Opinion
No. CV 10 6005687
April 7, 2011
MEMORANDUM OF DECISION RE MOTION TO STRIKE (NO. 106)
FACTS
On November 29, 2010, the plaintiff, Joseph A. Cox, M.D., filed a two-count revised complaint against the defendants, Victoria Reyes-D'Arcy, M.D., Joseph C. Benedict, M.D. and Pathology Consultants of New London, P.C. (PCNL), alleging the following facts. The plaintiff and the defendants Reyes-D'Arcy and Benedict were each an equal one-third shareholder in the defendant PCNL and also served as the three officers of PCNL. The plaintiff entered into an employment contract with PCNL in 2008, wherein the plaintiff agreed to provide his professional medical services to PCNL in return for certain compensation and benefits. The contract included a non-compete restrictive covenant as well as the procedures outlining PCNL's ability to terminate the plaintiff either with or without cause. Beginning in March 2010, the defendants Reyes-D'Arcy and Benedict began to act in concert as majority shareholders of PCNL and conspired to force the plaintiff out of his ownership of and employment with PCNL to maximize their individual share of the profits derived from PCNL. Reyes-D'Arcy and Benedict constructed pretextual and unsubstantiated claims of misconduct in order to threaten "for cause" termination, to cast the plaintiff in a poor light with the hospital with whom PCNL does business and to generate ill will within the local medical community. In addition, Reyes-D'Arcy exploited her position at the hospital and campaigned for the revocation of the plaintiff's privileges there, something that would result in a "for cause" basis for termination. After the plaintiff refused to give up his shares of and employment with PCNL voluntarily, the defendants Reyes-D'Arcy and Benedict called to order a meeting of the three PCNL shareholders and voted to terminate the plaintiff without cause.
Count one of the revised complaint alleges that Reyes-D'Arcy and Benedict acted unlawfully and in breach of their fiduciary duty to the plaintiff, as well as engaged in a civil conspiracy. Count two alleges bad faith against PCNL in that it breached its implied covenant of good faith and fair dealing in the employment contract with the plaintiff because the actions of the defendants were undertaken with a dishonest purpose, furtive design and/or ill will. The defendants filed a motion to strike both counts of the revised complaint with an accompanying memorandum of law on December 14, 2010. The plaintiff filed an objection to the defendants' motion to strike and a memorandum of law in support of his objection on January 19, 2011. The defendants filed a reply memorandum on February 17, 2011.
DISCUSSION
"The purpose of a motion to strike is to contest . . . the legal sufficiency of the allegations of any complaint . . . to state a claim upon which relief can be granted." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003). "It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted . . . Indeed, pleadings must be construed broadly and realistically, rather than narrowly and technically." (Internal quotation marks omitted.) Connecticut Coalition for Justice in Education Funding, Inc. v. Rell, 295 Conn. 240, 252-53, 990 A.2d 206 (2010). "[I]f facts provable in the complaint would support a cause of action, the motion to strike must be denied." (Internal quotation marks omitted.) American Progressive Life Health Ins. Co. of New York v. Better Benefits, LLC, 292 Conn. 111, 120, 971 A.2d 17 (2009).
In the present case, the defendants argue that the plaintiff's claims for breach of fiduciary duty and bad faith are legally insufficient on the ground that the plaintiff's termination without cause was in accordance with the express terms of the employment contract between the parties. Further, the defendants assert that count one is deficient on the ground that the plaintiff fails to identify a fiduciary duty owed to him in that there is no general duty owed by shareholders to each other for claims arising out of the employment context.
In response, the plaintiff counters that the defendants have erroneously characterized this action as a breach of contract claim arising out of the plaintiff's termination from PCNL. The plaintiff contends that his complaint sufficiently alleges facts to support claims for breach of fiduciary duty and bad faith on the ground that the duty owed by the defendants arose not from their role as an employer, but rather that of shareholder, corporate officer and business partner.
According to the Supreme Court, 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 . . . We have 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 situations in which there is a justifiable trust confided on one side and a resulting superiority and influence on the other . . . The relationship between sophisticated partners in a business venture may differ from the relationship involving lay people who are wholly dependent upon the expertise of a fiduciary. Fiduciaries appear in a variety of forms, including agents, partners, lawyers, directors, trustees, executors, receivers, bailees and guardians. [E]quity has carefully refrained from defining a fiduciary relationship in precise detail and in such a manner as to exclude new situations." (Citations omitted; internal quotation marks omitted.) Falls Church Group, Ltd. v. Tyler, Cooper Alcorn, LLP, 281 Conn. 84, 108-09, 912 A.2d 1019 (2007).
The law is unsettled in Connecticut, however, as to whether minority shareholders in a close corporation owe a fiduciary duty to the corporation and the other stockholders. See Thames River Recycling v. Gallo, 50 Conn.App. 767, 780-81, 720 A.2d 242 (1998). But according to the plaintiff's complaint, the defendants Reyes-D'Arcy and Benedict were also officers of PCNL, serving as president and treasurer, respectively. The law in Connecticut is clear that "[a]n officer and director occupies a fiduciary relationship to the corporation and its stockholders . . . He occupies a position of the highest trust and therefore he is bound to use the utmost good faith and fair dealing in all his relationships with the corporation . . . Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior." (Citations omitted; internal quotation marks omitted.) Pacelli Bros. Transportation, Inc. v. Pacelli, 189 Conn. 401, 407, 456 A.2d 325 (1983). The plaintiff alleges that the defendants constructed pretextual and unsubstantiated claims of misconduct by the plaintiff, cast the plaintiff in a poor light with the hospital where he worked and generated ill will within the local medical community. Further, the plaintiff alleges that the defendant Reyes-D'Arcy exploited her position at the hospital and campaigned for a revocation of the plaintiff's privileges there. Finally, the plaintiff has alleged that Reyes-D'Arcy and Benedict conspired together to remove the plaintiff from PCNL to maximize their own profits. Thus, taking every allegation in the complaint as admitted, the plaintiff has sufficiently established that the defendants, as officers of PCNL, owed a fiduciary duty to the plaintiff, as a shareholder, and subsequently breached that duty.
Furthermore, the plaintiff also alleges a civil conspiracy claim against the defendants in count one. "There is, however, no independent claim of civil conspiracy. Rather, [t]he action is for damages caused by acts committed pursuant to a formed conspiracy rather than by the conspiracy itself . . . Thus, to state a cause of action, a claim of civil conspiracy must be joined with an allegation of a substantive tort." (Internal quotation marks omitted.) Macomber v. Travelers Property Casualty Corp., 277 Conn. 617, 636, 894 A.2d 240 (2006). "[T]he purpose of a civil conspiracy claim is to impose civil liability for damages on those who agree to join in a tortfeasor's conduct and, thereby, become liable for the ensuing damage, simply by virtue of their agreement to engage in the wrongdoing." Id. The plaintiff here has sufficiently alleged a substantive tort, as well as allegations that the defendants committed this tort pursuant to a scheme that resulted in damages to the plaintiff. Therefore, the defendants' motion to strike count one of the revised complaint must be denied.
With respect to count two of the complaint, alleging bad faith, the defendants contend that this claim is legally insufficient on the ground that it is based on actions permitted by the clear and unambiguous terms of the employment contract. The plaintiff counters again that the defendants have misconstrued the claim in that his termination without cause is not the basis for the lawsuit; rather, the plaintiff alleges that PCNL, through the actions of Reyes-D'Arcy and Benedict, breached its implied covenant of good faith and fair dealing when it engaged in the allegedly tortious conduct prior to his termination.
"[I]t is axiomatic that the . . . duty of good faith and fair dealing is a covenant implied into a contract or a contractual relationship . . . In other words, every contract carries an implied duty requiring that neither party do anything that will injure the right of the other to receive the benefits of the agreement . . . The covenant of good faith and fair dealing presupposes that the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party's discretionary application or interpretation of a contract term . . . To constitute a breach of [the implied covenant of good faith and fair dealing], the acts by which a defendant allegedly impedes the plaintiff's right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith . . . Whether a party has acted in bad faith is a question of fact . . ." (Citation omitted; internal quotation marks omitted.) Renaissance Management Co. v. Connecticut Housing Finance Authority, 281 Conn. 227, 240, 915 A.2d 290 (2007). "Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive . . . Bad faith means more than mere negligence; it involves a dishonest purpose." (Internal quotation marks omitted.) Keller v. Beckenstein, 117 Conn.App. 550, 563-64, 979 A.2d 1055, cert. denied, 294 Conn. 913, 983 A.2d 274 (2009).
This court recently noted that "[t]here is a split of authority among Superior Courts as to what factual allegations are sufficient to constitute the element of bad faith . . . The first line of cases requires specific allegations establishing a dishonest purpose or malice . . . In alleging a breach of the covenant of good faith and fair dealing, courts have stressed that such a claim must be alleged in terms of wanton and malicious injury [and] evil motive . . .
"The second line of cases generally holds parties to a less stringent standard. For instance, in Algiere v. Utica National Ins. Co. [Superior Court, judicial district of New London, Docket No. CV 04 0569670 (February 7, 2005, Jones, J.)] the court, in denying the defendant's motion to strike, noted that, `[a]lthough the plaintiff has not alleged that the defendant acted in bad faith or with a sinister motive[,] she has alleged facts sufficient to reasonably infer that an improper motive or reckless indifference of the interest of others existed.'" Beckstein v. Allstate Ins. Co., Superior Court, judicial district of New London, Docket No. CV 10 6005267 (December 30, 2010, Martin, J.).
For the purposes of a motion to strike, taking all facts alleged in the complaint as admitted and viewing the allegations in a light most favorable to sustaining their legal sufficiency, the plaintiff has stated a valid claim for bad faith under either standard. The employment contract between the plaintiff and PCNL contained an implied duty requiring that neither party do anything that will injure the right of the other to receive the benefits of the agreement. The defendants argue that this bad faith claim must fail because their actions — terminating the plaintiff without cause — were expressly authorized by the employment contract. Nevertheless, the facts alleged in the complaint assert that the defendants' actions, from acting in concert for their joint benefit to hold a collective majority interest in PCNL, to conspiring to force the plaintiff out of his ownership of PCNL to maximize their own profits and to casting the plaintiff in a poor light in the local medical community, were undertaken with a dishonest purpose, furtive design and/or ill will. If the defendants' actions, although permitted by the contract, were performed with a dishonest purpose, then a subsequent claim of bad faith would be legally sufficient.
CONCLUSION
For the foregoing reasons, the defendants' motion to strike both counts of the plaintiff's revised complaint is hereby denied.