Opinion
X04HHDCV146054044S
04-12-2016
William J. Dowd et al. v. Kent D. Mawhinney et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION RE ACCOUNTANT DEFENDANTS' MOTION TO STRIKE [#102]
David M. Sheridan, J.
The defendants David Angliss, CPA and Angliss & Colohan, P.C. (" A& C") (referred to collectively herein as " the accountant defendants") have moved to strike all of the claims that the plaintiff William Dowd has made against the accountant defendants in the Fifth, Seventh and Eighth counts of the plaintiffs' complaint. The moving defendants argue they did not owe the plaintiff William Dowd any duty because he was not their client and because he is not a member of the limited liability company that was their client.
I. CONTROLLING LAW
" A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court." (Internal quotation marks omitted.) Fidelity Bank v. Krenisky, 72 Conn.App. 700, 720, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002). " For the purpose of ruling upon a motion to strike, the facts alleged in a complaint, though not the legal conclusions it may contain, are deemed to be admitted." (Internal quotation marks omitted.) Bridgeport Harbour Place I, LLC v. Ganim, 111 Conn.App. 197, 203, 958 A.2d 210 (2008), aff'd, 303 Conn. 205, 32 A.3d 296 (2011).
" Under modern rules of pleading . . . pleadings should be read broadly and realistically, rather than narrowly and technically . . . That does not mean, however, that the trial court is obligated to read into pleadings factual allegations that simply are not there or to substitute a cognizable legal theory that the facts, as pleaded, might conceivably support for the noncognizable theory that was actually pleaded." (Citation omitted; internal quotation marks omitted.) Pane v. Danbury, 267 Conn. 669, 677, 841 A.2d 684 (2004). " [T]he burden [is] upon the pleaders to make such averments that the material facts should appear with reasonable certainty . . . essential allegations may not be supplied by conjecture or remote implication." (Citation omitted; internal quotation marks omitted.) Cahill v. Board of Education, 198 Conn. 229, 236, 502 A.2d 410 (1985).
II. ALLEGATIONS OF THE COMPLAINT
This case arises from an investment in a limited liability company known as Frog Bridge Development Company LLC (" Frog Bridge" or " the LLC"). Frog Bridge was formed in April 2007 to develop vacant property located at 560 Main Street, Willimantic, Connecticut, into a revenue-generating apartment complex. (Complaint, ¶ ¶ 15-16.) The defendants Mawhinney and Markowitz were two of the three original members of Frog Bridge. (Complaint, ¶ 17.) They were also lawyers practicing as the law firm of Markowitz & Mawhinney, P.C., and had provided personal and business legal services to the plaintiffs William Dowd and Paul Dowd since at least 2006. (Complaint, ¶ ¶ 14, 17.)
The plaintiffs allege that at some point in 2009, Mawhinney began to solicit William Dowd and Paul Dowd to invest in Frog Bridge. (Complaint, ¶ 21.) The Complaint alleges that
. . . William Dowd and Frog Bridge entered into an undated Agreement (the " Membership Agreement") memorializing the terms by which William Dowd would invest in and become a member of Frog Bridge. In particular, it was agreed that William Dowd or one or more of his designees would obtain a 10% interest in Frog Bridge in exchange for William Dowd posting the $289,000 Letter of Credit (plus paying closing costs for the Letter of Credit Agreement) along with $75,000 in cash. The 10% membership interest was to be issued upon the closing of the HUD Loan on December 9, 2009.(Complaint, ¶ 36, emphasis added.)
The complaint further alleges that
. . . William Dowd told Mawhinney that William Dowd wished for the investment to be for the benefit of his children, Paul Dowd and Lisa Dowd-Inoue, as part of his estate planning so that Paul Dowd and Lisa Dowd-Inoue would each hold a 5% membership interest. Mawhinney agreed to this subject to approval by HUD.(Complaint, ¶ 38.)
The plaintiffs allege that over the course of twenty-nine subsequent " cash calls" in connection with their ownership, they contributed an additional $430,543.52 to the LLC, and their membership interest was increased such that " Paul Dowd and Lisa Dowd-Inoue now hold a 19.6% membership position in Frog Bridge." (Complaint, ¶ 70.) But, the plaintiffs allege, their acquired membership interest is now worthless because the real estate project " has been a complete failure." (Complaint, ¶ 52.) The real estate development project is operating at a loss (Complaint, ¶ 52), Frog Bridge has defaulted on its loans (Complaint, ¶ ¶ 54-55), and Frog Bridge has not produced or distributed any income to its members (Complaint, ¶ 53).
The plaintiffs' complaint is in nine counts and is brought against the LLC, past and current managing members of Frog Bridge, the law firm of Markowitz & Mawhinney, P.C., and the accountant defendants.
The past and current managing members of Frog Bridge are alleged to have duped the plaintiffs into making ill-advised investments and--through numerous cash calls--to have " manipulated and extorted" the plaintiffs into to investing hundreds of thousands of additional dollars into Frog Bridge so that their membership interests would not be forfeited.
Angliss and A& C are alleged to have served as accountants for Frog Bridge and, as such, were responsible for the tax records and tax returns for Frog Bridge, the preparation of schedule K-1 tax forms for the members of Frog Bridge, the preparation of financial statements and reports for Frog Bridge, and reviewing financial reports and information provided by Frog Bridge's property manager, Housing Consultants Associates. The claims against Angliss and A& C are set out in Counts Five, Seven and Eight of the complaint.
In Count Five, the plaintiffs allege generally that Angliss and A& C negligently and carelessly performed their duties as accountants for Frog Bridge and the Frog Bridge members. Specifically, the plaintiffs allege that Angliss and A& C:
--withheld financial information, statements, and reports from Frog Bridge managers and Frog Bridge members;
--failed to properly oversee Frog Bridge's property manager, Housing Consultants Associates, to ensure that financial information and reports prepared by the property manager were accurate and complete; and
--allowed inaccurate or incomplete financial information to be submitted to HUD, Frog Bridge's independent auditors, and the members.
It is further alleged that, as a result of these acts and omissions by Angliss and A& C, the plaintiffs " made ill advised investments in Frog Bridge, contributed additional capital to Frog Bridge" and purchased additional membership interests.
Count Seven is brought against of all the defendants. It incorporates the factual allegations of all of the previous counts and asserts that the acts, omissions and practices described in those counts violate the Connecticut Unfair Trade Practices Act (" CUTPA"), Conn. Gen. Stats. § 42-110b(a) et seq.
In Count Eight, the plaintiffs demand " an accounting and financial disclosure concerning the finances, assets, income, losses, liabilities, and operations of Frog Bridge" pursuant to Connecticut General Statutes § § 52-401 and the common law.
By motion dated October 24, 2014, the accountant defendants have moved to strike all of the claims brought against them by plaintiff William Dowd. The plaintiffs argue that the complaint does not allege facts sufficient to demonstrate that that the accountant defendants owed Dowd any duty, as he was not a client of the accountant defendants and he is not a member of Frog Bridge Development Company LLC, the entity that was a client of the accountant defendants.
III. ANALYSIS
A. Count Five--Negligence Claim
To support an action in negligence, the plaintiff must allege circumstances which would give rise to a duty of care owed by the defendant to the plaintiff. Sheiman v. Lafayette Bank & Trust Co., 4 Conn.App. 39, 45, 492 A.2d 219 (1985).
The factual allegations of " circumstances" related to the accountant defendants are limited:
13. At all relevant times, Angliss & Colohan was a public accounting firm where Angliss practiced his profession and was and is employed. Angliss & Colohan is responsible for the acts and omissions of Angliss complained of herein. At all relevant times, Angliss and Angliss & Colohan have served as certified public accountants to Frog Bridge responsible for, among other things, managing the tax records of Frog Bridge, preparation of tax returns for Frog Bridge, preparation of schedules K-1 for the members of Frog Bridge, preparation of financial statements and reports for Frog Bridge, reporting to Frog Bridge's managers concerning accounting issues relating to Frog Bridge, and reviewing financial reports and information provided by Frog Bridge's property manager, Housing Consultants Associates. Angliss is and has been a member of Frog Bridge for several years.
The Complaint further alleges that:
101. Angliss and Angliss & Colohan had a duty to the members of the Frog Bridge, including the Plaintiffs to perform their services with reasonable care.
102. Angliss and Angliss & Colohan failed to exercise their duties as accountants for Frog Bridge and the Frog Bridge members with reasonable care and performed those duties negligently and carelessly . . .
The moving defendants argue that these allegations are insufficient to establish that the accountant defendants' duty extended to William Dowd, who is not alleged to be a client of the accountant defendants, or even a member of the LLC (Frog Bridge) that is alleged to be a client of the accountant defendants.
The plaintiffs concede that their pleadings--by design--do not clearly state whether William Dowd was, or was not, a member of Frog Bridge: " it is presently unclear to the Plaintiffs whether William Dowd is a member of Frog Bridge or whether only his children are. That is a question of fact that will need to be fleshed out in discovery or even at trial." Nonetheless, they insist that the pleadings allege as fact that " William Dowd relied upon the work and representations of the Accountant Defendants in investing hundreds of thousands of dollars in the LLC after his initial investment. The Accountant Defendants knew of this and encouraged him to do so." (See plaintiffs' December 1, 2015 Memorandum in Opposition [#133], pp. 3-4.)
Even taking the allegations as true and construing them in favor of the plaintiffs, there are no facts alleged from which this court can fairly conclude that the defendants' duties of care as accountants extended to entities or persons other than the LLC and its members. In the absence of such facts, the plaintiff's conclusory allegation that William Dowd was " trusted in and relied upon . . . Angliss, and Angliss & Colohan" (¶ 103) is, by itself, insufficient to establish the existence of a duty of care. " A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged." (Citations omitted; internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).
The plaintiff has failed to plead circumstances which would give rise to a duty of care owed by the defendant to the plaintiff. The motion to strike the negligence claim of plaintiff William Dowd in Count Five is granted.
B. Count Seven--CUTPA
Count Seven alleges that the conduct of the accountant defendants, among others, constitutes a violation of the Connecticut Unfair Trade Practices Act (" CUTPA"). The defendants' basis for striking this particular cause of action is somewhat vague. There is no stand-alone argument for striking the CUTPA count, merely a mention of CUTPA grafted on to the conclusion of the negligence argument.
Count Seven expressly alleges that the accountant defendants' conduct offends public policy; is immoral, unethical, oppressive or unscrupulous; causes substantial injuries to consumers, competitors or other business persons; and constitute deceptive acts or practices; in other words, all the requirements of the so-called " cigarette rule" which defines violations under CUTPA. See, Ulbrich v. Groth, 310 Conn. 375, 409, 78 A.3d 76. (2013). The incorporated paragraphs from prior counts describe interactions between the accountant defendants and the plaintiff William Dowd which, if taken as true, would support these allegations and would be deemed unfair acts and/or deceptive trade practices in the conduct of trade or commerce. For these reasons, the allegations of Count Seven sufficiently state a cause of action on behalf of William Dowd for violation of the Connecticut Unfair Trade Practices Act. The motion to strike is therefore denied as to that count.
C. Count Eight--Accounting
Count Eight of the Complaint alleges that:
102. As managers or former managers of and financial and legal advisers to, Frog Bridge, Schooley, Mawhinney, M& M, Markowitz, Angliss and Angliss & Colohan owe or owed fiduciary duties to the other members of Frog Bridge, including the Plaintiffs.
103. The Plaintiffs trusted in and relied upon Frog Bridge, Schooley, Mawhinney, M& M, Markowitz, Angliss, and Angliss & Colohan to provide the information and documentation that would entitle them to interests in distributions and allocations of profits, losses, gains, deductions, and credits of Frog Bridge, as well as information regarding the legal status and proceedings of Frog Bridge and its accountings, tax records, HUD records and operational results
106. Upon information and belief, Frog Bridge, Schooley, Mawhinney, Angliss, and Angliss & Colohan are in possession of financial information concerning Frog Bridge.
107. Pursuant to Connecticut General Statutes § § 52-401 et seq. and the common law, the Plaintiffs, as members of Frog Bridge, are entitled to an accounting and financial disclosure concerning the finances, assets, income, losses, liabilities, and operations of Frog Bridge.
As a general rule, a party that alleges the existence of a fiduciary duty is entitled to the equitable remedy of an accounting. See, e.g., Sheriff v. Joseph, 2012 WL 5447883, Id. at*6 (Conn.Super.Ct. Oct. 5, 2012, Danaher, J.). " To support an action of accounting, one of several conditions must exist. There must be a fiduciary relationship, or the existence of a mutual and/or complicated accounts, or a need of discovery, or some other special ground of equitable jurisdiction such as fraud . . . The right to compel an account in equity exists not only in the case of those relationships which are traditionally regarded as those of trust and confidence, but also in those informal relations which exist whenever one person trusts in, and relies upon, another. The relationship between . . . parties to a business agreement . . . [has] . . . been deemed to involve such confidence and trust so as to entitle one of the parties to an accounting [in equity] . . ." (Internal quotation marks omitted.) Shames v. Prottas, 2012 WL 6924430 (Conn.Super.Ct. Dec. 27, 2012, Cosgrove, J.) .
The accountant defendants argue that the plaintiffs have not pled sufficient facts to establish a fiduciary relationship and thereby support an action for an accounting. In response, the plaintiffs assert that there is no per se rule that a fiduciary relationship cannot exist between an accountant and a client, and the question of whether a fiduciary relationship exists depends on the underlying facts that are in dispute.
In alleging the existence of a fiduciary duty a plaintiff must do more than merely assert in a conclusory manner that he or she " trusted in and relied upon" the defendant. It is elemental that a motion to strike " admits all facts well pleaded; [but] it does not admit legal conclusions or the truth or accuracy of opinions stated in the pleadings." Mingachos v. CBS, Inc., 196 Conn. 91, 108, 491 A.2d 368 (1985).
Even construing the allegations of the complaint broadly and realistically in favor of the plaintiff William Dowd, the court finds that the circumstances stated are insufficient to establish the existence of a fiduciary duty which would support the equitable remedy of an accounting. The motion to strike the claims of William Dowd in Count Eight is therefore granted.
IV. CONCLUSION
The motion to strike is granted as to the claims of William Dowd in Count Five and Count Eight, and denied as to Count Seven.