Opinion
FSTCV156026069S
11-14-2018
CLARIDGE ASSOCIATES, LLC v. PURSUIT PARTNERS, LLC
UNPUBLISHED OPINION
OPINION
POVODATOR, J.T.R.
Currently before the court is the plaintiffs’ somewhat unorthodox motion for summary judgment. It is "somewhat unorthodox" because the plaintiffs are not actually seeking judgment with respect to any of the multiple counts asserted in the most recent/operative complaint, but rather are seeking to have the court determine that certain facts have been established in such a manner and to such a degree as to obviate the need for any proof/evidence at the time of trial. The plaintiffs have acknowledged that if the court does not believe that the motion can be characterized as a motion for summary judgment, then it should be treated as a variation on a motion in limine, again, seeking to establish that certain facts need not be proved at trial (and correspondingly cannot be challenged by the defendants at trial).
The court is well-familiar with the voluminous records and extensive history for this litigation (and related litigation), and this motion itself has been supported by dozens of exhibits including probably in excess of 1, 000 pages of transcripts, and hundreds of pages of other documents including memoranda of decision from New York courts, arbitration proceedings, and other Connecticut litigation. Given the complex factual and documentary history, the court certainly would welcome any simplification of issues that need to be addressed during the course of eventual trial on the merits. On that basis, the court will attempt to address the issues raised, "repurposing" the motion for summary judgment as a motion seeking determination of facts that have been established by way of collateral estoppel or otherwise, facts established with a level of finality sufficient to obviate the need for proof at trial and with sufficient finality to preclude any evidence to the contrary.
In their motion and supporting brief, the plaintiffs have identified four issues that they wish to have the court determine have been established conclusively, and during the course of extended argument on the motion, there was an agreement of the parties as to two of those issues, thereby narrowing the scope of issues that the court needs to resolve in this decision.
Although recited in detail in their motion, the plaintiffs more succinctly identify the four issues that are the subject of this motion on page 20 of their memorandum in support of the motion, relying upon judicial estoppel and/or collateral estoppel (and line breaks have been added for clarity of presentation):
[T]he Defendants should be estopped from re-litigating four discrete issues that have already been conclusively decided by other courts:
(1) that the entities that form the Pursuit Hedge Fund, including PCM, PIM, Pursuit Partners, LLC, Opportunity Fund, and Capital Fund are a unitary, unified, integrated entity with each entity in privity with one another;
(2) that the [plaintiffs] remain limited partners in the Capital Fund and retain their interest in the Capital Fund’s portion of the UBS Proceeds;
(3) that the [plaintiffs] possess a 35.027901 percent interest in the Capital Fund; and
(4) the Capital Fund’s rightful share of the UBS Settlement is $15,364,800.
During the course of extensive argument, the parties agreed that # 3 and # 4 have been established, subject to the qualification that the percentage and dollar figures are only applicable to the extent that the plaintiffs prove their case. In other words, the parties agreed/stipulated that if the plaintiffs prove their entitlement to "something," they are entitled to a roughly 35% interest in a pool of money that has a starting point of $15,364,800, less any adjustments that might be required.
ISSUE # 1
The plaintiffs claim that the first issue is amenable to resolution under the doctrines of collateral estoppel and judicial estoppel. It is appropriate to articulate the appropriate standards, as a starting point.
Collateral estoppel:
The fundamental principles underlying the doctrine of collateral estoppel are well established. The common-law doctrine of collateral estoppel, or issue preclusion, embodies a judicial policy in favor of judicial economy, the stability of former judgments and finality ... Collateral estoppel, or issue preclusion, is that aspect of res judicata which prohibits the relitigation of an issue when that issue was actually litigated and necessarily determined in a prior action between the same parties upon a different claim ... For an issue to be subject to collateral estoppel, it must have been fully and fairly litigated in the first action. It also must have been actually decided and the decision must have been necessary to the judgment ...
An issue is actually litigated if it is properly raised in the pleadings or otherwise, submitted for determination, and in fact determined ... An issue is necessarily determined if, in the absence of a determination of the issue, the judgment could not have been validly rendered ... If an issue has been determined, but the judgment is not dependent [on] the determination of the issue, the parties may relitigate the issue in a subsequent action. Before collateral estoppel applies [however] there must be an identity of issues between the prior and subsequent proceedings. To invoke collateral estoppel the issues sought to be litigated in the new proceeding must be identical to those considered in the prior proceeding." (Internal quotation marks and citations, omitted.) MacDermid, Inc. v. Leonetti, 328 Conn. 726, 183 A.3d 611 (2018).
Judicial Estoppel:
We begin by setting forth our standard of review of the defendant’s claim. Because the rule is intended to prevent improper use of judicial machinery ... judicial estoppel is an equitable doctrine invoked by a court at its discretion ... Accordingly, our review of the trial court’s decision not to invoke the doctrine is for abuse of discretion.
[J]udicial estoppel prevents a party in a legal proceeding from taking a position contrary to a position the party has taken in an earlier proceeding ... [J]udicial estoppel serves interests different from those served by equitable estoppel, which is designed to ensure fairness in the relationship between parties ... The courts invoke judicial estoppel as a means to preserve the sanctity of the oath or to protect judicial integrity by avoiding the risk of inconsistent results in two proceedings. The doctrine protect[s] the integrity of the judicial process ... by prohibiting parties from deliberately changing positions according to the exigencies of the moment ...
Judicial estoppel applies if (1) a party’s later position is clearly inconsistent with its earlier position, (2) the party’s former position has been adopted in some way by the court in the earlier proceeding, and (3) the party asserting the two positions would derive an unfair advantage against the party seeking estoppel. The application of judicial estoppel is further limited to situations where the risk of inconsistent results with its impact on judicial integrity is certain. In addition, generally speaking, the doctrine will not apply if the first statement or omission was the result of a good faith mistake ... or an unintentional error. (Internal quotation marks and citations, omitted.) Barton v. City of Norwalk, 326 Conn. 139, 155-56, 161 A.3d 1264 (2017).
It is clear that the two doctrines serve different purposes. Collateral estoppel relies on the notion that once an issue has been determined with finality, there should be finality accorded to that determination in subsequent proceedings. Thus, collateral estoppel and the related concept of res judicata often are raised by summary judgment, and while there are some exceptions, a denial of a motion for summary judgment invoking collateral estoppel (and especially res judicata) often/typically is immediately appealable; Blakely v. Danbury Hospital, 323 Conn. 741, 747 n.4, 150 A.3d 1109 (2016); whereas the denial of summary judgment otherwise generally is not an appealable final judgment. (This is in part explained as a consequence of the doctrines being something in the nature of civil counterparts to the double jeopardy concept in criminal proceedings; Singhaviroj v. Board of Education of Town of Fairfield, 124 Conn.App. 228, 236, 4 A.3d 851 (2010) ("[A] res judicata or collateral estoppel claim is the ‘civil law analogue’ to a double jeopardy challenge").
Equally if not more important, given the manner in which the issue is being raised (summary judgment), is that applicability of collateral estoppel (or res judicata) generally is an issue of law, whereas, as noted in the above cited passage, judicial estoppel generally is a matter of discretion for the court. Except in the most clear-cut of situations, an issue that is dependent upon the discretion of the court is ill-suited for summary judgment or any other avenue to conclusive determination by way of a procedure that does not implicate the fact-finding function of the court-a procedure that prohibits fact-finding and weighing of the evidence.
At this point, it is perhaps helpful to restate the issue that the plaintiff’s claim has been established to a level of certainty so as to preclude any need for evidence at trial, and so as to preclude any contrary evidence or argument from the defendants:
[T]he Defendants should be estopped from re-litigating ... (1) that the entities that form the Pursuit Hedge Fund, including PCM, PIM, Pursuit Partners LLC, Opportunity Fund, and Capital Fund are a unitary, unified, integrated entity with each entity in privity with one another.
This must be measured against the earlier representations upon which the plaintiffs now rely. In the earlier UBS litigation, after the court initially had dismissed the case due to lack of standing, the then-plaintiffs argued (and presented evidence) that the entities were essential interrelated components of a hedge fund and in that sense, were a unitary entity or enterprise. Although aspects of privity may have been implied or a necessary corollary of the position taken, privity was not an issue being considered. The arguments and evidence appear to have been utilized and/or relied upon by the court, in reversing its earlier ruling, in at least three respects-the ability of the then-plaintiffs to act in a representative capacity for other hedge fund entities; whether the party entities actually had suffered a harm themselves as a result of the conduct alleged; and the allowance of substitution/addition of the other entities deemed to be more appropriate if not necessary as parties. These issues before the UBS court will be discussed below.
Putting aside, at least for now, the distinction between standing (having a sufficiently colorable claim to be allowed to pursue a claim) and privity (actual effect of an actual or presumed legal relationship), there are numerous concerns implicated by the plaintiffs’ position. The initial problem that the court has with application of judicial estoppel to this issue is the global or unconditional statement of the proposition. As discussed below, privity often is a context-sensitive issue, and the court is being asked to rule on an evidentiary record of uncertain completeness and without a specific purpose identified. With the added overlay that judicial estoppel is a matter involving the exercise of discretion for the court, the framework of this request for a finding of judicial estoppel becomes especially problematic.
A further attenuation of the ability to rely on judicial estoppel arises from the context in which the initial representations were made, to which the plaintiffs claim the defendants should now be bound. In the earlier UBS litigation, the court had determined that the then-existing plaintiffs lacked standing to pursue the claim against the defendants. After dismissing the case, the court entertained re-argument, at which time the plaintiffs presented evidence, including testimony from an expert, discussing the claimed unitary nature of a hedge fund of this type, convincing the court to reverse its decision. In so doing, the court also allowed addition of additional Pursuit-related entities as more proper plaintiffs. Pursuit Partners, LLC v. UBS AG, No. X08CV084013452S, 2014 WL 3906836, at *9 (Conn.Super.Ct. July 3, 2014).
The court’s ruling had two major components, recognizing the need for a better understanding of hedge fund structure, but also allowing more appropriate parties to be added. The court explicitly relied upon NewAlliance Bank v. Schaeppi, 139 Conn.App. 94, 54 A.3d 1058 (2012); cert. denied, 307 Conn. 948 (2013), one of a number of recent cases in which our appellate courts have indicated a preference for substitution of parties rather than dismissal for lack of standing, when an inappropriate party has initially commenced litigation. See, also, Kortner v. Martise, 312 Conn. 1, 9-14 (2014); Fairfield Merrittview Limited Partnership v. Norwalk, 320 Conn. 535, 554 (2016). In evaluating this history, the court notes that in Youngman v. Schiavone, 157 Conn.App. 55, 62-63 (2015), the court seemed to indicate that it might/would be error not to consider substitution prior to ruling on a motion to dismiss, reflecting something of an evolving trend; compare, Isaac v. Mount Sinai Hospital, 3 Conn.App. 598; cert. denied, 196 Conn. 807 (1985). In issuing its decision in 2014 determining that the additional Pursuit entities should be added as parties, the court, Brazzel-Massaro, J., did not have the benefit of these decisions issued in later years, but the decision was consistent with, if not in a predictive sense required by, these decisions favoring addition/substitution to dismissal.
NewAlliance involved substitution of the parent or surviving entity for an erroneously-named merged company, such that the situation might also have been addressed as a misnomer situation rather than a situation requiring substitution of the correct plaintiff. Fairfield Merrittview is closest to the situation in the UBS litigation, in that in Fairfield Merrittview, there was an addition of the correct entity when the standing of the original plaintiff was challenged, and not a substitution for the improper party (a distinction largely responsible for the dissent in Fairfield Merrittview).
A more fine-grained analysis of the first issue as addressed in the decision reversing the dismissal is informative. One of the issues specifically contemplated by the court for consideration via re-argument, identified by the court in advance of the hearing on the motion, was "the disputed authority of the plaintiffs to represent that they were damaged as a result of the actions of the defendant." The interrelationship of the hedge fund component entities informed the recognition that the existing plaintiffs did have a colorable claim of direct injury, sufficient for standing. For example, the court stated: "The finding of this court in its November 6, 2013 decision that the transfer of the CDO’s divested its ownership and thus there was no injury in fact is no longer accurate given the explanation of the operation of the master fund." And later: "The plaintiffs provided the court with clear evidence that the plaintiff Pursuit Investment Management is more than an unrelated party but has actually suffered losses as a result of the alleged fraudulent sale because they are compensated based upon the percentage of assets." The unitary entity argument and evidence was useful to the court in this portion of its decision, but was not relied upon in anything related to privity.
Looking at the decision from a broader perspective, the court concluded that the unitary quality of the hedge fund sufficed for standing, implicating consideration both of representative status and direct injury. Standing, however, is not identical to privity, and standing can implicate a representative capacity rather than substantive identity of interests. Given the identified purposes for which the unitary nature of the hedge fund was proffered and recognized, the court must again note the absence of any particularity of the claim of privity being asserted. (As will be discussed below in connection with the second issue, in a more defined/limited context, privity or its equivalent may well exist.)
Finally, given the foregoing, it is far from "certain" that judicial integrity is compromised by allowing the defendants to argue that the unitary nature of the hedge fund as argued in the UBS litigation is not determinative of privity (or any other material issue), raising the specter of inconsistent results. As recently stated by our Supreme Court, "We further limit judicial estoppel to situations [in which] the risk of inconsistent results with its impact on judicial integrity is certain." (Internal quotation marks and citation, omitted.) Department of Transportation v. White Oak Corp., 319 Conn. 582, 612, 125 A.3d 988, 1005 (2015). Parties often assert claims of varying quality, and a party’s pleadings and statements can (almost) always be used as admissions, even in another case.
In sum, the interrelationship among the components entities in the Pursuit hedge fund was both a proffered explanation as to why the original plaintiffs were claimed to have standing as well as an explanation for the reasonableness of the naming of those parties as plaintiffs to the extent that there was a need for explanation of any perceived "error" in naming the "wrong" plaintiffs. This is not a situation where a court clearly adopted a contention of a party, followed by the party adopting a necessarily-inconsistent position. Thus, in Barton, the court declined to find the doctrine applicable, when different concepts of highest use and associated value were used in different proceedings, finding there to be a subtle but important distinction between use value and exchange value (essentially, FMV). Conversely, in Dougan v. Dougan, 301 Conn. 361, 21 A.3d 791 (2011), the change of position was a complete 180° reversal, and occurred in different phases of a single proceeding (marriage dissolution).
Again, the court returns to the need to consider context. "[T]he judicial estoppel doctrine depends heavily on the specific factual context ... before the court." (Internal quotation marks and citation, omitted.) Department of Transportation, supra, 319 Conn. 612. The representations that were made in the UBS litigation were for purposes of establishing standing-that the then-existing plaintiffs had a colorable claim to relief-whereas the claimed reversal of position is in connection with a claim of generalized privity (which, as noted, itself is a context-sensitive concept). Privity and standing are distinct concepts; Jackson v. R.G. Whipple, Inc., 225 Conn. 705, 724, 627 A.2d 374, 383 (1993) (although not wholly unrelated, e.g., a party lacking contractual privity may not have standing to enforce a contract, absent some special status).
Recognizing that in certain instances, appellate courts have determined that judicial estoppel applies, as a matter of law, Dougan, supra, this court does not believe that the situation at hand is sufficiently clear cut as to permit invocation of that doctrine, as a matter of law, to the facts present here.
The Supreme Court agreed to address the issue of judicial estoppel as an alternate basis for affirming the Appellate Court decision reversing the trial court, even though the issue of judicial estoppel had not been presented to the Appellate Court. The Appellate Court, in turn, in footnote 14 of its decision, had noted the similarity of judicial estoppel-not raised-to the claim of induced error which had been advanced by the defendant in her successful appeal. There is no indication that the issue of judicial estoppel had been presented or even identified at the trial court level.
The court now must turn its attention to the issue of collateral estoppel. Although seemingly relying principally on the doctrine of judicial estoppel for the issue of privity which the court already has addressed and rejected, it is clear that the plaintiffs also invoke collateral estoppel (§ IV(A)(2) of the brief, starting at page 21) in an effort to achieve the same goal.
On occasion, this court has observed that the manner in which an issue is framed can influence the outcome, and this is such a situation. The court has quoted the plaintiffs’ framing of issues above; the defendants appear to have framed the issues somewhat differently, and if the court were to adopt the defendants’ formulation, the results might well be different than if the court were to limit itself to consideration of the plaintiffs’ formulation. Since it is the plaintiffs’ motion that is before the court, it would seem that the plaintiffs’ formulation must be the framework for this decision.
Thus, while the plaintiffs formulate the first issue as pertaining to privity ("the entities that form the Pursuit Hedge Fund, including PCM, PIM, Pursuit Partners LLC, Opportunity Fund, and Capital Fund are a unitary, unified, integrated entity with each entity in privity with one another"), the defendants frame the issue as pertaining to actual/ultimate liability ("The [plaintiffs] seek to bypass their burden of proving their claims against these particular Defendants by making the extraordinary leap that such an establishment of standing in the UBS Litigation had the effect of the Defendants admitting that all the entities involved in a master-feeder hedge fund structure become liable for the debts and obligations of the other"). Privity may well be a keystone element in the plaintiffs’ theory of liability, but it is not the same as, nor does it necessarily/automatically result in, "all [of] the entities ... [becoming] liable for the debts and obligations of the [others]." The apparent purpose for the claim of privity is limited to the contention that factual issues determined in prior litigation-type proceedings, as directed to one of the hedge fund entities and otherwise satisfying the requirements of collateral estoppel, can be applied to each and all of the hedge fund entities. Whether collateral estoppel, if applicable, would result in a determination of liability is a separate issue. In effect, the defendants are jumping one or more steps-privity might establish facts, as previously found, to be applicable to entities who were not actually litigants in an earlier proceeding, but facts deemed applicable to a party via privity (and collateral estoppel) do not necessarily establish liability, much less the wholesale piercing of the corporate veil that seems to be the focus of the defendant’s concerns (fears).
Indeed, with respect to this motion, and given that the third and fourth issues effectively have been resolved, the most obvious if not only direct effect or application of a determination of privity would be to bolster if not establish the second issue relating to the plaintiffs’ continued status as parties with an interest in the UBS proceeds ("that the Schneiders remain limited partners in the Capital Fund and retain their interest in the Capital Fund’s portion of the UBS Proceeds"). Privity is often context-sensitive, Wheeler v. Beachcroft, LLC, 320 Conn. 146, 167-68, 129 A.3d 677, 691 (2016), and therefore the court must be sensitive to the specific circumstances surrounding any attempt to invoke privity for purposes of collateral estoppel.
The court rejects the contention that the Alpha Beta litigation provides a basis for assertion of collateral estoppel. The plaintiffs have relied upon the memorandum of decision dated October 14, 2016, identified as Exhibit 43, and particularly pages 26-27, in this regard, and especially the claim at page 22 of their brief that "[i]n the Alpha Beta Litigation, the Court declared that the available evidence confirmed that the UBS Court was correct and that the Pursuit Hedge Fund is a ‘unitary set of tightly related entities all working for a common purpose.’ (Ex. 43, p. 26.) This finding was necessary to the adjudication of that proceeding." In a footnote associated with this quoted language (footnote 12), the plaintiffs further state that "[t]he Alpha Beta Court relied on the unitary enterprise theory in determining that the obligation to pay certain amount to Alpha Beta were shared by the Pursuit Hedge Fund entities rather than solely by the investment manager, PIM. (Ex. 43, p. 26-27.)"
Page citations are to the decision as actually filed in the court’s e-filing system (scanned copy of typed decision).
This court does not read the referenced portion of the Alpha Beta decision in the manner suggested by the plaintiffs. It does not appear that that court made any such finding, much less did that court rely upon such a presumed finding.
Initially the defendants took the position that only PIM was obligated to make payments under the CSA and that therefore only PIM could be held liable for breach of contract under the CSA. However, this is a significant misreading of the CSA.
The evidence is clear that all of the Pursuit entities were controlled by Schepis and Canelas in a variety of capacities. Indeed, in the UBS litigation UBS took the position that the Pursuit entities were, and the UBS court found that, the various Pursuit entities constituted a "unitary set of tightly related entities all working for a common purpose." Pursuit Partners, LLC v. UBS et al., judicial district of Stamford/Norwalk at Stamford, Docket No. CV08-4013452-S, Memorandum of Decision, Motion to Reconsider (July 3, 2014, Brazzel-Massaro, J.). The evidence before this court is consistent with that finding. More importantly, with regard to the contractual claim that only PIM is obligated to make payments under the CSA, no specific signatory to the CSA is identified as the entity which has an obligation to pay to the plaintiff its interest in the contingent assets. The defendants’ argument that only PIM promised to make payments is inconsistent with the express language of the CSA. Alpha Beta Capital Partners, LP v. Pursuit Inv. Mgmt., LLC, No. X 08FSTCV155014970S, 2016 WL 6884147, at *11-12 (Conn.Super.Ct. Oct. 14, 2016).
The decision, as originally filed with the court and with the court’s pagination, can be found at: http://civilinquiry.jud.ct.gov/DocumentInquiry/DocumentInquiry.aspx?DocumentNo=11291638.
The court then went on to discuss and quote the "CSA" (confidential settlement agreement), concluding that under the terms of that agreement, not only PIM but all of the signatory Pursuit-related entities had assumed responsibilities under that agreement. It was on the contractual-interpretation basis, rather than the claimed unitary nature of the enterprise, that the court determined that all of the entities, and not just PIM, were responsible for payment. Conversely, the very language used by the court downplayed the significance of the unitary characterization-after quoting language from the UBS litigation relating to the unitary nature of the enterprise, the court merely stated that "[t]he evidence before this court is consistent with that finding," and then prefaced the contractual discussion with the introductory phrase "more importantly."
Any effort to rely upon the Alpha Beta litigation is undermined by the reference above to the CSA. The plaintiff in Alpha Beta primarily if not solely relied upon the CSA, an agreement reached between the plaintiff and the Pursuit hedge fund in which it had invested, and not on the original documents memorializing participation in the fund. The rights and obligations adjudicated in the Alpha Beta case were grounded in the CSA; the rights and obligations in this case are grounded in the partnership agreement (original or as amended) and the results of a history of events and disputes having no foundation or relationship to the CSA. As implied in the passage quoted above, all Pursuit entities had signed the CSA such that identification of the proper party with an obligation to pay to the plaintiff the appropriate share of the UBS litigation was found not to be an issue; here, it appears to be very much an issue.
The plaintiffs also rely upon the arbitration decision (Exhibit 29 of the plaintiffs’ submission), wherein the arbitrator made a statement to the effect that he found the "characterization of the Pursuit Hedge Fund Group as a unitary hedge fund" to be "accurate for purposes of this arbitration." The plaintiffs, however, make no effort to explain how that characterization was essential to the determinations made by the arbitrator in that proceeding. The sole respondent in that arbitration was the then-general partner, Pursuit Capital Management, LLC (PCM), and the final aspects of the award were directed to that entity.
Collateral estoppel has been held to be applicable when based on arbitration proceedings that were final (and confirmed) as well as other non-judicial proceedings such as administrative proceedings. Filosi v. Electric Boat Corp., 330 Conn. 231 (2018). Cf. Williams v. City of New Haven, 329 Conn. 366 (2018), affirming that a statute directed to arbitration in the collective bargaining context overrides collateral estoppel being given to an arbitration decision resulting from a grievance. See, also, Burton v. City of Stamford, 127 Conn.App. 651, 18 A.3d 590 (2011) (arbitration decision in connection with motor vehicle accident given collateral estoppel effect in separate action). The potential of applicability of collateral estoppel in such a context, however, does not override or displace the need to satisfy the requirements for applicability of the doctrine-a final judgment/determination and the factual claim having been essential to that determination. The plaintiffs have made no attempt to explain how the accuracy of a characterization of the hedge fund as unitary in nature was essential to the arbitrator’s decision.
The court cannot help but note that there is a certain circularity or self-referential quality to this aspect of the issue. In order to apply collateral estoppel to a non-party in the earlier arbitration proceeding, privity with a party must be established. In a sense, however, the plaintiffs are attempting to use the determination of the unitary nature of the hedge fund-which they equate to privity among the component entities-as a means of justifying reliance upon that determination itself in this case for a finding of privity.
Although the court has concluded that there is an inadequate basis for the court to conclude that privity, in some global sense, has been established-whether by virtue of judicial estoppel or collateral estoppel-the court will address some of the arguments of the defendants, because these issues also arise in the more specific framework of the second issue.
In their discussion of privity (starting at page 11 of their memorandum (# 351.00)), the defendants have cited two insurance-related cases where privity was found not to exist, as indicative of the narrowness of application of privity for purposes of collateral estoppel.
They also discuss a third case in some detail, but the third case focused on the nonessential nature of the determination, rather than privity.
The defendants cite and discuss Mazziotti v. Allstate Ins. Co., 240 Conn. 799 (1997), a case in which the court rejected the contention that an insured’s award of damages against a tortfeasor was binding on an insurance company under the insured’s underinsured motorist coverage, due to a lack of privity. The defendants quote from that case: "The insurer is not the alter ego of the tortfeasor and, although its contractual liability is premised in part on the contingency of the tortfeasor’s liability, they do not share the same legal right. The commonality of interest in ‘proving or disproving the same facts’ is not enough to establish privity." 240 Conn. 817.
The defendants also cite and discuss Young v. Metropolitan Property and Casualty Insurance Co., 60 Conn.App. 107 (1999). Mazziotti is discussed and relied upon in Young-indeed, the chief difference between Mazziotti and Young is that in the former case, there had been a judicial determination of damages whereas in Young, the determination had been through contractual arbitration. The result, not surprisingly, was the same.
By way of contrast, in Aetna Casualty & Surety Co. v. Jones, 220 Conn. 285, 596 A.2d 414 (1991), the court held that the insurer of an individual who had killed his wife and been convicted of manslaughter, could invoke the criminal finding of intent via collateral estoppel in connection with a wrongful death claim being asserted by the late wife’s estate. Although arising in a different manner, here too the issue was one of contractual liability under an insurance policy, with a claimed finality arising not from a prior tort proceeding but from a prior criminal proceeding, but the result was different. The focus was on the finality and binding nature of the earlier determination on the essential issue of intent. (This will be discussed further, below.)
While it is commonly recognized that privity is difficult to define, the concept exists to ensure that the interests of the party against whom collateral estoppel [or res judicata] is being asserted have been adequately represented because of his purported privity with a party at the initial proceeding ... A key consideration in determining the existence of privity is the sharing of the same legal right by the parties allegedly in privity ... (Internal quotation marks and citation, omitted.) Mazziotti, supra, 240 Conn. 813.
If the court were to reach the details of the claim of unitary nature of the fund based on earlier proceedings, then to the extent that the plaintiffs rely upon the UBS litigation and the "reversal" of the court with respect to dismissal for lack of standing, the court does not believe that that decision can be utilized for purposes of collateral estoppel. There are at least two interrelated reasons for this conclusion.
Collateral estoppel requires a final determination of a dispute, generally but not always with a right of appeal, but in this instance, the UBS litigation never went to judgment. The matter was settled. Related, the issue that the court was addressing did not go to the merits of the dispute but rather an issue of standing. Standing only requires that a party assert a colorable claim of a right to pursue the matter in order to survive a motion to dismiss, and while standing may have been a hotly contested matter in an interlocutory sense, it would appear that the issue would have been entitled to, at most, "law of the case" status if the matter had continued to trial on the merits, rather than a final determination entitled to collateral estoppel effect. Perhaps simplistically, to the extent that collateral estoppel is grounded in concerns about finality of judgments, there was no judgment in the UBS litigation, such that concerns about finality of judgments cannot be invoked in this instance. Thus, while an adverse party might challenge the validity or enforceability of an assignment of a right of action-as often happens in mortgage foreclosure proceedings-the colorable claim of status as an assignee, based on a facially-sufficient assignment generally is sufficient to satisfy the requirement for standing, subject to eventual proof when the court reaches the merits of the dispute (and the right of the adverse party to rebut any preliminary finding of standing); see, e.g., Equity One, Inc. v. Shivers, 310 Conn. 119, 74 A.3d 1225 (2013). However, the UBS litigation never went to judgment, such that there can be no claim of any finality in the underlying proceeding.
ISSUE # 2
The plaintiffs contend that this issue also is governed by collateral estoppel. The court already has identified the ability to invoke collateral estoppel when the underlying proceeding had been a confirmed arbitration award.
To restate the issue as presented above:
(2) that the [plaintiffs] remain limited partners in the Capital Fund and retain their interest in the Capital Fund’s portion of the UBS Proceeds;
It is clear that the arbitrator specifically addressed this issue. Paragraph 9 of the award set forth in Exhibit 29 states: "It is hereby determined and declared that Claimants continue to be limited partners of the Pursuit Fund and continue to have an interest in the above-described ‘UBS litigation.’" (In a later paragraph (paragraph 11), the arbitrator went on to state that "the merits of Claimants’ claims as to the UBS Litigation and the amount of Claimants’ interests in that Litigation are reserved for [later determination] ...")
There can be no question about the intended finality of the statement set forth in paragraph 9 of the award as quoted above-paragraph 10 of the award states that "[p]aragraphs 1 through 9 hereof are intended to constitute a PARTIAL FINAL AWARD, as they represent the final award with respect to the matters covered by them" (emphasis as in original). It is clear that the arbitrator perceived this to be an issue upon which he needed to make a declaratory-type determination, and the determination was intended to be final. The award was confirmed in accordance with New York State procedures (Exhibit 35). In an instance where a tribunal declares the relationship between parties, the determination of that relationship is essential to the result in a tautological sense, and the requirement of identity of issues also has that tautological quality.
By way of contrasting example, if there had been a request that the court find that the defendants were estopped to challenge the determination that the general partner improperly had ordered a mandatory withdrawal of the plaintiffs from the partnership based on their commencement of arbitration, that probably would be deemed identical to an issue (subordinate issue) in the earlier case, and would likely have been deemed essential to that earlier determination.
The question that remains is whether the determination is binding on the other Pursuit entities-parties to this action who were not parties to the arbitration. Since the only party to the arbitration was PCM-a nonparty in this proceeding-the question applies to all of the current defendants. Thus, the issue reduces to being a particularized instance of the first issue, which the court has rejected in the more generalized/global sense.
The defendants’ argument that the absence of privity bars application of collateral estoppel arising from the earlier arbitration is something of a double-edged sword. If, as the defendants claim, they lack sufficient privity with the general partner (PCM) to allow collateral estoppel to be applied to them, the question then arises as to what authority they have to contest the plaintiffs’ continued status as holders of an interest in the proceeds in dispute. Explicitly and implicitly, the defendants appear to have taken the position that only the general partner had a right to exclude members from continued participation in the fund, but if only the general partner had such a right, on what basis do they contend that the plaintiffs have been excluded, when the action taken by the general partner has been overridden by operation of a lawful procedure? They cannot rely upon the initial action of PCM in forcing (attempting to force) withdrawal by the plaintiffs, because there has been a final determination that such forced withdrawal was improper. There is no identified authority for any current defendant to take such action on his/its own. Given the existence of such a final determination by way of arbitration and confirmation, any challenge to the status of the plaintiffs would seem to require a claim of entitlement to a collateral attack on the finality of those earlier proceedings, but with respect to a matter for which they lack authority to act (standing).
As quoted above, "[a] key consideration in determining the existence of privity is the sharing of the same legal right by the parties allegedly in privity ..." Mazziotti, supra, 240 Conn. 813. Under the limited partnership agreement (LPA), only the general partner appears to have had authority to impose a mandatory or non-consensual withdrawal, and even then, only under identified circumstances (including exercise of discretion). There is but a single legal right involved, although subject to alternate formulations. Whether formulated in terms of the ultimate conclusion-are the plaintiffs still members and entitled to participate-or in terms of a subordinate/threshold fact-did PCM, as general partner, properly require mandatory withdrawal of the plaintiffs from the partnership-it was only PCM, as general partner, who could act. There has been a final determination that in attempting to force the withdrawal of the plaintiffs, PCM had acted improperly, and that is a single legal right/relationship that is binding on the other Pursuit entities.
From an alternate perspective, whether the hedge fund entities were deemed to be unitary in operation or more loosely aggregated, sole authority had been delegated to PCM to make this type of decision. The LPA provided for arbitration of disputes between limited partners and the general partner/hedge fund, and it was that procedure that had been invoked by the plaintiffs-successfully. Even assuming that PIM, as signatory to the LPA, had some right to initiate a dispute resolution procedure, the authority of PIM is limited by the LPA to investment-related decisions and operations, not status of investors as limited partners.
From yet another perspective, this one borrowing from the defendants’ own contentions that the structure of separate entities was required in order to maximize privacy/secrecy: Such a structure represents an implicit if not explicit recognition of delegation of responsibilities to each entity with the concomitant recognition that each entity is the sole actor for purposes of the designated roles. The amended LPA designates the general manager as responsible for all aspects of the partnership other than investment-related decisions and actions (§ 6.01(a)) and further designates the general manager as the party authorized to exercise discretion to mandatorily withdraw a limited shareholder’s interests (§ 5.01(d)). PIM is a signatory to the LPA, and the other entities implicitly are bound by the authorized actions of PCM as general manager-they are not designated as having any authority relating to operation of the partnership and no authority with respect to dealing with limited partners and their status with the partnership.
In the original LPA, the terminology was redemption rather than withdrawal, and the relevant subsection was (f).
The court now must focus on precise terminology. The plaintiffs seek a determination
(2) that the [plaintiffs] remain limited partners in the Capital Fund and retain their interest in the Capital Fund’s portion of the UBS Proceeds;
This must be compared to the actual award of the arbitrator. Paragraph 9 of the award states:
It is hereby determined and declared that Claimants continue to be limited partners of the Pursuit Fund and continue to have an interest in the above-described "UBS litigation, "
followed by the statement in paragraph 11 that
the merits of Claimants’ claims as to the UBS Litigation and the amount of Claimants’ interests in that Litigation are reserved for [later determination] ...
The question then becomes: Does "retain their interest in the Capital Fund’s portion of the UBS Proceeds" have any material difference from "continue to have an interest in the above-described ‘UBS-particularly since the "UBS litigation" no longer exists and has been replaced by the proceeds of that litigation, after the UBS litigation was settled and withdrawn?
That last clause effectively answers the question. It is not uncommon for substitution of money for a lien or claim, whether due to intervening events or a consensual "swap" of money (or a bond) for the lien or claim.
Indeed, with respect to this motion, and given that the third and fourth issues effectively have been resolved, the only direct effect or application of a determination of privity would be to bolster if not establish the second issue relating to the plaintiffs’ continued status as parties with an interest in the UBS proceeds ("that the Schneiders remain limited partners in the Capital Fund and retain their interest in the Capital Fund’s portion of the UBS Proceeds"). As already noted, privity is often context-sensitive, Wheeler, supra, and therefore the court must be focus the specific circumstances surrounding any attempt to invoke privity for purposes of collateral estoppel.
Again, while the defendants have cited insurance-related cases where privity was found not to exist, in Aetna Casualty & Surety Co. v. Jones, 220 Conn. 285, 596 A.2d 414 (1991), discussed (if briefly) above, the court held that the insurer of an individual who had killed his wife and been convicted of manslaughter, could invoke the criminal finding of intent via collateral estoppel in connection with a wrongful death claim being asserted by the late wife’s estate. Although on a practical level it may be difficult to avoid some level of cognitive dissonance in a determination of privity between the criminal defendant who killed his wife and the estate of his wife-given the adversarial nature of the relationship between the parties as accentuated by the existence of a judgment in favor of the estate and against the perpetrator of the homicide-the court found that the insurance policy issued by the plaintiff in the declaratory action then before the court provided a basis for privity.
In the instant case, we conclude that the insured, Manfredi, and his wife’s estate shared an identical legal right in any potential proceeds derived from the contractual relationship between Manfredi and his insurance company. 220 Conn. 305.
The court noted that special attention is needed in situations involving a lack of mutuality or issues relating to privity:
Whenever collateral estoppel is asserted, but especially in those cases where there is a lack of mutuality or the doctrine of privity is raised, the court must make certain that there was a full and fair opportunity to litigate. 220 Conn. 306.
The multi-day arbitration proceeding(s), and comprehensive written decision (first of two), leave no room for doubt that there had been "a full and fair opportunity to litigate." This was not a tangential or insubstantial issue, but a central theme for the dispute between the two sides. There is no concern that the matter was not adequately-aggressively-litigated. Just as in Aetna, the precise same issue was litigated and decided, and the absence of identical parties is not dispositive when there is a relationship between the parties, and they are asserting the identical position.
Here, there is a legal relationship between the original litigant and parties sought to be bound by collateral estoppel, and it does not require the level of inter-relationship (or blurring of distinct corporate entities) sufficient for purposes of piercing the corporate veil. It is sufficient that the Pursuit entities, themselves, have assigned responsibilities for various functions, consistent with the LPA and the graphic layout presented to the UBS court and this court. The court can respect separate corporate existence while also recognizing that the sole entity with authority to decide to order a mandatory withdrawal of the plaintiffs was the general partner, and there has been an authoritative and final determination by a competent tribunal that that directive, by the then-general partner, had been improper and therefore was a legal nullity. The current parties are bound by that determination.
Conclusion
As noted above, two of the issues, in a qualified manner, are the subject of agreement between the parties-assuming that the plaintiffs establish entitlement to a recovery, "the [plaintiffs] possess a 35.027901 percent interest in the Capital Fund" and "the Capital Fund’s rightful share of the UBS Settlement is $15,364,800."
With respect to the claim of privity ("that the entities that form the Pursuit Hedge Fund, including PCM, PIM, Pursuit Partners, LLC, Opportunity Fund, and Capital Fund are a unitary, unified, integrated entity with each entity in privity with one another"), the court cannot find that the plaintiffs are entitled to a ruling in their favor, in the context of this motion. With respect to judicial estoppel, to the extent that it might be applicable, the court cannot conclude that the plaintiffs have established the applicability of the doctrine to a level of certitude as would be required by way of a motion (as opposed to a factual determination, including weighing of evidence and interests, as would occur in connection with a trial). The court also cannot conclude that the proposed statement was an essential element of a final determination in a prior proceeding, in that it does not appear to have been essential to the arbitration decision and with respect to the UBS litigation, it does not appear to have been essential and there was no final determination that might support a claim of collateral estoppel. Further, on a more global level, the context-sensitive nature of privity precludes any application in a context-free (global) sense as has been requested, and the court will not speculate on any particular context (except as to issue # 2, where privity was found to exist based on the specific context and history).
As recently stated by our Supreme Court, quoting the South Carolina Supreme Court," ‘[p]rivity’ as used in the context of res judicata or collateral estoppel, does not embrace relationships between persons or entities, but rather it deals with a person’s relationship to the subject matter of the litigation." (Internal quotation marks and citation, omitted.) Wheeler, supra, 320 Conn. 167. Emphasizing the context-sensitive nature of privity, the very next paragraph of the quoted decision observed that privity existed for some but not all claims before the court: "Accordingly, we conclude that the plaintiffs are not in privity with the other lot owners with regard to their prescriptive easement claims, even if they are with regards to their other claims ..." Aside from the fact that there has been no prior explicit determination of privity (as such) cited by the plaintiffs, the court cannot treat privity as a global or unqualified finding, when the existence of privity is context-sensitive.
However, the remaining issue ("that the [plaintiffs] remain limited partners in the Capital Fund and retain their interest in the Capital Fund’s portion of the UBS Proceeds") implicates a focused and context-sensitive application of privity. The plaintiffs have established that the identical issue was resolved via arbitration and confirmed by a court of competent jurisdiction; the defendants have not offered any evidence to counter the existence of that issue as resolved in the first phase of the arbitration, or evidence countering its confirmation, or any argument that the of concern issue is not identical in both proceedings.
More narrowly, the defendants have not suggested much less offered any evidence that any Pursuit-related entity other than the general partner had the right to order a mandatory withdrawal by/of the plaintiffs. Therefore, to the extent that the defendants purport to rely upon the mandatory withdrawal as had been ordered by the then-general partner, that reliance is intimately bound up with the legal status of that decision. That decision having been overturned by a competent tribunal and affirmed, the court perceives the situation to be the epitome of "the same legal right" having been determined with finality, with privity being the appropriate term to describe that level of sameness and interrelatedness/interdependency.
Accordingly, the court finds (based on agreement of the parties) that to the extent that the plaintiffs establish a right to recover from the defendants, the plaintiffs possess a 35.027901 percent interest in the Capital Fund; and that to the extent that they establish a right to recover from the defendants, the Capital Fund’s rightful share of the UBS Settlement is $15,364,800, which is the base-subject to possible adjustments, credits, offsets, etc.-against which the 35.027901 percent interest would be applied.
The court further finds, notwithstanding the defendants’ objection, that based on collateral estoppel, the plaintiffs remain limited partners in the Capital Fund and retain their interest in the Capital Fund’s portion of the UBS Proceeds, based on the arbitrator’s determination that "[i]t is hereby determined and declared that Claimants continue to be limited partners of the Pursuit Fund and continue to have an interest in the above-described ‘UBS litigation, ’" which is the functional equivalent of the determination requested by the plaintiffs.
The court concludes that the plaintiffs are not entitled to a determination that "the entities that form the Pursuit Hedge Fund, including PCM, PIM, Pursuit Partners, LLC, Opportunity Fund, and Capital Fund are a unitary, unified, integrated entity with each entity in privity with one another," based on claims of judicial estoppel and/or collateral estoppel. Privity may exist for some purposes, but the plaintiffs have not established entitlement to a global ruling, as they have requested in this motion.