunity to litigate the issue, either directly or through someone in privity.
The defendants are correct in emphasizing that the Alpha Beta litigation primarily was based upon a settlement agreement which allegedly had been breached. They go too far, however, when they eliminate any role played by the underlying limited partnership agreement, which was at least a factor in some aspects of the decision. Conversely, the underlying facts are somewhat different, to the extent that the plaintiffs in this case recite extensive representations made to them, underlying arbitrations and other proceedings in New York, promises made and not kept, etc., none of which is/was recited as part of the factual predicate for the Alpha Beta litigation. The confidential settlement agreement involving Alpha Beta short-circuited any opportunity or need for the ongoing interactions involving the plaintiffs; the outcome involving a settlement agreement does not necessarily apply to a situation that continued to develop (or fester, depending on perspective).
In their discussion of the Alpha Beta litigation, the defendants quote (at page 9) from the decision: " Notably the plaintiff did not plead a count against any of these defendants sounding in a piercing of the corporate veil or alter ego." As noted and quoted above, these plaintiffs do invoke the alter ego concept, if not in a separate count.
The defendants repeatedly assert that the only claims that can be pursued by the plaintiffs must be directed to the now-bankrupt general partner--but ¶ ¶ 75-88 of the complaint, for example, assert that the defendants (and others) improperly transferred funds and stripped the general partner of assets so as to prevent any satisfaction of claims by the plaintiffs while allowing the general partner to then go through bankruptcy. That is not a situation coming within the scope of the authorities cited by defendants, relating to the limited scope of direct contractual claims involving hedge funds, because the allegations do not fit neatly into that category of litigation.
The defendants assert that the plaintiffs should have brought a declaratory action seeking a determination as to their percentage interests--but the plaintiffs seem to assert that such a determination already has been made. Even under the declaratory judgment rules, if a party entitled to notice is not given notice, then the court may choose not to provide requested relief and the declaratory-type relief would not be binding on a party without notice. (The court notes that in the Alpha Beta litigation, the share of proceeds was determined and awarded by the court without regard to the absence of other parties/claimants, such as (especially) the plaintiffs in this proceeding.) Such an omission, then, even if properly identified, does not require, necessarily, judgment for the defendants.
The only parties who might have been entitled to notice that the court can discern are the principals of the Pursuit Partner entities, and despite the probable lack of formal notice, the ongoing proceedings, including participation as witnesses and affiants, makes it unlikely that either principal could claim a lack of actual notice (and to the extent that that might be an issue, it cannot be conclusively determined at this time).
The court will now address the issues in the order presented in the defendants' brief.
I. Defendants' Claims
A. Breach of Fiduciary Duty
The defendants accurately state generally-applicable law, but do not explain how those general principles apply here--where the facts are anything but typical. The defendants do not address, adequately if at all, the alter-ego aspects of the plaintiffs' claims. In discussing the duty of an investment advisor or broker (in a hedge fund context) as only running to the fund and not the investors, the defendants do not seem to acknowledge and address the situation actually present (claimed) here--the challenge is not to any investment-type decisions made or other actions taken on behalf of the fund as a whole, but rather to claimed diversion of assets and money specifically intended or earmarked or promised to the plaintiffs, and diversions of funds, in the context of representations allegedly made to the plaintiffs, and the related UBS litigation which was unfolding as the litigation progressed. Interpreting the allegations in a manner favorable to the non-moving party (the standard applicable for summary judgment and for a motion to strike), the plaintiffs were being assured and reassured that their interests in current assets were being protected (especially, $1,186,346.38 supposedly set aside) which was not true, and at the same time, there were concerted efforts (by the defendants collectively) to circumvent the plaintiffs' claims to an interest in the proceeds of the UBS litigation despite some level of assurance that there was a right to participation.
Thus, while the defendants may be correct in general statements of applicable law, they do not discuss how or whether the controlling principles apply to this non-standard scenario. The plaintiffs claim that they relied on the defendants with respect to the handling of funds to which they claimed a right, and they claim that there were explicit or implicit assurances that their financial interests would be protected. The court must decide the motion based on the grounds and arguments presented, and the defendants have not addressed, in any direct sense, the precise issues/claims being advanced by the plaintiffs relating to fiduciary duty.
The defendants also claim that the fiduciary-based claims are time-barred. A consistent theme running through the defendants' brief is that because some alleged wrongful conduct might be barred based on their recitation of a timeline, the entire count/cause of action is time-barred. The defendants seem to acknowledge that a part of virtually every claim being presented is the claimed right to a share of the UBS settlement. Until the settlement actually occurred and funds were actually transferred to the defendants (or related parties), there could have been no tortious conduct relating to disbursement of those funds. The statute of limitations is triggered by the occurrence of a wrongful act or omission, and therefore if a wrongful act or omission involved those funds, the receipt of funds is the earliest possible date for the statute to start running. There is no analysis as to why the date of the consummation of the UBS settlement is not an (if not the) appropriate trigger date for the statute of limitations. Therefore, the defendants cannot have established that the relevant claims are time-barred.
B. Misrepresentation
Again, the court does not quarrel--or need to question--the defendants' presentation of law on the issue of misrepresentation. The defendants contend that there are " extra" considerations applicable to misrepresentation claims in connection with contractual relationships. In so doing, the defendants are taking an inherently inconsistent position, arguing that there are applicable limitations on the ability to assert fraudulent misrepresentations in the context of contract claims--while continuously arguing (in all other aspects of their submission) that there is no contractual relationship between the plaintiffs and the defendants. Assuming that the defendants have correctly stated the state of the law in this respect, they failed to address the ability of a party to plead in the alternative, and it hardly can be said that it is not a hotly-disputed issue as to whether there is, in fact, a contractual relationship between the plaintiffs and the defendants.
In oversimplified terms, the theory, discussed by the defendants, is that all breach of contract claims involve an assertion that a party did not honor a promise; in order to prevent tort law from all but swallowing contract law in this respect, overlays have been required for contract-related fraud claims, e.g., a need that the representation be collateral to the contract. The economic loss doctrine also has been identified as a means of separating contract and tort claims. Ulbrich v. Groth, 310 Conn. 375, 411, 78 A.3d 76 (2013).
The generally applicable standard for misrepresentation is that a statement of fact was made, that it was known (or should have been known) to be false, that there was an expectation/intention that the plaintiff would rely on the statement and the plaintiff did, in fact, reasonably rely on the statement. Coppola Construction Co. v. Hoffman Enterprises Ltd. Partnership, 309 Conn. 342, 352, 71 A.3d 480, 487 (2013) (negligent misrepresentation); Sturm v. Harb Development, LLC, 298 Conn. 124, 142, 2 A.3d 859, 872 (2010) (fraudulent misrepresentation). The defendants have not established that each claimed misrepresentation has a fatal flaw (for summary judgment purposes).
In order to prevail as to any individual alleged misrepresentation, the defendants would have to establish that the plaintiffs cannot prevail on at least one required element (e.g. proving that there was no reasonable reliance). However, to prevail on an entire count asserting more than one alleged misrepresentation, the defendants would have to establish at least one fatal flaw as to each/every claimed misrepresentation (although not necessarily the same defect--it could be lack of reliance as to one statement and absence of falsity as to another).
Yet again, the defendants invoke a claimed bar of the applicable statute of limitations. The court briefly discussed the statute of limitations earlier, but a more detailed recitation of applicable principles is appropriate.
The defendants contend that at the latest, the initiation of arbitration on May 11, 2012 triggered the commencement of applicable statutes of limitation, such that this action was not commenced in a timely manner. The defendants adopt an inconsistent position--the arbitration was directed to a non-party, but somehow that started the running of any applicable statute of limitations as to the parties who could not be compelled into arbitration. An adversarial relationship may well be a factor in some or many instances, but as stated in the statutes, it is the occurrence of wrongful conduct that is the true starting point (subject to certain exceptions that might extend the period). Thus, the general tort statute of limitations is " three years from the date of the act or omission complained of" (General Statutes § 52-577). Negligence claims must be brought " within two years from the date when the injury is first sustained or discovered or in the exercise of reasonable care should have been discovered, " subject to a maximum of " three years from the date of the act or omission complained of" (General Statutes § 52-584).
The predominant aspect of harm being claimed arises from the failure/refusal to provide the plaintiffs with their claimed share of the proceeds of the UBS litigation; that litigation was resolved (settled) well within any possibly-applicable statute of limitations. The possible bar to other aspects of the plaintiffs' claims cannot be a basis for summary judgment or a motion to strike unless constituting a separate cause of action, and even then, the plaintiffs have identified possible applicability of General Statutes § 52-595, relating to fraudulent concealment.
This last statute, § 52-595, requires special discussion, due to procedural considerations. The defendants chose to file a motion for summary judgment combined with a motion to strike--although the court generally is disregarding the motion to strike aspects, for reasons stated, there are procedural consequences. A motion to strike is filed prior to an answer, and therefore the defendants have not filed an answer--which in turn means that they have not filed any special defenses. As a matter of pleadings, the statute of limitations typically is raised by way of special defense, and the invocation of § 52-595 typically is a consequence/response when appropriate. In other words, a plaintiff is not obligated to anticipatorily refute the possible applicability of the statute of limitations by including in the complaint a recitation of § 52-595. That, however, in turn means that the defendants have not had much notice of a possible need to address claimed applicability of § 52-595. A motion for summary judgment requires the moving party to establish not only the affirmative claims it is making, but also refute any responses/contentions of the adversary which, for purposes of a defendant attempting to rely on a statute of limitations, would require the defendant to establish the lack of material issue of fact with respect to applicability of § 52-595. Thus, while the defendants cannot be faulted for having failed to refute a possible claim of fraudulent concealment, the failure to refute such a claim would preclude a determination that the statute of limitations (any statute of limitations) bars the plaintiffs' claims. In this case, the motion for summary judgment and the motion to strike were filed simultaneously (in part in a literal sense--the same brief discussing the issues for both motions). Under the current rules, a motion for summary judgment can be filed even if the pleadings are not closed, which can lead to the situation at hand--a motion for summary judgment without any defenses having been asserted nor any replies in avoidance of any defenses.
Nonetheless, the defendants still have the burden of negating any applicable matters in avoidance, particularly to the extent that the plaintiffs have raised the issue of applicability of General Statutes § 52-595 in their submissions.
As a general matter, then, the defendants have not and cannot establish that the statute of limitations is a bar to any of the claims asserted by the plaintiffs, to the extent that the UBS distribution and/or applicability of § 52-595 may be in issue.
C. Promissory Estoppel
As with the misrepresentation claim--and probably more so--the defendants rely on generally applicable principles to the effect that the existence of a controlling contract precludes reliance on promissory estoppel. The problem, again, is that the defendants are denying that there is any contractual relationship between the plaintiffs and the defendants, and promissory estoppel typically is asserted as an alternative to a viable contract claim. The defendants engage in something of a non sequitur, insofar as they claim that the existence of a contract between the defendants and an entity that they characterize repeatedly as a non-party, somehow immunizes non-parties to that contract from claims of promissory estoppel. They cite no authority for the proposition. The burden is on the moving parties to establish entitlement to judgment, and they have cited no authority for entitlement to judgment under this type of scenario.
D. Breach of Contract
The defendants claim that the fifth count, asserting a breach of contract, cannot be maintained, because there was no contract, at least between the plaintiffs and the parties charged with breach of contract. They particularly allege the lack of any consideration, thereby assuming that even if they were promises made, there was no consideration to the defendants that might form a binding obligation. Yet again, there is the issue of the claims of alter-ego liability, blurring, at least for purposes of this motion, the otherwise general (correctly-stated) proposition that a breach of contract claim only can be asserted against a party to the contract. To the extent that there is a claim of lack of consideration, the court notes that the defendants cite ¶ 158 of the complaint; ¶ 160 recites that the plaintiffs agreed to a " holdback" of their funds, for purposes of funding of the UBS litigation, in exchange for continued assurances of their right to participate in any resolution of that litigation. That would seem to satisfy the general requirement of consideration on both sides of a contract.
E. Conversion
The caption to the section of the defendants' brief relating to conversion is captioned: " Defendants claim for civil conspiracy to commit conversion is barred by collateral estoppel, res judicata and is otherwise time barred." The initial argument correctly points out that civil conspiracy, itself, is not a cause of action. The argument proceeds to question whether there is a proper assertion of a claim of conversion. The court will focus on the substantive issues relating to conversion, as the conspiracy claim, in a sense, is a variation on the alter-ego theory advanced--why parties perhaps not directly engaging in conduct constituting the tort may nonetheless be liable.
For a similar reason, the court will not discuss claimed liability for aiding and abetting as a separate issue from the underlying claimed wrongful conduct.
Before addressing the claim of assertion of a proper claim, however, the court must address the claim of res judicata/collateral estoppel.
The defendants contend that the order attached to their submission (A-488) amounts to res judicata:
Judge Failla has already dismissed the exact same claims of " conversion" as a matter of law when the Plaintiffs brought them individually against Anthony Schepis, Frank Canelas, his wife Ruth Canelas and Northeast Capital Management, LLC (the replacement General Manager for the Fund) in the action styled. (A-488) Just so this Court is aware, this entire action sub judice is a blatant attempt to run around Judge Failla's rulings, as this case was filed just two months after Her Honor's Opinion and Order in that case. Put another way, if Plaintiffs are claiming that the Pursuit Hedge Fund is made up of all the Pursuit entities, Northeast Capital, Schepis and Canelas (footnote 1 to the Complaint), then a dismissal in the SDNY Action as to Schepis, Canelas and Northeast as a matter of law, is res judicata and collateral estoppel as to Plaintiffs' claims against the Defendants.
The full text of the order at page A-488 of the submission reads:
The Court issues this Order to clarify its May 10, 2016 Opinion and Order (Dkt. #63) and June 29, 2016 Endorsement (Dkt. #70). It is the Court's contemplation that the parties will submit to the American Arbitration Association (" AAA") the question of arbitrability articulated at pages 21 through 24 of the May 10, 2016 Opinion and Order (Dkt. #63). The Court leaves to the AAA the decision whether to refer this matter back to the original arbitrator or to assign a new arbitrator.
It appears, therefore, that the court needs to examine the May 10, 2016 order which the court eventually located at page A-399 of the submission. Again, the issue of res judicata and collateral estoppel require consideration of parties and issues and claims. The parties are different--the defendants here have NO overlap with the defendants in the SDNY case. The claims may have some overlap, but as noted earlier, the court must look at the cause of action as a whole. The conversion claim specifically refers to the UBS settlement which does not appear to have been part of the SDNY case (or at least is not mentioned in the decision, and the defendants have not established that the conversion claim could/should have been asserted in that proceeding). Therefore, the rejection of the conversion claim in the SDNY case was not a determination of the UBS claim and cannot be given any preclusive effect. The SDNY decision did not dismiss the " exact same claims of 'conversion.'" Some level of similarity of issues is not enough to warrant application of collateral estoppel; see, e.g., Shipman v. Commissioner of Correction, 172 Conn.App. 600, 614, 161 A.3d 585 (2017).
The defendants quote extensively from the decision in their brief at pp. 50-51, discussing the claims and when the plaintiffs knew of them. The UBS settlement is not mentioned. The SDNY decision relied upon the 2012 arbitration as a benchmark for most of the claims and especially when the plaintiffs were on notice of them. The UBS settlement could not have been encompassed by that arbitration, as that settlement did not occur until years later.
(Before moving on to other aspects of conversion, the court notes that the SDNY decision rejected the contention that the breach of fiduciary claims were time-barred because some claims might be barred but others clearly weren't. This is consistent with this court's focus on counts and causes of action rather than specific subsidiary claims.)
The fatal problem with the conversion claims is that conversion requires a chattel, some form of personal property that has been wrongfully appropriated. Although not extensively discussed by the defendants, the defendants did identify the issue at page 48 of their initial brief (" [w]rongful conversion can only apply to personal property"). As this is a legal issue that is not dependent upon the question of applicability of claims of alter-ego liability or the statute of limitations, the court believes it appropriate to discuss it fully at this time.
In this case, the claimed property is a variation on a debt, whereby there is a claim that money was supposed to be paid over, but wasn't. In some instances, money can be the subject of conversion, but that is the exception rather than the rule.
Although our case law is clear that a claim for money, not just tangible goods, may be the subject of conversion or statutory theft, a claim for money owed on a debt is not sufficient to establish such causes of action. [N]o Connecticut case holds that money owed by a debtor is the property of the creditor and allows for a cause of action in statutory theft when the debt is not paid. Moreover, in order to establish a valid claim of conversion or statutory theft for money owed, a party must show ownership or the right to possess specific, identifiable money, rather than the right to the payment of money generally." (Internal quotation marks and citations, omitted.) Mystic Color Lab, Inc. v. Auctions Worldwide, LLC, 284 Conn. 408, 421, 934 A.2d 227, 236 (2007).
The plaintiffs have, at most, a claim to some not-yet-clearly-defined portion of the UBS proceeds. The other claims of conversion are somewhat more specific, but also do not involve " identifiable money" as in the case of a bailment of actual money. See, e.g., Aetna Life and Casualty Co. v. Union Trust Co., 230 Conn. 779, 790-91, 646 A.2d 799 (1994) (and also footnote 6 therein).
The court notes that in the plaintiffs' motion for summary judgment, in the discussion of conversion-related claims, the plaintiffs rely almost exclusively, if not exclusively, on the claim to a portion of the UBS proceeds.
A recent example of conversion and statutory theft involving money can be found in Village Mortgage Co. v. Veneziano, 175 Conn.App. 59 (2017), where the defendant had embezzled and otherwise taken money from the plaintiff. There was no question as to the plaintiff's ownership and possession of the money at the time it was taken--it was not simply a matter of a debt (or the equivalent) not being paid. In other words, something more than an account entry that is not transferred to a plaintiff is required. Money can be converted but it must have been in the actual possession of the rightful owner--if not when it was taken, then at some prior point (e.g., subsequent entrustment to the defendant). Simplistically, conversion can apply to money that was taken or not returned; it does not apply to money that never was given in the first instance (given in the sense of transfer of possession and control).
The case also has a useful discussion of fraudulent concealment and the level of knowledge or notice necessary to trigger the commencement of the statute of limitations; see, discussion of the plaintiff's cross appeal, 175 Conn.App. at 75-80.
This analysis applies to conversion, statutory theft and the related aiding and abetting claim (which is dependent on establishing an underlying claim of conversion).
The court must now return to the procedural context of this decision. if this were simply a matter of a defect in pleading, the court would likely be obligated to give the plaintiffs an opportunity to plead over, in order to cure any such pleading defect. Larobina v. McDonald, 274 Conn. 394, 404-05, 876 A.2d 522 (2005). This does not appear to be a curable defect--it is the very nature of the property allegedly converted.
The court does not wish to prejudice the plaintiffs in any way, but at the same time, the court does not wish to insert unnecessary procedural steps and delays. Therefore, the court is granting the defendants' motion for summary judgment with respect to these counts, with the caveat that if the plaintiffs believe that this defect is amenable to cure by amendment, the court would entertain a motion to amend to accomplish that end. In other words, although this is being resolved in the context of the motion for summary judgment, if the plaintiffs take the position that this should have been addressed under the motion to strike (implicitly invoking Larobina), the court will entertain a request for such recharacterization of the court's ruling (assuming that the proposed amendment does in fact correct the defect.)
F. CUTPA
The defendants' challenge to the CUTPA claim reflects a number of misconceptions about the nature of a CUTPA claim. The discussion below is in addition to the pervasive issue of the ramifications of claimed alter-ego liability and the precise identification of the trigger date for the statute of limitations, particularly given the prominence of the claimed failure to distribute the proceeds of the UBS settlement, which in turn suggests that the trigger date might well be the date of the consummation of that settlement.
The defendants somewhat conclusively state that " there are no 'consumers'" as relates to this theory of liability. " Consumer" is not a term of art for purposes of this analysis, and the scope of CUTPA is not limited to consumers or customers--it can be any invoked by any person harmed by " unfair methods of competition [or] unfair or deceptive acts or practices in the conduct of any trade or commerce" (General Statutes § 42-110b(a)).
Further, the defendants do not explain how or why the plaintiffs do not come within a generalized scope of customers, as consumers of the services being offered by the hedge fund. The defendants noted that their customers are required to acknowledge the extent of risk involved in hedge fund transactions, but that does not immunize hedge funds from the potential application of the statute.
After citing case law discussing the applicability of CUTPA to incidental activities (including " [h]owever, a CUTPA claim may not lie where the complained of practice is incidental to the actual trade or business conducted, " Brandewiede v. Emery Worldwide, 890 F.Supp. 79, 81 (D.Conn. 1994)), the defendants state:
Here Plaintiffs allege that incidental to their 2007 investment in Pursuit Capital Management Fund I, LP, these alleged members of the " Pursuit Hedge Fund Group" did not follow through on promises they allegedly made as part of their trade or business as a hedge fund. Plaintiff's fatally have not (and cannot) alleged that the purported practice was outside of the trade or business of a hedge fund. (Page 56 of initial brief.)
The defendants have it backwards. The exclusion for " incidental" activities is intended to limit potential liability to practices that truly are within the scope of the trade or business--here, the trade or business of a hedge fund. No liability exists for activities that are not directly implicated by the trade or business, activities that are merely incidental. For example, a retail business selling the property on which it had been operating, either because it is relocating or going out of business, is not engaged in an activity that is truly part of its trade or business, but rather is engaged in an activity that is merely incidental to its retail business. Selling its surplus office equipment likely would not be part of a company's trade or business--unless the seller's business happened to be selling surplus office equipment. Therefore, the plaintiffs need not allege that the purported practice was outside of the defendants' trade or business but rather that it was part of the trade or business--assertion of an incidental quality would be self-defeating. Conversely, the defendants have not argued, much less established, that the distribution of the proceeds of investments, even if indirectly so--the proceeds of the settlement of litigation based on prior investments--does not come within the scope of the trade or business of a hedge fund. Therefore, the motion for summary judgment as to the CUTPA claim must be denied.
G. Unjust Enrichment
The court will defer part of its analysis of unjust enrichment to its discussion of the plaintiffs' motion, but certain aspects are appropriately discussed in connection with the defendants' motion.
Again, although the defendants take a dismissive attitude towards the alter-ego aspect of these claims, the court cannot ignore it so readily. The court cannot reject, conclusively, a claim of unjustness based on the arguments and contentions of the defendants, when faced with the specific allegations of the plaintiffs relating to improper conduct and manipulation of assets/funds. The defendants might be able to refute the " enrichment" portion of such a claim, if they established that they were not enriched in any sense. That, however, would seem to require tracking of funds that the plaintiff's claim should have been distributed to them, from the time of original receipt by " the hedge fund" (or as appropriate, time of promise to the plaintiffs) to the ultimate recipients (or current possessor(s)), so as to establish the noninvolvement of, and associated lack of benefit to, the defendants. That has not been done, as far as the court can ascertain, and there is no claim in the defendants' brief to that effect.
Particularly given the need to balance equities (which is not a summary judgment function), in turn requiring a complete evidentiary record, the court cannot grant summary judgment on this claim in favor of the defendants.
H. Constructive Trust
The defendants again invoke their contention that this claim is asserted against the wrong parties, which again the court notes is dependent upon rejection of the alter-ego theory asserted by the plaintiffs. This also addresses, in part, the claim that the court cannot impose a constructive trust " against strangers to the underlying transaction." A constructive trust can only be imposed upon somebody claiming a right to specific property in its possession; only by a rigid and constrained interpretation of the concept of " transaction" would the eventual grantee/transferee of property be deemed a stranger to the transaction so as to warrant automatic rejection of a claim of constructive trust.
The defendants also invoke the prior pending action doctrine, relying upon the SDNY proceeding. That proceeding, however, resulted in what appears to have been a judgment (or the equivalent of a judgment), directing a remand to arbitration. The parties are at least in part different, and the SDNY action is not pending, at least as far as the court can discern from the record submitted to it. Therefore, there is at least a question as to whether the actions are virtually identical, and whether the SDNY proceeding is pending; the court need not address the often-disputed issue of whether a proceeding in a court in a different jurisdiction can qualify for prior pending action status. See, e.g., discussion in New England Masonry & Roofing Co. v. D.L. Poulin, Inc., J.D. Waterbury, UWYCV136021545, (August 8, 2014) (which decision did not encompass the further overlay of a U.S. District Court in another state).
http://civilinquiry.jud.ct.gov/DocumentInquiry/DocumentInquiry.aspx?DocumentNo=7925087.
The court notes that a constructive trust is more in the nature of an equitable remedy than it is a true cause of action. Yet again, the defendants take the position that because there is potentially a contractual claim against " someone" --but not the defendants against whom this claim is asserted--that precludes an equitable claim seeking to impose a constructive trust against these defendants.
II. The Plaintiffs' Motion
The plaintiffs also have filed a motion for summary judgment, albeit more limited. The plaintiffs claim that they are entitled to judgment on their conversion-related claims and on their claim of unjust enrichment.
The court already has addressed the issues relating to conversion in the context of the defendants' claims. A few additional comments/observations seem appropriate.
The plaintiffs repeatedly refer to the existence of judgments and similar decisions (arbitration) in their favor, as providing the framework for their claims of conversion. That may well be true, but that, in and of itself, does not seem to be sufficient for a claim of conversion. Are the plaintiffs truly claiming that with respect to every judgment of a court, ordering a party to pay funds, the failure to pay might constitute conversion? Even on a more limited basis, where a court orders the division of funds or property (or the assignment of funds or property), again, is the contention that a failure to make such a payment or divide property constitutes conversion? The plaintiffs have not cited any cases--or at least the court did not note any such cases--standing for such a proposition. Rather, as discussed by the court earlier, a claim of conversion has a possessory component and cannot be established simply by a failure to pay money due to a claimant. A party may sue on a judgment, or seek execution on a judgment, but the plaintiffs do not appear to have cited any authority for the proposition that a failure to honor a judgment constitutes conversion (in the absence of an antecedent possessory interest sufficient to support conversion, as discussed above in the context of the defendants' motion).
As something of an overlay, how much is due to the plaintiffs under these theories? Even assuming that the Alpha Beta litigation has now crystallized the principal against which any percentage share might be measured, at the time of the alleged conversion--when the defendants first came into possession of the proceeds of the UBS settlement--it was unknown what credits and offsets might be claimed and/or allowed against that principal, before determining the amount available for distribution. In a sense, it was not known, with any certainty, whether after all credits and offsets and deductions, anything remained for distribution--so how can it be said that the defendants converted the plaintiffs' property when it was not known how much if any property the plaintiffs " possessed" that could have been subject to conversion?
What remains of the plaintiffs' motion, then, is the claimed right to judgment on the claim of unjust enrichment.
The court often has noted the inherent difficulty in analyzing a claim for unjust enrichment in the context of summary judgment. As the plaintiffs correctly note, unjust enrichment is predicated on equitable principles. It is difficult to reconcile the notion of an equitable right to a recovery with the summary judgment standard of entitlement to judgment as a matter of law. The determination of an equitable right to recovery necessarily implicates weighing of competing interests and equities, whereas judgment as a matter of law negates the existence of any material issues of fact--which implicitly negates any weighing process.
In Gagne v. Vaccaro, 80 Conn.App. 436, 441, 835 A.2d 491, 495 (2003), the court was required to address the proper characterization of a claim of unjust enrichment from the perspective of a right to a jury trial, and concluded that although " the right of recovery is based on equitable principles, it is nevertheless an action at law, the purpose of which is to prevent unjust enrichment."
The plaintiff's focus on the claimed entitlement to certain proceeds, and the claimed wrongfulness of the money not being distributed to them. But assuming that they are correct that the arbitration awards, etc., all establish a right to obtain funds or shares of proceeds, there is the unavoidable and essential question--from whom? The plaintiffs may be able to prove that all of the defendants are liable, but the fact that there is a broadbrush claim that every entity has some form of alter-ego liability does not establish such liability on an individual defendant level, especially to the summary judgment standard of the absence of any material issue of fact. Nominally, the now-bankrupt entity that is not a party is the party most clearly liable; have the plaintiffs established the liability of the actual defendants to the requisite level of " certainty" (no material issue of fact)?
For example, although the plaintiffs rely on the unitary entity concept, there is an argument to be made (that has been made by the defendants and at least seems to have been at least partially incorporated into the Alpha Beta decision) that that cannot be extrapolated from the standing context in which it initially was articulated to a more general notion of universal (among defendants) liability. Conversely, the defendants rely on the separate corporate existence of each entity, and an alter-ego attack on separate existence and liability requires proof that an entity was a mere alter-ego, to a degree warranting disregard for the very raison d'ê tre for corporate-type entities (a legally-recognized separate existence).
Related is the question of who--among the defendants--actually controls the money being sought? Who technically possesses the funds, to the extent that they may not be in the actual possession of a party? That applies especially to any undistributed proceeds of the UBS litigation--but to the extent that the plaintiffs contend that other funds (or perhaps some UBS funds) may have been disbursed, from whom are the funds to be recovered (especially if the distributee is not a party)?
The court is not being asked to decide whether the plaintiffs have a weak or persuasive claim in this regard; the issue is whether they have established, as a matter of law, their claim of alter ego liability, under which theory, as among the defendants, everyone is liable for everything.
Applying the foregoing standards and considerations, the court cannot determine that the plaintiffs have established their entitlement to a judgment on their claims of unjust enrichment, as a matter of law.
Conclusion
The court is well aware of the extensive litigation between the parties, including arbitration, New York state court proceedings, SDNY proceedings, and the " spinoff" proceedings in this court (Pursuit Partners v. Valentino ). Indeed, the SDNY proceedings included an order in which the court chastised the parties, this court has done so during the course of hearings, and the Valentino case itself represents a hair-trigger sue-and-countersue approach to this dispute.
Defendants were represented by different counsel at the time, including PHV counsel.
Ordinarily, this court is not especially receptive, in the context of a motion to strike, to efforts to pierce the corporate veil or assert alter-ego liability based on little more than a generalized " everybody is liable for everything" approach. Here, however, there is at least some evidentiary support, including the position taken by the defendants themselves, i.e., a hedge fund is a unitary entity. That assertion may have been for a limited purpose, and may have limited probative value, but the defendants have not established that it is an evidentiary nullity. There also is the claim that the entity that the defendants repeatedly refer to as a non-party--that they claim is the only potential party with liability (the now-bankrupt former general partner)--was stripped of assets, by or through some or all defendants, so as to allow it to be put into and go through bankruptcy. In other words, the claim is that there was manipulation of the entities, effectively moving assets in a shell-game manner, in disregard of the legitimate separate interests and obligations of the entities. Absent proof that there is absolutely no evidence that might support a determination in favor of the plaintiffs on this issue, the court cannot reject that claimed basis for liability (as part of the alter-ego theory). The court must note the asymmetry inherent in a motion for summary judgment: at trial, the plaintiffs will bear the burden of proof (generally, preponderance of the evidence), but for purposes of a motion for summary judgment, the defendants bear the burden of proof of what is tantamount to certainty--the lack of a material issue of fact.
The defendants' reliance on the statute of limitations as to numerous claims does not take into account the appropriate frame of reference--the court must also consider the recent settlement of the UBS litigation and the actual failure to pay over any share of those proceeds to the plaintiffs. The court cannot determine that an anticipatory refusal to acknowledge the plaintiffs' right to a share of those proceeds is determinative of the applicability of the statute of limitations in light of an actual refusal to distribute such funds on a date that comes within the limitations period. The act or omission about which the plaintiffs primarily complain was that failure to pay, once the settlement was concluded.
The plaintiffs may (or may not) have a right to a share of the proceeds of the UBS litigation, whether as a matter of contract law or otherwise, but the plaintiffs have never possessed the funds (or any chattel/item of personal property) that would support a claim of conversion; the heart of their claim is that the defendants never gave them any portion of the proceeds to which they claim they are entitled, such they never had actual possession of " something" sufficient to support a claim of conversion.
Finally, the court cannot determine unjust enrichment in the context of this motion. Summary judgment is intended to screen for situations in which there is no material issue of fact, and cannot be used for resolution of issues of fact once recognized. Almost by definition, a claim of unjust enrichment requires a balancing of equities, and balancing of equities is effectively a resolution of issues, on the merits. If the plaintiffs fail to prevail on their alter-ego claims, and the defendants are correct that the only valid claim that the plaintiffs could advance is against the now-bankrupt non-party general partner, would the court be obligated to find in favor of the plaintiffs on unjust enrichment?
Subject to the conditions recited in the discussion of conversion-related claims, the defendants' motion for summary judgment is granted to the conversion-related claims. The defendants' motion is denied in all other respects. The plaintiffs' motion is denied.