Opinion
HHDCV136042758S
07-20-2017
John B. Clinton v. Michael E. Aspinwall et al
UNPUBLISHED OPINION
Filed July 21, 2017
MEMORANDUM OF DECISION RE MOTIONS FOR SUMMARY JUDGMENT (#196, #200)
Antonio C. Robaina, J.
FACTS
Before the court are two separate motions for summary judgment. First are the facts as alleged by the plaintiff; John Clinton, in his two-count third amended complaint filed on October 15, 2014, against the defendants, Michael Aspinwall, Steven Piaker, and David Young, alleging claims for breach of fiduciary duty and breach of contract. Second are the facts as alleged by the defendants, now counterclaimants, in their two-count first revised counterclaim filed on September 21, 2015, against the plaintiff, also alleging claims for breach of fiduciary duty and breach of contract.
I. COMPLAINT FACTS
The plaintiff is a former member of CCP Equity Partners, LLC (CCP), a limited liability company organized in accordance with the Delaware Limited Liability Company Act, which provides services to private equity funds. CCP is registered to do business in Connecticut, and has its principal place of business in Hartford, Connecticut. The defendants are current members of CCP. The plaintiff was a Managing Partner of CCP from December 2003 until March 11, 2008.
On December 29, 2003, the members of CCP entered into the Amended and Restated Limited Liability Company Agreement of CCP Fund Managers, LLC (the LLC Agreement). At the time the LLC Agreement was entered into, the members of CCP included the plaintiff and the defendants, Preston Kavanagh, and Gerard Vecchio. The LLC Agreement provided that there would be established on the books of CCP a capital account for each member that would consist of such members' initial capital contribution to CCP, subject to certain identified increases and decreases. The LLC Agreement provided for the possible creation of " a capital reserve for future expenses of the Company." On August 11, 2005, the Executive Committee of CCP created a capital reserve of $3 million dollars.
On June 30, 2004, Vecchio ceased to be a member of CCP.
In 2006, the members of CCP decided not to raise investor capital to create another private equity fund, and they expected substantially all the operations of CCP to close and substantially all the portfolio companies to be liquidated by the end of 2012. On September 1, 2006, the members of CCP unanimously agreed to the following: to amend the LLC Agreement to provide that each distribution " shall be made pro rata among the members in proportion to their relative Capital Accounts as of the date of the applicable distribution, unless otherwise determined and agreed by all of the members . . ."; that, in 2006, each member would receive a distribution of $250,000 plus benefits, rather than receiving distributions in proportion to their capital accounts; and that, " in 2007 and until revised by other resolutions of the members, " Kavanagh would receive a distribution of $37,000 and each other member would receive a distribution of $250,000 plus benefits, rather than receiving distributions in proportion to their capital accounts.
Also on September 1, 2006, the defendants represented to the plaintiff that the 2006 amendments would lock in all of the members' economics, such that no members' distributions, allocations, or Percentage Interest could be changed without unanimous agreement of the members. On March 2, 2008, the plaintiff and Kavanagh proposed to the defendants that CCP members' capital accounts be distributed to the members, and that a capital reserve was not needed and should be eliminated immediately. On March 11, 2008, notwithstanding their representation to the plaintiff that the 2006 amendments would lock in the members' economics, the defendants, collectively controlling 61 percent of the Percentage Interests in CCP, voted (over the objections of the plaintiff and Kavanagh) to amend the LLC Agreement (2008 Amendments) effective January 1, 2007. The 2008 Amendments were made effective retroactively to January 1, 2007, and materially changed the individual members' economics for more than fourteen months prior and forever after. The 2008 Amendments reduced the plaintiff's and Kavanagh's Percentage Interest and the balances of their capital accounts, while increasing the Percentage Interests of the defendants and the balances of their capital accounts.
The proposal was 35 percent in 2008, 35 percent in 2009, 15 percent in 2010, and the balance upon liquidation.
The operative complaint states the amendments were as follows: " (a) alter each member's percentage interest; (b) terminate the practice of allocating income to each member's capital account in accordance with his percentage interest; (c) create a new structure of " gain percentage" and " loss percentage" whereby at the end of each year the net gain would be allocated to all members in proportion to their respective gain percentages and net loss would be allocated to all members in proportion to their respective loss percentages; (d) purport to authorize other distributions; and (e) alter the definition of " repurchase event" so that a member's death or disability would no longer be a " repurchase event."
On September 8, 2008, Kavanagh filed a complaint in Superior Court against CCP, Aspinwall, Piaker, and Young (the Kavanagh Lawsuit). On October 31, 2008, a majority of CCP members voted to remove Kavanagh as a member. At this same meeting, the plaintiff challenged the necessity of a $3 million dollar capital reserve in the event that Kavanagh's lawsuit was to be settled. The plaintiff shared his thought that a $3 million dollar capital reserve was inappropriate at the time because CCP did not need additional resources beyond the fees and available capital, CCP was not incurring any significant ongoing expenses, and CCP's only outstanding litigation was the Kavanagh Lawsuit. The defendants took the position that a $3 million dollar capital reserve was necessitated at the time by the commitment to meet all of CCP's obligations to its investors for several more years, as well as the course the Kavanagh Lawsuit might take, and the possibility of legal action by the plaintiff.
On February 26, 2013, the defendants voted to remove the plaintiff as a member of CCP. The LLC Agreement provided that upon the removal of a member, CCP was required to repurchase any remaining interest in CCP held by that member. In exchange for the member's interest, the LLC Agreement provided that the member was to receive an amount equal to the balance in their capital account at the time of removal, less their pro rata share of the then-current capital reserve. At the time of the plaintiff's removal, his capital account had a balance of $939,918.33. At that time, CCP was in active liquidation and wind down and none of the members of CCP were working full time on the operations of CCP.
On March 28, 2013, the plaintiff's attorney informed CCP's attorney that he was willing to accept $600,000 in full satisfaction of his interest in CCP. On May 6, 2013, the plaintiff received, as payment for his remaining interest in CCP, a check for $16,447.21 and a promissory note in the amount of $151,934.66. The plaintiff was informed that his capital account had been reduced by $750,000 to account for his one-fourth share of CCP's three million dollar capital reserve, but the plaintiff never received an explanation on why the capital reserve was necessary in light of CCP's current operating status.
In the third amended complaint, the plaintiff alleges in count one that the defendants breached fiduciary duties owed to him under both Connecticut and Delaware law, and in count two, that the defendants breached their contract with the plaintiff. The plaintiff identified in the complaint three independent bases for both of these claims: (1) the enactment of the 2008 Amendments to the LLC Agreement; (2) the removal of the plaintiff as a member of CCP; and (3) the maintenance of a $3 million dollar capital reserve. The plaintiff alleges that each action was taken improperly, in bad faith, and in violation of the LLC Agreement.
II. COUNTERCLAIM FACTS
The following are facts alleged by the counterclaimants. CCP was formed in 2003 as a Delaware limited liability company that provides management services to private equity funds. At inception, CCP's members included Clinton, the counterclaimants, Kavanagh, and other individuals not material to this dispute. From inception to February 28, 2013, Clinton was a member and manager of CCP. The counterclaimants remain members of CCP. In late 2003, the members of CCP executed an operating agreement, and the members allege that Clinton knew about the following provisions of the operating agreement material to the counterclaim: (a) that the operating agreement could be amended at any time in writing by a vote of 60 percent of CCP's percentage interests; (b) that a member could be removed from CCP with or without cause upon an affirmative vote of 60 percent of CCP's percentage interests; (c) that a membership's ownership interest in CCP, referred to as " percentage interest, " could be changed upon a vote of 60 percent of CCP's percentage interest; and (d) that the operating agreement could not be amended orally.
Some may be repetitive of the facts in the operative complaint, but for clarity and thoroughness, they have been restated.
In 2006, the members of CCP had various discussions concerning the future of CCP and, in connection with those discussions, Kavanagh, who owed 12.5 percent of CCP's percentage interest and hoped to obtain full-time employment outside of CCP, proposed that CCP's operating agreement be amended to afford greater protection to the members owning minority interests. Kavanagh proposed amendments that would have had the effect of enabling a single member to block certain corporate actions that could otherwise be taken by 60 percent of the percentage interests. These actions included amending the operating agreement, changing a member's economics, and removing a member without cause. Every member rejected these proposals, including Clinton, who believed that he was part of a group of members that controlled more than 60 percent of CCP's percentage interests.
In August 2006, Kavanagh accepted a full-time position at another company. On August 30, 2006, CCP's members other than Kavanagh decided Kavanagh's general distribution would be $250,000 for 2006 and 2007, but be $37,500 thereafter. Clinton communicated this to Kavanagh in a meeting that occurred in CCP's offices on the same day (August 2006 meeting). CCP's members also agreed that the other members would receive general distributions of $250,000 in 2006 and thereafter. At the time of this discussion, section 8.1 of the operating agreement required general distributions be made " pro rata among the members in proportion to their relative capital accounts as of the date of the applicable distribution." Thus, the proposed general distributions were prohibited by the text of the operating agreement as they were not proportionate to the members' capital accounts.
In September 2006, Kavanagh corresponded with a lawyer for CCP regarding this issue with the distributions, and proposed to amend the operating agreement to permit general distributions to be made other than pro rata in proportion to capital accounts. In response, the lawyer asked Kavanagh whether the economics of CCP would operate in a way in which the capital account of every member other than Kavanagh would deplete to zero, leaving Kavanagh with the only positive capital account. Kavanagh did not alert the defendants to the issue raised by the lawyer.
In late 2007, the counterclaimants identified the issue CCP's lawyer brought to Kavanagh's attention in 2006 and proposed that CCP's operating agreement be amended to correct the issue. Among other things, the counterclaimants proposed amendments that would allocate CCP's gain in four equal parts to the capital accounts of the members of CCP still working at CCP, essentially giving each member 25 percent of CCP's gain allocated to his capital account. The amendments eliminated the gain allocation to Kavanagh and reduced the gain allocation to Clinton from 26.5 percent to 25 percent. At the time the amendments were proposed, the counterclaimants held more than 60 percent and had the power to vote to amend the operating agreement. In December 2007, Clinton and Kavanagh sent the counterclaimants an email that stated the proposed amendments were improper in that they would have an adverse impact of the negotiated settlement made with Kavanagh when he stepped out of day-to-day operations. The counterclaimants were unaware of any agreement reached with Kavanagh that would have precluded the proposed amendments to the operating agreement.
In early 2008, Clinton and Kavanagh repeated the allegations that CCP had reached a separation agreement with Kavanagh and that this agreement precluded the amendments proposed. Clinton stated that the proposed amendments to the operating agreement would be invalid unless they were unanimous and that if there were a disagreement about them that it would likely expose CCP to litigation. The counterclaimants could not recall a change in the operating agreement that required unanimous consent for amendments affecting allocations. Clinton further stated that he would withhold any support for the amendment to the operating agreement unless it also contained terms irrevocably fixing Clinton's economics, and Clinton threatened to expose this dispute to investors in the funds CCP managed if the counterclaimants did not agree to the amendments Clinton wanted.
In March 2008, over objections from Clinton and Kavanagh, CCP adopted the 2008 Amendments to the operating agreement. At that meeting, Clinton issued a written statement that he opposed them for various reasons, including his opinion that it breached the financial assurances that he made to Kavanagh in connection with his resignation. This reason made little sense to the counterclaimants as the amendments did not affect Kavanagh's $37,500 general distribution.
In September 2008, Kavanagh filed a lawsuit against CCP and the counterclaimants alleging that Kavanagh had negotiated a separation agreement with CCP. The lawsuit proceeded and Kavanagh was asked to specify where and when he reached a separation agreement with CCP. Kavanagh claimed he reached the agreement with Clinton in August 2006. In his deposition, Kavanagh testified that Clinton had informed him that he was authorized to present a deal to him. Clinton, during his deposition, denied that he was given authority to make a separation agreement on behalf of CCP other than the amount of Kavanagh's general distribution in 2007 and thereafter. This testimony contradicted prior allegations that Clinton made or supported to the effect that Clinton had negotiated a broad and sweeping separation agreement with Kavanagh on behalf of CCP.
That agreement is alleged to have included, among other things, the following terms: (a) in 2006 and thereafter until CCP no longer managed funds, the remaining income or loss of CCP would be allocated as it historically had been allocated, by percentage interests; (b) that Kavanagh would retain his percentage interest in CCP; and (c) that the foregoing could not be changed without the unanimous consent of all of CCP's members, including Kavanagh.
Instead, Clinton testified that sometime in 2006, he was a party to an agreement reached by all members of CCP that benefitted him. Specifically, sometime prior to August 2006, the members had agreed that unanimous consent was needed for future amendments to the operating agreement and protecting all members of CCP against operating agreement amendments that might adversely affect a member's economics. Clinton alleged that this agreement was embodied in the amendments in 2006, even though those amendments contain no such broad and sweeping agreement. The counterclaimants' position is that this allegation of an agreement among CCP's members to preclude future amendments was an intentional fabrication as the members never reached any such agreement. The counterclaimants are of the opinion that Clinton's testimony was an intentional attempt to convince the counterclaimants that the Kavanagh case would go to trial at significant expense and with an uncertain outcome, thereby making it economically advantageous for the counterclaimants to reach a settlement with Kavanagh and Clinton. In late March 2013, Clinton made an offer to CCP purporting to indicate that he could cause a settlement of the Kavanagh litigation if a payment of $600,000 was made to Clinton and $300,000 was made to Kavanagh. Shortly after, the Kavanagh litigation settled on confidential terms. No settlement was reached with Clinton.
DISCUSSION
" [S]ummary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party." (Internal quotation marks omitted.) Cefaratti v. Aranow, 321 Conn. 637, 645, 138 A.3d 837 (2016). " In ruling on a motion for summary judgment, the court's function is not to decide issues of material fact . . . but rather to determine whether any such issues exist." (Internal quotation marks omitted.) RMS Residential Properties, LLC v. Miller, 303 Conn. 224, 233, 32 A.3d 307 (2011). " [I]ssue-finding, rather than issue-determination, is the key to the procedure." (Internal quotation marks omitted.) DiMiceli v. Cheshire, 162 Conn.App. 216, 222, 131 A.3d 771 (2016). " A material fact is a fact that will make a difference in the result of the case . . . The facts at issue are those alleged in the pleadings . . . The party seeking summary judgment has the burden of showing the absence of any genuine issue as to all material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law." (Internal quotation marks omitted.) Recall Total Information Management, Inc. v. Federal Ins. Co., 147 Conn.App. 450, 456, 83 A.3d 664 (2014), aff'd, 317 Conn. 46, 115 A.3d 458 (2015).
I.
THE DEFENDANTS' MOTION FOR SUMMARY JUDGMENT ON THE OPERATIVE COMPLAINT
The defendants argue that all members were on notice that any combination of members owning 60 percent or more may amend the operating agreement, alter members' interests, or remove another member, all without cause. The defendants argue that the plaintiff has failed to show any facts that amending the operating agreement or removing the plaintiff violated the operating agreement or a good faith interpretation of it. Specifically, the defendants argue that all of the plaintiff's theories supporting his claims for breach of duty and breach of contract fail.
In opposition, the plaintiff argues that three actions were taken by the defendants in bad faith, for the purpose of benefitting themselves at the plaintiff's expense, in breach of their contractual and fiduciary duties. The three actions that show the defendants breached their contractual and fiduciary duties to him include: (1) when they adopted the 2008 Amendments to the operating agreement to benefit themselves at Clinton's expense; (2) when they removed Clinton as a member of CCP when the firm was in its wind-down phase; and (3) when they maintained a $3 million dollar capital reserve, which reduced the amount Clinton was paid upon his removal by $750,000 so the defendants could use that money to pay themselves.
In Connecticut, " [i]t is axiomatic that a party cannot breach a fiduciary duty to another unless a fiduciary relationship exists between them." (Internal quotation marks omitted.) Sherwood v. Danbury Hospital, 278 Conn. 163, 195, 896 A.2d 777 (2006). " [A] fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other . . . The superior position of the fiduciary or dominant party affords him great opportunity for abuse of the confidence reposed in him . . . [The Supreme Court has] not, however, defined that relationship in precise detail and in such a manner as to exclude new situations, choosing instead to leave the bars down for situation in which there is a justifiable trust confided on one side and a resulting superiority and influence on the other." (Citation omitted; internal quotation marks omitted.) Falls Church Group, Ltd. v. Tyler, Cooper, & Alcorn, LLP, 281 Conn. 84, 108, 912 A.2d 1019 (2007). Connecticut courts interpreting General Statutes § 34-141 have concluded that " [m]embers and managers of a limited liability company generally owe a fiduciary duty to other members." Zanker Group, LLC v. Summerville at Litchfield Hills, LLC, Superior Court, judicial district of New Haven, Docket No. CV-04-4015238-S, (October 24, 2005, Munro, J.). " [L]ike a partner in a partnership, a member of a limited liability company has a fiduciary duty to the other members." (Citation omitted.) Yavarone v. Jim Moroni's Oil Service, LLC, Superior Court, judicial district of Middlesex, Docket No. CV-03-0102318-S, (February 18, 2005, Aurigemma, J.).
General Statutes § 34-141 provides in relevant part: " (a) A member or manager shall discharge his duties under section 34-140 and the operating agreement, in good faith, with the care an ordinary prudent person in a like position would exercise under similar circumstances, and in the manner he reasonably believes to be in the best interests of the limited liability company, and shall not be liable for any action taken as a member or manager, or any failure to take such action, if he performs such duties in compliance with the provisions of this section." This section was repealed on July 1, 2017, but remains good law for this case pursuant to House Bill No. 5639, 2016 Sess., which provides the repeal does not affect: (1) The operation of the statute or any action taken under it before its repeal; (2) any ratification, right, remedy, privilege, obligation or liability acquired, accrued or incurred under the statute before its repeal; (3) any violation of the statute, or any penalty, forfeiture or punishment incurred because of the violation, before its repeal; or (4) any proceeding, reorganization or dissolution commenced under the statute before its repeal, and the proceeding, reorganization or dissolution may be completed in accordance with the statute as if it had not been repealed.
Under Delaware law, " [t]he elements of breach of fiduciary duty . . . are: (1) that a fiduciary duty exists; and (2) that a fiduciary breached that duty." (Emphasis added.) Heller v. Kiernan, 2002 WL 385545, at *3 (Del.Ch. February 27, 2002), aff'd, 806 A.2d 164 (Del. 2002). " Numerous Court of Chancery decisions hold that the managers of an LLC owe fiduciary duties." Feeley v. NHAOCG, LLC, 62 A.3d 649, 660 (Del.Ch. 2012). These cases have interpreted Delaware's Limited Liability Company Act and held that: " Section 18-1101(c) does not specify a statutory default provision as do other sections of the LLC Act; rather, it implies that some default fiduciary duties may exist at law or in equity, inviting Delaware courts to make an important policy decision and determine the default level of those duties." (Footnote omitted; internal quotation marks omitted.) Kelly v. Blum, 2010 WL 629850 at 10* (Del.Ch. February 24, 2010). " Accepting that invitation, Delaware cases interpreting Section 18-1101(c) have concluded that, despite the wide latitude of freedom of contract afforded to contracting parties in the LLC context, in the absence of a contrary provision in the LLC agreement, LLC managers and members owe traditional fiduciary duties of loyalty and care to each other and to the company . . . Thus, unless the LLC agreement in a manager-managed LLC explicitly expands, restricts, or eliminates traditional fiduciary duties, managers owe those duties to the LLC and its members and controlling members owe those duties to minority members." (Footnote omitted; internal quotation marks omitted.) Id.
Section 18-1101(c) of the Delaware Code provides: " (c) To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement, the member's or manager's or other person's duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement; provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing."
" The elements of a breach of contract action are the formation of an agreement, performance by one party, breach of the agreement by the other party, and damages." Meyers v. Livingston, Adler, Pudla, Meiklejohn & Kelly, P.C., 311 Conn. 282, 291, 87 A.3d 534 (2014). Operating agreements are construed in accordance with the guiding maxims of contract interpretation. See Radding v. Freedom Choice Mortgage, LLC, 76 Conn.App. 366, 820 A.2d 317 (203); Ocsai v. Exit 88 Hotel, LLC, 127 Conn.App. 731, 17 A.3d 83 (2011). " When the language of a contract is ambiguous, the determination of the parties' intent is a question of fact . . . [W]here there is definitive contract language, [however] the determination of what the parties intended by their contractual commitments is a question of law." (Citation omitted; internal quotation marks omitted.) Cruz v. Visual Perceptions, LLC, 311 Conn. 93, 101, 84 A.3d 828 (2014). " In determining whether a contract is ambiguous, the words of the contract must be given their natural and ordinary meaning . . . [T]he mere fact that the parties advance different interpretations of the language in question does not necessitate a conclusion that the language is ambiguous." Id., 102-03. " In contrast, a contract is ambiguous if the intent of the parties is not clear and certain from the language of the contract itself . . . [A]ny ambiguity in a contract must emanate from the language used by the parties . . . The contract must be viewed in its entirety, with each provision read in light of the other provisions . . . and every provision must be given effect if it's possible to do so . . . If the language of the contract is susceptible to more than one reasonable interpretation, the contract is ambiguous." (Citation omitted; internal quotation marks omitted.) Id., 103.
Under Connecticut and Delaware law, the members of CCP in the present case owed each other fiduciary duties. Section 3.4 of the operating agreement, titled Duty of Care, states: " The managers shall exercise their best judgment in conducting the Company's operations and in performing their other duties hereunder. The Managers shall not incur any liability to the Company, any Member or any other Person or any loss suffered by the Company or such other Member or Person which arises out of any action or omission of the Managers or any Affiliate of the Managers assisting the Managers, at the Managers' request, in performing the Managers' duties hereunder, provided, however that (i) the Managers or such Affiliate of the Managers acted in good faith and in a manner such Person reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe such Person's conduct was unlawful, and (ii) such course of conduct did not constitute gross negligence or willful misconduct of the Managers or such Affiliate of the Managers." As noted above, " despite the wide latitude of freedom of contract afforded to contracting parties in the LLC context, in the absence of a contrary provision in the LLC agreement, LLC managers and members owe traditional fiduciary duties of loyalty and care to each other and to the company . . ." Feeley v. NHAOCG, LLC, supra, 62 A.3d 663. Here, there is not a contrary provision in the operating agreement regarding duties of loyalty or care, but rather there is one specifically titled " Duty of Care, " setting forth the fiduciary duties owed between the members. The defendants have argued that their actions were allowed by the operating agreement because they held over 60 percent of the percentage interests in CCP and, therefore, they could not breach any fiduciary duty. However, consistent with Clinton v. Aspinwall, Superior Court, judicial district of Hartford, Docket No. CV-13-6042758-S (August 19, 2015, Robaina, J.) [60 Conn.L.Rptr. 858, ], this, again, ignores § 3.4 of the operating agreement.
Both of the plaintiff's claims for breach of fiduciary duty and breach of contract are based on three actions: (1) the 2008 Amendments; (2) Clinton's removal; and (3) the maintenance of a $3 million dollar capital reserve. The defendants' main argument is that they could carry out these actions because the operating agreement allowed them to as they had the requisite 60 percent voting power. The plaintiff's main argument is that these actions were done in bad faith resulting in the alleged breaches. In analyzing the evidence of the three actions in light most favorable to the nonmoving party, material facts remain disputed.
A.
2008 Amendments
The plaintiff has alleged that he believed that the amendments from September 1, 2006, pertaining to § 8.1 of the operating agreement locked in the members' economics. The defendants believe these amendments to have actually occurred in 2007, and they have denied that the amendment to § 8.1 locked in members' economics. The defendants point to the plaintiff's deposition where he stated there was no such representation in writing from the defendants about the locking of economics. The plaintiff's testimony, however, continues and does allude to other representations, understandings, and emails by the defendants. The " lock in economics" language that was used by the plaintiff and not by the defendants, is a concept all parties understood. Furthermore, factual issues still remain as to whether the 2008 Amendments were prohibited by the September 2006 amendments and whether the defendants breached their representation about what § 8.1 actually meant. The defendants point out that the plaintiff stated the amendments to § 8.1 did not change members' ability to amend the operating agreement, but the plaintiff's testimony shows his understanding that the § 8.1 amendment called for unanimous consent for distributions, but did not change the part of the operating agreement requiring 60 percent. It is unclear if the plaintiff understood this provision to always be unanimous and, indeed, the defendants admit the plaintiff misunderstood the § 8.1 amendment. Thus, this section of the operating agreement and its application is ambiguous.
Section 8.1 originally read: " Subject to applicable law and except as otherwise provided in Section 8.5, the Company shall make distributions to the Members at such times and in such aggregate amounts as may be determined by the Board of Managers, in its sole discretion. Each such distribution shall be made pro rata among the Members in proportion to their relative Capital Accounts as of the date of the applicable distribution." The amended version reads: " Subject to applicable law and except as otherwise provided in Section 8.5, the Company shall make distributions to the Members at such times in such aggregate amounts as may be determined by the Board of Managers, in its sole discretion. Each such distribution shall be made pro rata among the Members in proportion to their relative Capital Accounts as of the date of the applicable distribution, unless otherwise determined and agreed by all of the Members and subject to the remainder of this Section VIII ."
B.
Clinton's Removal
On February 26, 2013, the defendants voted to remove the plaintiff from CCP. This removal triggered a repurchase event. The plaintiff alleges that after Clinton's January 4, 2013, deposition in the Kavanagh lawsuit, the defendants planned to remove the plaintiff. The defendants denied planning his removal but admit that it was discussed. The defendants again argue they had the necessary 60 percent voting, and that the operating agreement allowed removal of a member without cause. They do not address anything about their discussion regarding the plaintiff's removal. Considered with the other actions, as well as evidence before the court that the members did not like each other, that their relationship had deteriorated to not speaking, and the evidence of name calling, when considered in the light most favorable to the nonmoving party, a question of fact remains as to whether the defendants planned or discussed the removal of the plaintiff and their motive, which lends to possible bad faith in violation of § 3.4.
Additionally, another reason highlighted by the defendants for the plaintiff's removal was the alleged unauthorized separation agreement the plaintiff made with Kavanagh. It is unclear whether the separation agreement with Kavanagh was an agreement, or part of the adjustment of fixed economics from the September 2006 amendments to § 8.1. The defendants understood the agreement to be a separate agreement, but the plaintiff testified that he believed the 2006 amendments were to the firm's overall transition and served as a severance for the whole firm so that members could move from working full time, to not at all as operations wound down. Although the defendants claim they did not need cause, they point to the alleged unauthorized agreement as a cause, which creates a genuine issue of material fact as to whether it was the true reason or whether a bad faith motive existed. Accordingly, questions remain regarding this allegation.
C.
$3 Million Capital Reserve
The plaintiff argued on October 31, 2008, that the capital reserve was inappropriate and was no longer needed. The plaintiff thought it was not needed because CCP did not need any additional resources to operate, CCP was not incurring any ongoing expenses, and the Kavanagh lawsuit seemed to be coming to a close. The defendants adamantly denied this. The plaintiff has also argued that the § 8.1 amendment eliminated the reason for the capital reserve. Once Kavanagh was removed, the capital reserve was kept at $3 million without any review or explanation. The defendants point to § 10.3 of the operating agreement regarding the members' capital account, that members share or contribute to its total amount. The evidence suggests, however, that the establishment of the reserve was created by a vote, and a vote could have been held to lower the amount. Essentially, the same way the reserve was created, is the same way the members could have reduced or eliminated it. It is unclear whether the plaintiff ever received an explanation of why the $3 million amount was necessary, especially when he thought CCP was in active liquidation and wind down. The defendants have argued this was untrue, yet they decided not to start a new fund and evidence suggests that firms like CCP only operate for twelve years.
Section 10.3 reads in relevant part: " (a) Repurchase. Upon a Repurchase Event with respect to any Member, the Company shall be obligated to repurchase, and such Member (or such Member's representative or successor, as applicable) and each of his Permitted Transferees (collectively, the " Repurchase Member") shall be obligated to sell, as promptly as reasonably practicable following the date of such Repurchase Event, all of the Interests held by such Repurchase Member as of the date of the Repurchase Event. Such Repurchase Member shall notify the Company in writing promptly after the occurrence of a Repurchase Event. (b) Purchase Price. Upon any repurchase of Interests from any Repurchase Member pursuant to this Section 10.3, such Repurchase Member (or such Repurchase Member's representative or successor, as applicable) shall receive, as consideration for the Interests, an amount equal to the aggregate amount in the Capital Account of such Repurchase Member with respect to such Interests as of the date of the Repurchase Event, less such Repurchase Member's pro rata share (based on his Percentage Interest) of the then-current capital reserve for future expenses established by the Board of Managers. Payment of any amount due to any Repurchase Member by the Company pursuant to this Section 10.3 shall be made as follows: (A) twenty percent (20%) payable in cash, and (B) the remainder payable by the delivery of a promissory note issued by the Company, bearing a rate of interest per annum equal to the Prime Rate . . . and payable upon the earlier of (I) the dissolution of the Company, and (II) a date that is not less than three years, and not more than five years, from the date of the issuance of such note, which shall be payable, in whole or in part, at any time without premium."
In conclusion, the members owed each other fiduciary duties pursuant to Delaware and Connecticut law and under § 3.4 of the operating agreement. There also seems to be an ambiguity as to § 8.1 of the operating agreement. These three actions provide the basis and reasoning for both of the plaintiff's claims, and viewed in the light most favorable to the nonmoving party, there are disputed material facts relevant to each. For the aforementioned reasons, the defendants' motion for summary judgment is denied.
II.
THE PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON THE DEFENDANTS' COUNTERCLAIMS
The plaintiff seeks summary judgment on all claims asserted by the defendants in their counterclaim on the ground that there is no genuine issue of material fact that the defendants lack standing to pursue their claims for breach of fiduciary duty and breach of contract and, in the alternative, he did not breach a fiduciary duty or breach a contract. The court finds that the plaintiff's standing argument is dispositive of the counterclaims, and therefore the plaintiff's other arguments will not be addressed.
" A limited liability company is a distinct legal entity whose existence is separate from its members . . . A limited liability company has the power to sue or be sued in its own name; see General Statutes § § 34-124(b) and 34-186; or may be a party to an action through a suit brought in its name by a member. See General Statutes § 34-187. A member may not sue in an individual capacity to recover for an injury the basis of which is a wrong to the limited liability company." (Citation omitted.) Wasko v. Farley, 108 Conn.App. 156, 170, 947 A.2d 978, cert. denied, 289 Conn. 922, 958 A.2d 155 (2008).
" Standing is the legal right to set judicial machinery in motion. One cannot rightfully invoke the jurisdiction of the court unless he [or she] has, in an individual or representative capacity, some real interest in the cause of action, or a legal or equitable right, title or interest in the subject matter of the controversy . . . [When] a party is found to lack standing, the court is consequently without subject matter jurisdiction to determine the cause . . . In addition, because standing implicates the court's subject matter jurisdiction, the issue of standing is not subject to waiver and may be raised at any time." (Internal quotation marks omitted.) Wells Fargo Bank, N.A. v. Strong, 149 Conn.App. 384, 397-98, 89 A.3d 392, cert. denied, 312 Conn. 923, 94 A.3d 1202 (2014). As CCP was formed in Delaware, Delaware law controls the issue of whether the defendants have standing to bring the counterclaims in their own right, or whether such claims must be brought as derivative claims on behalf of CCP. See, e.g., May v. Coffey, 291 Conn. 106, 113 n.6, 967 A.2d 495 (2009); Blalack v. Paluch, Superior Court, judicial district of Stamford, Complex Litigation Docket, Docket No. X08-CV-13-6018812-S, (July 2, 2015, Genuario, J.).
" The term standing refers to the right of a party to invoke the jurisdiction of a court to enforce a claim or to redress a grievance. Standing is a threshold question that must be answered by a court affirmatively to ensure that the litigation before the tribunal is a case or controversy that is appropriate for the exercise of the court's judicial powers. The issue of standing is concerned only with the question of who is entitled to mount a legal challenge and not with the merits of the subject matter in controversy. To establish standing, a plaintiff or petitioner must demonstrate first, that he or she sustained an injury-in-fact; and second, that the interests he or she seeks to be protected are within the zone of interests to be protected." (Emphasis in original; footnotes omitted; internal quotation marks omitted.) Dover Historical Society v. Dover Planning Commission, 838 A.2d 1103, 1110 (Del. 2003). As this court has observed previously, " to bring a direct action, the damage must be particular to the individual; if the harm was also felt by the limited liability company or its other members, the suit must be brought derivatively. See, e.g., Wasko v. Farley, supra, 108 Conn.App. 170 . . .; Kelly v. Blum, 2010 WL 629850, at n.63 (Del.Ch. February 24, 2010)." Clinton v. Aspinwall, Superior Court, judicial district of Hartford, Docket No. CV-13-6042758-S (August 20, 2015, Robaina, J.) [60 Conn.L.Rptr. 858, ]. " To determine whether a claim is derivative or direct, this court must only consider '(1) who suffered the alleged harm (the corporation or the suing stockholders, individually); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders, individually)?' Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033 (Del. 2004). As to the first prong, in the context of breach of fiduciary duty, the relevant question is: 'Looking at the body of the complaint and considering the nature of the wrong alleged and the relief requested, has the plaintiff demonstrated that he or she can prevail without showing an injury to the corporation?' . . . Id., at 1036. In other words, 'the inquiry should be whether the stockholder has demonstrated that he or she has suffered an injury that is not dependent on an injury to the corporation.' Id. " (Footnote omitted.) Mercaldo v. Exulans Corp., Superior Court, judicial district of New Haven, Docket No. CV-12-6034237-S, (July 16, 2015, Fischer, J.). " [T]he law governing a plaintiff's standing for both individual and derivative suits involving corporations has been frequently applied in the context of limited liability companies." Maisel v. Snyder, Superior Court, judicial district of Stamford, Docket No. CV-12-5013854-S (January 4, 2013, Genuario, J.) (55 Conn.L.Rptr. 318, 323, ).
In the present case, the counterclaim plaintiffs' position is that they suffered harm when they paid attorneys fees during the Kavanaugh litigation. In their brief, they state they are seeking an award of attorneys fees against the counterclaim defendant. Although money damages are a quintessential injury, the damages in this case were not particular to the individuals. The counterclaim plaintiffs were indemnified by CCP, and therefore, the harm was also felt by CCP. Under the prongs outlined in Tooley, and subsequently applied in Mercaldo, CCP is the entity that actually suffered the alleged monetary damages. Additionally, the counterclaim plaintiffs have pledged to pay any award back to CCP. As such, CCP is the entity that would receive the benefit. The counterclaim plaintiffs have not demonstrated that they can prevail without showing an injury to the corporation. " Indemnification is the right to be reimbursed for all out of pocket expenses and losses caused by an underlying claim." Majkowski v. American Imaging Management Services, LLC, 913 A.2d 572, 586 (Del.Chan. 2006). " [Someone] can be made free from harm, liability, or loss without having an advancement right. Indeed, that is precisely what indemnification does." (Internal quotation marks omitted.) Id., 591. Black's Law Dictionary defines " indemnify" as " [t]o reimburse (another) for a loss suffered because of a third party's act or default, " and " indemnification" as " [t]he action of compensating for loss or damage sustained." Black's Law Dictionary (7th Ed. 1999). Under Delaware law, individuals who have been fully indemnified, lack standing to pursue recovery of those expenses from another party. See Levy v. HLI Operating Co., 924 A.2d 210, 214 (Del.Ch. 2007). CCP indemnified the counterclaim plaintiffs by reimbursing them. The counterclaim plaintiffs were made whole and did not suffer any loss. CCP, however, assumed the loss and is no longer free from harm.
Based on the foregoing, the proper party to mount a legal challenge would be CCP, therefore the counterclaim defendants' motion for summary judgment is granted based on standing.
CONCLUSION
For all the foregoing reasons, the motion for summary judgment filed by the defendants as to the operative complaint is hereby denied, and the motion for summary judgment filed by the plaintiff as to the defendants' counterclaims is hereby granted.