Opinion
CV126033535S
08-13-2018
David FALCIGNO v. Stephen FALCIGNO
UNPUBLISHED OPINION
Corradino, Judge trial Referee
A.
The court will first briefly discuss the factual background of the case. It will then try to discuss in more detail the legal issues involved including the claims made by the plaintiff and their requirements. It will then apply this discussion of legal issues to the complicated facts of this case which were developed in a lengthy court trial.
The plaintiff and the defendant are brothers, in the 1970s the father and a partner each acquired a fifty percent ownership interest in Statewide Meats & Poultry, Inc., which was involved with the wholesale distribution of meats. When the father passed away, the plaintiff David Falcigno and another brother each received a twenty percent share in the father’s half-interest, the defendant received a sixty percent share in the half-interest. When the partner of the father died in 2001, his fifty percent interest was purchased by Statewide and the plaintiff, and Richard Falcigno, the other brother, then each had a twenty percent interest in Statewide and the defendant had a sixty percent interest in Statewide.
Between 2001 and August 12, 2011, the defendant had, according to the plaintiff’s brief at pages 2 and 3, "sole control of Statewide and was president and majority shareholder of Statewide. He controlled all policies, business practices and the day to day operations of Statewide."
On October 9, 2009, the plaintiff sold his twenty percent share of Statewide to the defendant for the claimed amount of $250,000. The plaintiff also claims that "during the discussions and negotiations for the defendant’s purchase of the plaintiff’s twenty percent share, the defendant orally promised the plaintiff that if Statewide became profitable, did not go bankrupt, and were to sell in the future, then the defendant would ‘cut (the plaintiff) back in’ and the plaintiff would receive full compensation for his twenty percent share of Statewide from the proceeds of any future sale of Statewide, less the payment of $250,000," paragraph 48 of June 14, 2013 revised complaint.
The revised complaint further alleges that, "66. On or about August 12, 2011, less than two years after the purchase of the plaintiff’s twenty percent share, the defendant sold Statewide to a division of Sysco Corporation for $8,000,000."
There are other claims of self-dealing set forth in the complaint but the gravamen of the plaintiff’s claim is that as a result of the defendant’s breach of fiduciary duty, fraudulent concealment and misrepresentation and negligent misrepresentation, the plaintiff was deprived of what he was entitled to as a result of the August 12, 2011 sale to Sysco and he should have received $1,008,302 as his share of the proceeds of the eight million dollar sale. For a variety of reasons, the plaintiff sets forth in his brief, which the defendant contests, the plaintiff argues that the parole evidence rule should not apply to bar any monetary claim by the plaintiff that exceeds the $200,000 contract price set forth in the October 9, 2009 agreement he entered into to sell his shares to his brother, the defendant. This is only a very brief rendition of the controlling facts in this case and the court will develop those facts when it discusses the applicability of the legal claims made in this case.
B.
The original and revised complaint asserted ten counts against the defendant. A motion for summary judgment was filed by the defendant and granted in part. There are now five claims at issue; (1) Breach of Contract, (2) Fraudulent Concealment/Non-Disclosure, (3) Fraudulent Misrepresentation, (4) Negligent Misrepresentation, (5) Breach of Fiduciary Duty.
The court will first discuss the law as it applies to these various causes of action and then apply that discussion to the facts of this case which were developed at trial.
Breach of Contract
"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." Chiulli v. Zola, 97 Conn.App. 699, 706-07 (2006); Seligson v. Brower, 109 Conn.App. 749, 753 (2008). As Seligson points out whether there has been a breach of contract, is ordinarily a question of fact.
On the question of ambiguity in contract language, the court in Ramirez v. Health Net of the Northeast, Inc., 285 Conn. 1, 13-14 (2008) said: "A contract is ambiguous if the intent of the parties is not clear and certain from the language of the contract itself ... Accordingly, any ambiguity in a contract must emanate from the language used in the contract rather than from one party’s subjective perception of the terms ... When the language of a contract is ambiguous, the determination of the parties’ intent is a question of fact." The court then went on to says that ... "in construing contracts, we give effect to all the language included therein, as "the law of contract interpretation ... militates against interpreting a contract in a way that renders a provision superfluous."
O’Connor v. Waterbury, 286 Conn. 732, 743 (2008) after making the foregoing quotation from Ramirez went on to refer to the language in Montoya v. Montoya, 280 Conn. 605, 612 (2006) to the effect that "if a contract is unambiguous within its four corners, intent of the parties is a question of law requiring plenary review ... Where the language of the contract is clear and unambiguous, the contract is to be given effect according to its terms. A court will not torture words to import ambiguity where the ordinary meaning leaves no room for ambiguity."
The court will now discuss the parol evidence rule and how it may affect the determination of contractual rights and obligations.
The applicability of the parol evidence rule can determine whether a written contract between parties and its terms is conclusive on the rights and claims of the parties. An early case said the following:
... when the parties deliberately put their engagements into writing, in such terms as import a legal obligation, without any uncertainty as to the object or extent of such engagement, it is conclusively presumed that the whole engagement of the parties and the extent and manner of their understanding, was reduced to writing. After this, to permit oral testimony, or prior or contemporaneous conversations, or circumstances, or usages [etc.], in order to learn what was intended, or to contradict what is written, would be dangerous and unjust in the extreme. Glendale Woolen Co. v. Protection Ins. Co., 21 Conn. 19, 37 (1851).
A more recent case Heyman Associates No. 1 v. Ins. Co. Of Pennsylvania, 231 Conn. 756, 779-81 (1995) lays out the doctrine as it operates in our state more completely.
The parol evidence rule does not of itself, therefore, forbid the presentation of parol evidence, that is, evidence outside the four corners of the contract concerning matters governed by an integrated contract, but forbids only the use of such evidence to vary or contradict the terms of such a contract. Parol evidence offered solely to vary or contradict the written terms of an integrated contract is, therefore, legally irrelevant. When offered for that purpose, it is inadmissible not because it is parol evidence, but because it is irrelevant. By implication, such evidence may still be admissible if relevant (1) to explain an ambiguity appearing as the instrument; (2) to prove a collateral oral agreement which does not vary the terms of the writing; (3) to add a missing term in a writing which indicates on its face that it does not set forth the complete agreement; or (4) to show mistake or fraud ... These recognized exceptions are, of course, only examples of situations [in which] the evidence (1) does not vary or contradict the contract’s tetras, or (2) may be considered because the contract has been shown not to be integrated, or (3) tends to show that the contract should be defeated or altered on the equitable ground that relief can be had against any deed or contract in writing founded in mistake or fraud.
Also see Schilberg Integrated Metals v. Continental Casualty Co. 263 Conn. 245, 277-78 (2003).
In the 29a Am.Jur.2d article on Evidence at Section 1104, the parol evidence rule is spelled out in great detail. pp 450-52.
The parol-evidence rule generally precludes the use of extrinsic evidence to vary or contradict the terms of an unambiguous and integrated contract. Indeed, where a contract is integrated, no extrinsic evidence of prior or contemporaneous agreements will be admissible to change, alter, or contradict the contractual writing. In other words, where the parties have concluded a valid integrated agreement with respect to a particular subject matter, the parol evidence rule precludes the enforcement of inconsistent prior or contemporaneous agreements. Thus, the parol-evidence rule generally prohibits the introduction of evidence that tends to alter an integrated written document.
A contract that appears to be a complete and unambiguous statement of the parties’ contractual intent is presumed to be an integrated writing for purposes of the parol-evidence rule. In other words, the courts apply a rebuttable presumption that a writing which on its face appears to be an integrated agreement is what it appears to be. Parol evidence may be necessary to determine if the integration rule applies. An express integration clause is not necessary to a determination that an agreement is integrated. Under the parol-evidence rule, neither oral testimony nor prior written agreements are admissible to explain or vary the terms of a fully integrated written contract. The rule also operates to exclude evidence that varies or contradicts both the express and the implied terms of a written agreement. However, evidence of the circumstances is always admissible in aid of the interpretation of an integrated agreement, even when the contract on its face is free from ambiguity.
The parol-evidence rule is subject to many limitations and exceptions which permit the admission of parol evidence where the writing in question is ambiguous or incomplete, or is attended by a fraud, mistake, or erroneous omission. Moreover, since the application of the rule presupposes the existence of a valid contract, parol evidence is admissible for the purpose of challenging the existence or validity of the contract.
The parol-evidence rule is justified on the basis of the two premises that a written document is more reliable and accurate then fallible human memory, and that varying written terms by extrinsic oral evidence opens the door to perjury.
The Am.Jur. Article describes a completely integrated agreement as "a written instrument which has been adopted by the parties as a complete and exclusive statement of the terms of the agreement."
The Restatement 2d Contracts at Volume 2 Section 209 offers the procedure that must be adopted to determine this question.
It states:
§ 209. Integrated Agreements
(1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.
(2) Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.
(3) Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression.
In this regard in a comment it says: "Whether a writing has been adopted as an integrated agreement is a question of fact to be determined in accordance with all the relevant evidence." And indeed as said by Calamari and Perillo at § 3.3 page 112 a necessary corollary to this is that "any relevant evidence is admissible to show that the writing was not intended to be final."
As noted in the Am.Jur. comments previously quoted, an "express integration clause is not necessary to a determination that an agreement is integrated" but a so-call merger clause presumptively establishes that the integration is total, Benvenuti Oil Co. v. Foss Consultants, 64 Conn.App. 723 (2001). According to Calamari & Perillo On Contracts 6th ed., this can be rebutted if the written instrument is obviously incomplete or the merger clause was included as a result of mistake "or any other rescission sufficient to set aside a contract, page 115, Section 3.4."
As summed up in Calamari & Perillo at Section 3.2 page 107, the parol evidence rule’s "basic notion is that a writing intended by the parties to be a final embodiment of their agreement should be protected from certain kinds of evidence." Or. more completely at page 109.
The policy behind the rule is to give the writing (i.e., written contract) a preferred status so as to render it immune to perjured testimony and the risk of "uncertain testimony or slip of memory." The rule also proceeds, at least in part, upon the analytical rationale that the offered term (i.e., contradicting the written contract) is excluded because it has been superseded by the writing- a theory of merger. The rule is also designed to require parties to put their complete agreement including oral contemporaneous agreements in writing at the risk of losing the benefit of any term agreed-upon that is not in writing.
But it also must be kept in mind that the policy behind the parol evidence rule gives way when extrinsic evidence is offered and proven to show mistake or fraud including fraud in the inducement of a contract. Jay Realty, Inc. v. Ahearn Development Corp., 189 Conn. 52, 56 (1983); Colliers Dow & Condon, Inc. v. Schwartz, 77 Conn.App. 462, 470 (2003). This is an inherent corollary of a rule enforced so as to prevent perjury.
Fraudulent Misrepresentation
Citing previous case law the court in Sturm v. Harb Development, LLC, 298 Conn. 124, 142 (2010), said that "The essential elements of an action in common law fraud ... are that (1) a false representation was made as a statement of fact; (2) it was untrue and known to be untrue by the party making it; (3) it was made to induce the other party to act upon it; and (4) the other party did so act upon that false representation to his injury." The court went on to underline the requirement that in contrast to negligent representation, fraudulent representation requires a representation that is knowingly untrue or "made without belief in its truth or recklessly made and for the purpose of inducing action upon it." Id. All of the four elements of this tort must be proven, failure to prove any one is fatal to such a claim, Bradley v. Oviatt, 86 Conn. 63, 67 (1912), Miller v. Appleby, 184 Conn. 51, 54-55 (1981).
The Restatement (2d) Torts has commentary in two Sections on the tort of common-law fraud.
The Restatement of Torts (Second) § 538 entitled "Materiality of Misrepresentation"
(1) Reliance upon a fraudulent misrepresentation is not justifiable unless the matter misrepresented is material;
(2) The matter is material if:
(3)
(a) a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question; or
(b) the maker of the representation knows or has reason to know that its recipient regards or is likely to regard the matter as important in determining his choice of action, although a reasonable man would not so regard it.
Section 540 states that:
"The recipient of a fraudulent misrepresentation of fact is justified in relying upon its truth, although he (sic) might have ascertained the falsity of the representation had he (sic) made an investigation." On the other hand as § 541 says, "The recipient of a fraudulent misrepresentation is not justified in relying upon its truth if he knows that it is false or its falsity is obvious to him."
The question arises as to what exactly is a "representation" for the purposes of this tort. The Am.Jur. article on "Fraud and Deceit" cites cases from several other jurisdictions which also recognize this intentional common-law tort. At Section 60 in Volume 37 of Am.Jur.2d at pages 93-94 it says: "Although it has been observed that there can generally be no fraud without an express misrepresentation, a misrepresentation may, but need not, be express; it may be implied or inferable from circumstance that are in fact equivalent to a positive representation. Representations may be made by words, i.e., an affirmative statement that is itself false; by acts and conduct which communicate a representation that is false and material, or by concealing or not disclosing certain facts which render the facts that are disclosed misleading." Theoretically the broad language used could justify a claim of common-law fraud because of misleading nonverbal actions but unwarranted wanderings under such an approach are limited by the intentionality requirement of this common-law tort.
In any event in Weisman v. Kasper, 233 Conn. 531, 540 (1995), our court has made clear that as regards a claim of common-law intentional fraud: "The party asserting such a cause of action must prove the first three of these elements (the elements referred to above) by a standard higher than the usual fair preponderance of the evidence, which higher standard we have described as ‘clear and satisfactory’ or ‘clear, precise, and unequivocal.’ "
Fraudulent Non-Disclosure
The commonly accepted definition of fraudulent nondisclosure is as follows: "Fraud involves deception practiced in order to induce another to act to (his or) her detriment, and which causes that detrimental action ... The four essential elements of fraud are (1) that a false representation of fact was made; (2) that the party making the representation knew it to be false; (3) that the representation was made to induce action by the other party; and (4) that the other party did so act to (his) her detriment ... Fraud by nondisclosure, which expands on the first three of these four elements involves the failure to make a full and fair disclosure of known facts connected with a matter about which a party has assumed to speak, under circumstances in which there is a duty to speak." Pospisil v. Pospisil, 59 Conn.App. 446, 450 (2000); Carr v. Fleet Bank, 73 Conn.App. 593, 595 (2002).
Several cases further elaborate on this type of claim. In Omega Engineering, Inc. v. Eastman Kodak Company, 908 F.Supp. 1084 (D.Conn., 1995) applied Connecticut law and stated "Not surprisingly, the scienter requirement for fraudulent nondisclosure omits any reference to knowledge or recklessness as to a statement’s falsity. The nondisclosure must be by a person intending or expecting thereby to cause a mistake by another to exist or to continue, in order to induce the latter to enter into or refrain from entering into a transaction." Id., p. 1095. In Franchey v. Hannes, 152 Conn. 372 (1965) the court upheld the trial court’s finding of liability on a fraudulent nondisclosure claim. It noted the trial concluded the defendants had not made a deliberate or reckless misstatement of fact but it had determined "that the facts bring the case within the exception to the rule that mere silence is not actionably in a transaction in which the parties deal at arm’s length unless the circumstances or the existence of a confidential relationship gives rise to a duty to speak ... the facts of the case bring it rather within the widely accepted rule that although a vendor may, under the circumstances have no duty to speak, nevertheless, if he does assume to speak, he must make a full and fair disclosure as to the matters about which he assumes to speak. He must then avoid deliberate nondisclosure." Id., pp. 378-79, also see, Jackson v. Jackson, 2 Conn.App. 179, 194 (1984).
The Jackson case was based on a claim of fraud as a result of a husband’s failure to disclose a stock split prior to the parties’ stipulation as to assets in a divorce action. Franchey was a suit also claiming fraudulent nondisclosure against a vendor.
Finally it should be noted that the court in Creelman v. Rogowski, 152 Conn. 382 (1965) the court said that in an action based on fraudulent nondisclosure the plaintiff must prove not only the nondisclosure but his reliance on it. Id., Page 385.
Negligent Misrepresentation
There is also a claim of negligent misrepresentation in this case. In William Ford, Inc. v. Hartford Courant, Inc., 232 Conn. 559, 575 (1995) the court said:
This court has long recognized liability for negligent misrepresentation. We have held that even an innocent misrepresentation of fact may be actionable if the declarant has the means of knowing, ought to know, or has the duty of knowing the truth ... One who, in the course of his business, profession or employment ... supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them for their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
The court explicitly noted the governing principles of its decision are set forth similarly in Restatement (2d) Torts at Section 552.
The William Ford case goes on to state that Section 552 of the Restatement applies to anyone supplying information "in the course of his business, profession or employment or in any other transaction in which he has a pecuniary interest; id., p. 576. At pages 579-80 the court said: "we conclude that no special relationship is required to state a claim of negligent misrepresentation, the plaintiff must allege and prove that the reliance on the misstatement was reasonable. We have consistently held that reasonableness is a question of fact for the trier to determining based on all the circumstances."
The case of Yurevich v. Sikorsky Aircraft Division, 51 F.Supp.2d 144 (D.Conn. (1999) ) applied Connecticut law to a negligent misrepresentation claim. At one point it cited a Second Circuit case and another Connecticut Federal district court case for a proposition that appears to be based on a common sense application of the doctrine; at page 152 the court said: "Further, plaintiff is unable to prove that the defendant made a misrepresentation which it knew or should have known was false ... The misrepresentation must consist of a statement of a material past or present fact ... Statements of opinion ... are not actionable ... reliance on opinions is per se unjustifiable because opinions, unlike facts, do not purport to be incontrovertible."
Breach of Fiduciary Duty
Quoting from two earlier cases, the court in Sherwood v. Danbury Hospital, 278 Conn. 163, (2006), said that: "It is axiomatic that a party cannot breach a fiduciary duty to another party unless a fiduciary relationship exists between them. 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 ...," id. p. 195.
This language expanded on the earlier case of Hi-Ho Tower, Inc. v. Comtronics, 250 Conn. 20, 41 (2000), where the court said "The law will imply (fiduciary) responsibilities only where one party to a relationship is unable to fully protect its interests (or where one party has a high degree of control over the property or subject matter of another) and the unprotected party has placed its trust and confidence in the other ..."
An interesting case is the case of Dunham v. Dunham, 204 Conn. 302 (1987). In Dunham the defendant was an attorney but an issue in the case was whether he had an attorney-client relationship with his plaintiff brother in a dispute over their mothers will and certain estate property. The court said that the absence of an attorney-client relationship would not bar the trier of fact from concluding that in other respects a fiduciary relationship existed between the parties. At page 320 the court reasoned "Rather than attempt to define a ‘fiduciary’ relationship in precise detail and in such manner to exclude new situations, we have instead chosen to leave the bars down for situations in which there is a justifiable trust confided on the one side and a resulting superiority and influence on the other." At page 321 the court went on to say that: "On the present record, which indicates that the defendant is the older brother of the plaintiff, and that the plaintiff continually placed his trust and confidence in the defendant for both legal and nonlegal advice, we are convinced that the court properly submitted the issue to the jury." (that is, whether a fiduciary relationship existed).
Perhaps more to the point in Yanow v. Teal Industries, Inc., 178 Conn. 262 (1979) the court said: "The rule of corporation law and of equity invoked (by plaintiff) is well settled: the majority has the right to control, but when it does so, it occupies a fiduciary relationship toward the minority, as much as the corporation itself or its officers and directors," among the cases cited are Pepper v. Litton, 308 U.S. 293, 311 (1939); Katz Corporation v. T.H. Canty, 168 Conn. 201, 207 (1975); Osborne v. Locke Steel Chain Company, 153 Conn. 527, 534 (1966); Klopot v. Northrup, 131 Conn. 14, 21 (1944), 178 Conn. at pp. 283-84.
Once it is determined that a fiduciary relationship exists, one of the fiduciary obligations is an obligation to disclose material facts, Iaccurci v. Sax et al., 313 Conn. 786, 791-92 (2014). In Satti v. Rago, 186 Conn. 360, 367 (1982) the court said candor and fidelity are hallmarks of a fiduciary relationship. This is not a notion of the law confined to Connecticut. In 37 Am.Jur.2d, "Fraud And Deceit at § 201, page 244 and 245 numerous cases are cited to the effect that: "A duty to disclose may also arise when one party has information that the other party has a right to know because of a fiduciary or other relation of trust or confidence between them ... Where a confidential relationship exists between the parties to a transaction, there is no privilege of nondisclosure, and if a party to the relationship fails to make a full disclosure of all material facts, the nondisclosure has the effect of a material misrepresentation. Accordingly, one who sustains a fiduciary or quasi-fiduciary relation towards another with whom the person deals is bound to make a full disclosure of material facts known to him or her and not known to the other party which affects the value of the property which is the subject of the transaction."
In Chiarella v. U.S., 445 U.S. 222, 228, 229 (1980) the court noted failure to disclose can be the basis of a claim in fraud but in more general terms said that ... " ‘one who fails to disclose material information prior to the consummation of a transaction commits fraud only when he is under a duty to do so. And the duty to disclose arises when one party has information that the other (party) is entitled to know because of a fiduciary relationship or other similar relationship of trust and confidence between them. In its Cady, Roberts decision, the (SEC) recognized a relationship of trust and confidence between the shareholders of a corporation and those insiders who have obtained confidential information by reason of their position with that corporation. This relationship gives rise to a duty to disclose because of the necessity of preventing a corporate insider from ... taking advantage of the uninformed minority stockholders,’ Speed v. Transamerica Corp., 99 F.Supp. 808, 829 (D.Del. 1951)."
In Business Organizations, Cavitch, Vol. 9, Section 120.04(2)(e) succinctly sets forth this observation: "Since a controlling shareholder is in an advantageous position with respect to inside information on the value of shares of stock, he or she ordinarily has a fiduciary obligation to disclose to the selling minority shareholders those facts that have a material bearing on the value of the shares. Failure to do so will result in damages or the rescission of the sale. Information is deemed material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to act," Walta v. Gallegos Law Firm P.C., 40 P.3d 449, 458459 (N.M., 2002); Kahn v. Lynch Communication Systems, Inc., 669 A.2d 79, 88 (Del., 1995). Another case cited by Cavitch is Lawton v. Nyman, 327 F.3d 30 (1st Cir. 2003). In that case the plaintiff minority stockholders sued the defendant majority stockholders. At page 41 the court said: "Here the defendants did not disclose their decision to work toward selling the company, their decision to hire a consultant, or their acquisition talks in May with other companies. Each is pertinent to the question of whether there was an outside buyer for the shares. The mere causing of a closely held corporation to offer an inadequate price by majority shareholders to minority shareholders is not itself sufficient to establish a breach. It may be evidence, though, as to breach of other duties. And if a majority shareholder violates his duties of disclosure and the minority shareholder sells at an inadequate price, the minority shareholder can seek damages based on the difference between the offered price and the fair value of the stock. See Sugarman v. Sugarman, 797 F.2d 3, 8 (1st Cir. 1986) (applying Massachusetts law in freeze out scenario)."
Another aspect of breach of fiduciary duty where the minority sells its stock to the majority at an adequate price is concerned not with nondisclosure but on the concept of freeze out. At Volume’s, Section 50.03(4) Cavitch says that "Breach of Fiduciary duties generally takes the form of oppression of the minority. Oppression can be found when the majority ‘squeezes out’ or ‘freezes out’ the minority, forcing it to sell its stock at an inadequate price." In other words it said in Volume 9 § 120-04(2)(b): "A freeze out is typically motivated by the majority’s personal reasons rather than corporate business goals," see Orchard v. Covelli, 590 F.Supp. 1548, 1557 (W.D.Pa. 1984).
Finally, the court would note the cases are in general agreement that "Once a [fiduciary] relationship is found to exist, the burden of proving fair dealing properly shifts to the fiduciary." Dunham v. Dunham, 204 Conn. 303, 323 (1987); Konover Development Corp. v. Zeller, 228 Conn. 206, 219 (1984). As the court also noted in Murphy v. Wakelee, 247 Conn. 396, 400 (1998); "Furthermore the standard of proof for establishing fair dealing is not the ordinary standard of fair preponderance of the evidence, but requires proof either by clear and convincing; clear and satisfactory evidence or clear, convincing, and unequivocal evidence," also see in this regard Przekopski v. Przekopski, 124 Conn.App. 238, 244 (2010).
The court in Murphy v. Wakelee, supra, refines its observations later in the opinion. At 247 Conn. pages 405-06 the court says:
"Although not always expressly stated, the basis upon which the aforementioned burden-shifting and enhanced burden of proof rests is, essentially, that undue influence will not be presumed; Connell v. Colwell, 214 Conn. 242, 252, 571 A.2d 116 (1990); (fraud is not presumed and burden of establishing fraud rests on party who alleges it); and that the presumption of fraud does not arise from the relationship itself. We note, however, that [this] rule is somewhat relaxed in cases where a fiduciary relation exists between the parties to a transaction or contract, and where one has a dominant and controlling force or influence over the other. In such cases, if the superior party obtains a possible benefit, equity raises a presumption against the validity of the transaction or contract, and casts upon such party the burden of proving fairness, honesty, and integrity in the transaction or contract." (Emphasis added.) 37 Am.Jur.2d 601-02, Fraud and Deceit § 441 (1968); see also United Founders Life Ins. Co. v. Carey, 347 S.W.2d 295, 307 (Tex.Civ.App. 1961) (when fiduciary relationship is shown and involved transaction is attacked for fraud and party accused has obtained advantage, presumption of unfairness arises which such party must dispel by showing transactions fairly made, rev’d another grounds 363 S.W.2d 236 (Tex., 1962). Therefore, it is only when the "confidential relationship is shown together with suspicious circumstances, or where there is a transaction, contract, or transfer between persons in a confidential or fiduciary relationship, and where the dominant party is the beneficiary of the transaction, contract, or transfer, that the burden shifts to the fiduciary to prove fair dealing." 25 Am.Jur.2d 551, Duress and Undue Influence § 38 (1996). A fiduciary seeking to profit by a transaction with the one who confided in him has the burden of showing that he has not taken advantage of his influence or knowledge and that the arrangement is fair and conscientious. Id., 552; see also Nichols v. McCarthy, supra, 53 Conn. at 307-08, 23 A.2d 93. Therefore, we read the burden-shifting language in our cases, not in a vacuum as the plaintiff suggests, but, rather, against the backdrop of the circumstances that raised the presumption of fraud.
The court will now try to apply the foregoing discussion to the facts of this case and the claims made by the plaintiff.
Breach of Contract
1.
The first claim lies under Breach of Contract. The plaintiff sold his shares to the defendant in October 2009. He was a 20% owner of Statewide, his brother Richard Falcigno was also a 20% owner and the defendant owned 60% of the stock of Statewide. The defendant had run Statewide for several years and there were many disputes especially between Richard Falcigno and the defendant regarding the business. The family had been involved in personal disputes over the years and the plaintiff, David Falcigno, testified he felt he was in the middle of these disputes between his mother and the defendant and his brother Richard and the defendant. The plaintiff testified about a heated hour long conversation with the defendant in June 2009 who was outraged that he was not invited to a family birthday party. He was extremely upset and during the tirade his nine year, in fact, old daughter hid in a closet. The plaintiff expressed a desire to sell his shares so he could escape the turmoil and be brothers again with the defendant. In any event later in the summer of 2009 the plaintiff said the defendant called him to ask if he was still interested in selling his shares.
The defendant said the plaintiff told him that he wanted to sell his shares to secure money for a house he intended to build on a parcel of land he had bought. The defendant denies this saying he owned two properties outright which he could have sold and a one-third interest in an ocean view property in which his brothers also had a one-third interest which he could have sold. Interestingly at trial it was pointed out that at a deposition held before trial the plaintiff said one of the reasons he sold his shares was to get money to build the house although not the only reason and he could not recall whether he used the entire $200,000 he received from the sale to build the house. At trial the plaintiff said he could not remember if he asked the defendant if he should build or buy a house but he did show him a parcel on which the house could be built. The defendant said he viewed the neighborhood in which his plaintiff brother planned to build his $500,000 to $600,000 home and advised against it.
(a)
In any event the two brothers plaintiff and defendant, met at Luce’s Restaurant to discuss the terms of the sale and there was an understanding that the necessary documents to effect the sale of the plaintiff’s Statewide shares to the defendant would be signed at the office of Attorney Sklarz, the attorney for Statewide. The meeting was originally scheduled for October 9, 2009 but took place a few days later on October 13, 2009. Apparently the plaintiff lost his stock certificates and had to procure an affidavit to establish his ownership of the shares in question- a necessary requirement for the completion of any contractual agreement that might have been reached at Luce’s Restaurant. The Certificate of Purchase signed by the plaintiff indicate the sale price of the plaintiff’s shares was $200,000.
It is clear that the contract documents in this case, Exhibits 7, 8 and 10 do not contain an integration or merger clause. The commonly accepted definition of such a clause is set forth in Section 1107, page 454 of Volume 29A, "Evidence" wherein it explains such a clause is "a recital that the writing contains the entire agreement between the parties, that all prior negotiations and agreements are merged in that agreement and that all additions to or changes in the contract must be in writing and signed by both parties." See Tallmadge Brothers, Inc. v. Iroquois Gas Transmission System LP, 252 Conn. 479, 503-04 (2000); Parisi v. Parisi 315 Conn. 370, 374 (2015); Weiss v. Smulders 313 Conn. 227, 250 (2014).
The case law is clear, however, that a written integration or merger clause is not a prerequisite for finding that any written agreements are integrated. Vol. 29 A Am.Jur.2d "Evidence ," § 1104 page 451; Restatement (2d) Contracts, § 209, subsection (3). The court in Conn. Acoustics, Inc. v. Xhema Construction Company, 88 Conn.App. 741, 746, (2005), said quoting from an earlier case: "Whether a writing is a complete integration of an agreement, the final repository of oral agreements and dealings depends on their intentions and dealings between the parties, evidence as to which is sought in the conduct and language of the parties and the surrounding circumstances. If the evidence leads to the conclusion that the parties intended the (writing) to contain the whole agreement, evidence of oral agreements is excluded, that is, excluded from consideration in the determination of the rights and obligations of the litigants, even though it is admitted on their intention ... whether there is a complete integrated agreement is to be determined by the court as a question preliminary to application of the parol evidence rule ..."
The plaintiff argues that the written agreement of the parties wherein the sale price of the plaintiff’s shares is listed in the Certificate of Purchase as $200,000 is not an integrated agreement. There is no integration or merger clause and certain oral agreements or understandings of the parties preclude the written documents from being considered as an integrated agreement.
The plaintiff maintains that at the Luce Restaurant meeting and after the claimed oral agreement to sell the plaintiff’s shares for $200,000, the plaintiff said words to the effect that you’re my brother so that he would give the plaintiff $50,000 in addition to the $200,000 just agreed-upon for the sale of the shares. This was before the plaintiff signed the written documents which indicated the sales price was $200,000. Also the plaintiff said he asked what would happen if Statewide sold and the defendant said if it sells for millions he’d cut him back in. (The defendant says he told the plaintiff he would revisit it.) After signing the written agreements the plaintiff claims that outside of Attorney Sklarz’s office the defendant gave him a paper bag filled with $50,000 in cash.
The defendant objected to this evidence claiming it violated the parol evidence rule. As noted the Certificate of Purchase indicates the sale price for the plaintiff’s shares was $200,000 and there is no mention of an extra $50,000 or the "cut you back in" language.
The question then is whether the plaintiff’s claim as to the $50,000 and under what circumstances it was given and the "cut you back in" language or "revisit it" language establish that the written agreement is not integrated and that the plaintiff should receive 20% (his percentage of ownership in statewide before the sale of the shares) of the $8,000,000 given by Sysco to purchase Statewide.
(b)
(i)
First let us consider the claim as to $50,000 being added consideration for the sale. If the court accepted this claim, the written agreement would not be integrated and this would be the analytical wedge to "enforce" the ancillary claim of the plaintiff that he is entitled to 20% of the eventual sale price of Statewide because of the oral cut back in language.
The evidence is not convincing, at least to the court, that the agreed sale price for the plaintiff’s shares was $250,000 not the $200,000 referred to in the Certificate of Purchase, i.e., Exhibit 7.
Fred Mueller testified. He is a stock and bond broker for David Falcigno and Stephen Falcigno. He was at the meeting at Luce’s Restaurant where the parties had their initial meeting regarding the sale of the plaintiff’s shares. He said the defendant refused the plaintiff’s initial $450,000 to $500,000 demand. He was asked: "what happened at that point when he (Stephen Falcigno) said the two hundred." Mueller responded "I guess they came to an agreement and you know basically shook hands and that was pretty much it as far as I can recall." It was after this when leaving Luce that the plaintiff said the defendant said he would give him $50,000 more- hardly a negotiated figure. Mueller was then asked whether after the Luce meeting the plaintiff told him about any additional negotiations pertaining to the sale of the shares. He answered that the defendant gave him an extra $50,000 "and that was just in general conversation"- there was nothing to indicate David Falcigno said this was the result of additional negotiations.
Matthew Giglietti testified he is a Certified Public Accountant. The plaintiff, the defendant and their brother Richard Falcigno are all his cousins and also his clients. Giglietti talked to David Falcigno apparently about his 2010 tax returns and he told the plaintiff that he had to report the sale of his Statewide shares to the defendant.
Mr. Giglietti filed an amended return reporting that the Statewide shares were sold by the plaintiff to the defendant for $200,000. Both Giglietti and David Falcigno signed the returns. The plaintiff had been worried that he would have to pay taxes on the $200,000 amount. Giglietti explained he should not worry the $200,000 is not fully taxable (emphasis by the court) because the basis of the shares’ value was their value in his father’s estate. David Falcigno had losses on other investments so he ended up paying no taxes on the $200,000. Is the court to conclude the plaintiff did not tell Giglietti of the extra $50,000 for the sale because of tax concerns? The court does not believe the plaintiff would intentionally violate federal law. Query whether, even with the added $50,000 for the sale he would have to pay added taxes in any event. It was only in 2013, after this litigation was commenced and when the parole evidence rule reared its ugly head that the plaintiff told Giglietti that his attorney said he had to report the $50,000 as part of the sale and possibly pay taxes on it. If you receive a gift you apparently do not have to file a return. And if in fact it was the plaintiff’s understanding that the $50,000 was in addition to the $200,000 he received (i.e., $250,000) for selling his shares, why would not he plaintiff simply have listed the sale price of $250,000 on his earlier return?
Richard Falcigno also testified, the brother of the parties, and reference was made to a July 2011 settlement agreement in his divorce case (N.B. this was before the sale to Sysco). He said in the agreement he stated his Statewide shares were worth $200,000. Richard Falcigno owned 20% of the shares, the same percentage the plaintiff had owned. When asked why he put in the $200,000 amount, Richard Falcigno said that is what his brother Stephen Falcigno paid to the plaintiff for the shares. He said that was his impression of the amount paid for the shares and he got this impression from his brother David Falcigno. Interestingly Richard Falcigno said at a later point in his testimony, David Falcigno told him he got $250,000; he had thought the $50,000 was included in the $200,000 figure. The important point for the court at least is that he said he learned of the $250,000 figure after this lawsuit was initiated.
Another item of evidence on the $50,000 question, created almost three years after the October 2009 transfer of shares, is a tape recording of a June 1, 2012 meeting at Mr. Mueller’s office is also of interest at this meeting the plaintiff advanced his claim that he was entitled to receive more money for the sale of his shares because of the sale of Statewide to Sysco for $8,000,000 in August 2011. This is based on the plaintiff’s position that prior to the sale he owned 20% of Statewide’s shares and was told by the defendant if Statewide were to be sold he, the defendant would cut him back in.
Plaintiff’s counsel has made the valid point that during this taped conversation, Stephen Falcigno offered David Falcigno $100,000 if he signed a release to the effect there would be no further claims by the plaintiff. Then at one point the plaintiff in effect said "do you realize that $350 out of the $8,000,000 is 4.3% thus it did not come close to 20% of the $8,000,000 Sysco paid for Statewide. Plaintiff’s counsel notes that at that point the defendant did not protest the $350,000 figure referred to by David Falcigno and say I bought your shares for $200,000 and now I am offering you another $100,000 to settle this dispute- this would be a total of $300,000.
However, valid though the point maybe, what is not noted is that, if the copy of the taped conversation is read closely, on three occasions during that conversation the defendant explicitly indicated he gave the plaintiff $200,000 for the shares and the plaintiff did not object it to this figure.
Based on the foregoing, the court cannot conclude the $50,000 given to the plaintiff by the defendant was part and parcel of an understanding between both of them that it would be part of the sale price for the plaintiff’s shares.
(ii)
But what of the claimed statement by the defendant to the plaintiff after the sit down meeting at Luce’s Restaurant. In response to the plaintiff’s inquiry as to what would happen if Statewide were to sell at some point in the future, the plaintiff told him if Statewide sells I will cut you back in (the defendant said he used the word revisit). The plaintiff in testimony said he would not have gone through with the sale if the defendant had not made that assurance. To paraphrase the quotation made by the court from the Connecticut Acoustics, Inc. case supra to determine whether a writing is a complete integration of an agreement the court must look to the parties’ intention, their conduct and language and the circumstances surrounded their dealings with each other.
The first question that must be answered is what exactly is the "agreement" encapsulated in the words cut you back in and revisit. Does "cut you back in" mean there was an agreement between the parties that if statewide sold at any time in the future the David Falcigno would get 20% of the price it was sold for? What is the evidence that although it might have been the plaintiff’s hope, Stephen Falcigno agreed to fulfill it. The defendant said he used the word "revisit" if Statewide sold which does not indicate an understanding on his part that the defendant would get any particular amount after a sale let alone 20% of the sales price. Why would he consider that fair or reasonable- what if the Sysco deal fell through and the plaintiff could not sell for five, ten years. Should David Falcigno, after a sale ten years in the future, still get 20% when Stephen Falcigno, who worked enormous hours running Statewide, secured a CAB license (a specialty designation for prime beef) and built up a large customer base all of which provided the basis for the company’s value? Attorney Hellman, who admittedly is the defendant’s close friend and attorney, testified to a meeting at the Q Club after the Sysco sale which garnered $8,000,000. At that point there was obvious dissatisfaction on the plaintiff’s part over the fact that Steven had recovered so much money. He did not demand according to Hellman, that he should get $1,600,000, or 20% of the sale. When the plaintiff was offered $100,000 by the defendant, he only said he should get $250,000 not $100,000. He never said his brother, the defendant misled him. Hellman got the impression that the plaintiff was going to accept the $100,000 that is why he drew up a release at that point for that amount. The release was brought by the defendant to a later meeting at Mr. Mueller’s office where he was prepared to give a $100,000 check to the defendant. Before the defendant arrived the plaintiff told Mueller ..."at this point I just want to get whatever he is going to give me and be done with it." (Emphasis by the court.) Later in the meeting David Falcigno said but the $350,000 he got for the shares is only 4.3% of $8,000,000. Stephen Falcigno said "I did say I was going to give you something and this is what I’m going to do"- i.e., give a check for $100,000. Stephen added "I mean, I could have amnesia and say I never gave, I never said anything." And in some of the language he used suggested he was not obligated to give the plaintiff anything. The net result of all this somewhat confusing testimony is that at the time the cut you back in- revisit language was exchanged between the parties there was some sort of understanding between the parties that if Statewide were to be sold the plaintiff might receive extra money but there was no understanding of how much additional money the defendant would give the plaintiff and the evidence, as discussed, certainly does not suggest 20% of any price received from the sale would, by agreement, go to the plaintiff.
At the Luce Restaurant meeting it would appear there was an oral agreement between the parties that the plaintiff would receive $200,000 from the defendant for his shares. At the same meeting the cut you back in, revisit language also took place according to each of the parties present at the meeting- plaintiff, defendant and Mr. Mueller. The sale of the shares for $200,000, however, was not consummated until Exhibits 7 and 10 were signed by the defendant, after the Luce meeting.
It can be said then that Section 213, Subsection (1) of the Restatement (2d) contracts 26 applies.
The subsection says "(1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them." Thus any prior understanding regarding cut back or revisit (prior to the signing of the documents) is abrogated. Those documents can be regarded as integrated even absent on integration clause and there is no mention that part of the sale transaction would include a cut back in provision or revisit provision. Thus the parol evidence rule would apply to exclude any present claim by the plaintiff for added monies after the sale of Statewide almost two years after the stock transfer.
Could it also be argued that the cut back- revisit language of the parties was not inconsistent with the signed agreement to sell the plaintiff’s shares to the defendant but concerned rights that would accrue to the plaintiff after a future event- the sale of Statewide? That is the sale of the shares was a separate given and any agreement as to future accruals dependent on prior ownership of shares was an entirely separate matter.
But as discussed previously, what exactly did that agreement entail what did the parties actually "agree to" in the common sense understanding of those words. What is the agreement in dollars and sense terms which the court can possibly enforce.
The foregoing analytical gyrations provide convincing reason why the parol evidence rule was created and courts must look to signed agreements to determine the ambit of any transaction. When all is said and done the cut back and revisit language and/or hypothetical understanding of what it meant was part and parcel of the discussions of the parties when the agreement to sell the plaintiff’s shares was being discussed at Luce’s. The plaintiff said he would not have sold his shares if he had not received the cut back in assurance, the defendant said he would only revisit the transaction if and when Statewide was sold. As discussed, however, the net result of all this results in ambiguities and difficulty in understanding what if any agreement was reached as to these matters.
The fact remains that the Certificate of Purchase signed by the plaintiff lists a sales price of $200,000. There is no mention of the plaintiff receiving any more money for the shares or a binding promise to cut him back in if Statewide sold- at 20% no less. This document was signed after the Luce Restaurant meeting where the plaintiff said the defendant told him he would give an extra $50,000 for the plaintiff’s shares and would cut the plaintiff back in if Statewide was sold at some time in the future. As said in Restatement (2d) Contracts § 213 subsection (1) "(1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them." This could have two consequences here. The $50,000 given to the plaintiff was not part of the sale agreement and the "cut you back in" or "revisit it" language made by the defendant at the Luce meeting was not an enforceable agreement- any other conclusion as to these two events would violate the parol evidence rule.
The defendant says he gave the $50,000 to the plaintiff several weeks after the October meeting in response to the plaintiff’s expressed need for more money to construct a pool or tennis courts.
(c)
The plaintiff apparently attempts to avoid this adverse conclusion by taking the position that the contract documents and their reference to a $200,000 sale price for the plaintiff’s shares because, for good reason, he did not read them. This would run counter to the general rule of contract law to the following effect:
"Where a person of mature years and who can read and write signs or accepts a formal written contract affecting his pecuniary interest, it is (that person’s) duty to read it and notice of its contents will be imputed to (that person) if he negligently fails to do so ..." First Charter National Bank v. Ross et al., 29 Conn.App. 667, 371 (1992). Quoting from an earlier case the court went on to say "It is within the trial court’s discretion to determine whether, under the circumstances, the defendant was not diligent in trying to read the documents (he) signed and whether to charge (him) with knowledge of their contents," id. There are qualifications to the application of this rule, however, as the Ross case notes and which the plaintiff refers to in its post-trial brief. Also, the plaintiff in its post-trial brief refers to Calamari and Perillo on Contracts, 6th ed. § 9.42, pg. 348. It is stated ..."There is an exception to the general rule that placed a burden of reading on the signing party, where a person is induced to sign a legal document by one standing in a fiduciary relation to that person and where the fiduciary has an interest in the document’s execution. In such a case, the document can generally be avoided by its signer on a showing merely that the fiduciary failed to make him aware of the legal significance of the signing of the document provided that the rights of innocent third persons have not intervened." The case of Markell v. Sidney B. Pfeifer Foundation, Inc., 402 N.E.2d 76 (Mass. 1980) is cited. In that case the settler, Ms. Hey, brought an action to have the court determine that she had the power to revoke a scheme for the distribution of her property as set out in trust declarations. After the settler died the executor of her estate Mr. Markell, continued with the suit. The appeals court said the trusts signed were void. A Mr. Pfeifer stood in a fiduciary relationship with Ms. Hey. She had the utmost trust and confidence in his judgment and integrity in committing to him the management of her securities. The court said Mr. Pfeifer took advantage of the confidence placed in him and caused the trust document in issue to be prepared and obtained Ms. Hey’s signature "knowing that she had not read it and had no understanding of its far reaching legal effects." The court also found Mr. Pfeifer had a personal stake in the document being signed. The appeals court found based the foregoing circumstances the trust was void notwithstanding the fact that she did not read the trust document she was signing. The whole point of the Markell case and Calamari and Perillo ’s reference to it is that because of the fiduciary relationship between Mr. Pfeifer and Ms. Hey, she did not read the document and Pfeifer knew she did not read it- therefore she "had no understanding of its far reaching legal effects."
The defendant as a majority shareholder in Statewide had fiduciary obligations to the plaintiff. Here too David Falcigno said he had trust and confidence in his defendant brother Stephen Falcigno. Right after the Luce meeting was over with its $200,000 figure for the sale of the shares, the defendant asked the defendant what if Statewide sells. The defendant, according to the plaintiff said if it sells for millions "I’ll cut you back in" (the defendant testified he said in response to his brother’s question- "I’ll revisit it." The plaintiff was, unlike Ms. Hey, well aware of the possible consequences of selling his shares.
In this case the plaintiff said he only glanced at exhibits 7 and 10 based on his trust and confidence in his brother, this despite the ongoing warfare going on between the three brothers over Stephen’s management of Statewide and a general hostility which resulted in their not celebrating holidays together for over a dozen years prior to the sale of the defendant’s shares to the plaintiff. It seems clear that the plaintiff received Exhibits 7 and 10 before he went to Attorney Sklarz’s office, Statewide’s attorney, to finalize the sale to his brother of his 20% interest in the stocks. He said he did not read them. But the exhibits are very short. Exhibit 7, documenting the sale is one long sentence constituting eight lines in normal type. The very first line in figures larger than the surrounding type it, makes clear that the consideration for the sale of his shares is $200,000. The court finds it difficult to accept the position that he did not read the exhibit and at the very least that he did not notice the $200,000 figure for the sale of his shares when he signed the Certificate of Purchase. It is apparently important to the plaintiff’s position to establish he did not read the document- why? The why and wherefore is that if the court were to find he did read the exhibits, particular Exhibit 7 the parol evidence rule could not be avoided and the cut back and/or revisit language would not be a binding obligation on the plaintiff post signing of the exhibits. At one point the plaintiff was asked if you had read exhibit 7 and it said $20,000 would you have expected something was wrong- answer- "possibly."
In any event the court concludes the plaintiff in all likelihood, at the time in question i.e., before litigation commenced did read the documents and would have noted the $200,000 figure for the sale of his shares. Also Attorney Sklarz met with both parties in his office on October 13, 2011 and of the meeting he said his custom would be to ask David Falcigno is $200,000 the price you agreed to and would ask the parties if the papers reflected their agreement. In a simple sale like this is it not reasonable to conclude that what Sklarz said he would have done is what any responsible lawyer would have done? For the court at least to ask the question is to provide the answer.
This is not the Markell case. Here even assuming a fiduciary duty on the defendant’s part to the plaintiff the court concludes Attorney Sklarz read the short documents to both parties at his office and that even if that were not the case a brief glance at Exhibit 7 (which the plaintiff said he conducted) would have revealed the sale price for the shares was $200,000, with no mention of an added $50,000 or a promise by the defendant to cut the plaintiff back in if Statewide were to be sold.
(d)
(i)
But the foregoing is only the beginning of the problem involved in resolving the issue of the parol evidence rule as affected by the duty to read. Interestingly the obligation to read and assumption of having read doctrine and the parol evidence rule have similar exceptions to their operation under the heading of fraudulent inducement.
The duty to read doctrine has qualifications. In First Charter National Bank v. Ross et al., 29 Conn.App. 667 (1992) the court said that ... "this rule is subject to qualifications, including intervention of fraud or artifice, or mistake not due to negligence, and applies only if nothing has been said or done to mislead the person sought to be charged or to put a (person) of reasonable business prudence off ... guard in the matter," quoting from Ursini v. Goldman, 118 Conn. 554, 562 and also citing King v. Industrial Bank of Washington, 474 A.2d 151, 155 (D.C.App., 1984).
As noted by Judge Pierson in Chap Co., Inc. v. Hot Tub Products, LLC, 2017 WL 5178594. The parol evidence rule forbids the use of such evidence to vary or contradict the terms of an integrated contract but such evidence is admissible to show mistake or fraud, Jay Realty, Inc. v. Ahearn Development Corp., 189 Conn. 52, 56 (1983). In Heyman Associates, Inc. No 1 v. Insurance Co. of State of Pa., 231 Conn. 756 (1995) the court noted the rule does not prevent the introduction of parol evidence if it "tends to show that the contract should be defeated or altered on the equitable ground that relief can be had against any deed or contract in writing founded or mistake or fraud ...", id. at page 781. This is the general rule. In 37 Am.Jur.2d, "Fraud and Deceit " at Section 468, pp 494-95 it states: The parol evidence rule rendering parol or extrinsic evidence inadmissible to contradict or vary the terms of a written contract, valid on its face, is inapplicable where the issue is whether the contract was procured by fraud because the parol evidence rule cannot be used as a shield to prevent the proof of fraud." The court in People’s Bank & Trust Company v. Price, 714 N.E.2d 712, 717 (Ind. 1999) said: "Parol or extrinsic evidence is inadmissible to expand, vary, or explain the instrument unless there has been a slowing of fraud, mistake, ambiguity, illegality, duress, or undue influence," also see Golden Eye Resources, LLC v. Ganski et al., 853 N.W.2d 544, 551 (N.D., 2014); Stern Oil Company v. Brown, 817 N.W.2d 395 (S.D., 2012) where the court said a written instrument can be invalidated where it is shown "its execution was procured by fraud, or that, by reason of fraud, it does not express the true intentions of the parties," id., p. 399; Yellow Book, Inc. v. Central Indiana Cooling & Heating, 10 N.E.3d 22, 28 (Ind., 2014).
The gravamen of the plaintiff’s position set forth in his post-trial brief is based on fraudulent inducement. He was fraudulently induced to sell his shares by the defendant; that being the case the sale was void or voidable and the right he had to a 20% ownership of Statewide should be recognized so as to secure his 20% share of the $8,000,000 for which Statewide was sold.
Although defined in the context of a buyer’s claim the doctrine as it would apply here is defined in Biro v. Matz, 132 Conn.App. 272 (2011) where the court said "To assert a claim for intentional misrepresentation or fraudulent inducement (the litigant) must prove that (1) a false representation was made as a statement of fact; (2) it was untrue and known to be untrue by the party making it; (3) it was made to induce the other party to act upon it; and (4) the other party did so act upon that false representation to his injury, id. page 288, also see Peterson v. McAndrew, 160 Conn.App. 180, 204 (2015). There are only a handful of Connecticut cases that define fraudulent inducement. Other states have further elaborated on the application of the doctrine. In the previously cited Yellow Book case it notes at 10 N.E.3d pp. 27-28 that even where a contract contains an explicit integration clause there is an exception to the parol evidence rule in the case of fraudulent inducement. In Golden Eye Resources, supra the court in deciding a fraudulent inducement case the court made two relevant points (1) "statements of opinion, or which amount to mere puffery or sales talk do not constitute fraud," (2) "Ordinarily, misrepresentations amounting to fraud which will avoid a contract must relate to past or present facts, and cannot consist of unfulfilled promises or predictions with respect to future events ... a mere expression of an opinion in the nature of a prophecy as to the happening or non-happening of a future event is not actionable" (referring to the tort but applied in case involving a claim of fraudulent inducement to enter into a lease), 853 N.W.2d pp 552, 553. A Connecticut case involving an action to vacate a stipulated judgment on the grounds of a misrepresentation at the time the agreement was entered into makes another point: "The intentional withholding of information for the purpose of inducing action has been regarded as equivalent to a fraudulent misrepresentation," Pacelli Brothers Transportation, Inc. et al. v. Pacelli, 189 Conn. 401, 407 (1983) citing Section 161 of Restatement (2d) Contracts.
The practical setting for a fraudulent inducement claim for the purpose of avoiding the parol evidence rule is set forth in Kiss v. Kahn, 132 Conn. 593 (1946). In that case an action was brought to recover damages for an alleged false representation in connection with the sale of land.
The Supreme Court found no error in the jury’s verdict for the plaintiff noting that "the jury reasonably could have found that Kahn, as the defendant’s agent, made a false and fraudulent statement to the plaintiffs that induced them to buy the property; and that they failed to get what they had contracted for, to their detriment," id. page 594. The court went on to say that "the rule has no application where there has been fraud," id. page 595. Simply put as said in Black’s Law Dictionary defining "fraud in the inducement" "as fraud occurring when a misrepresentation leads another to enter into a transaction with a false impression of the risks, duties, or obligations involved." The word "inducement" is earlier defined as "the act or process of enticing or persuading another person to take a certain course of action."
Before addressing the specific fraudulent inducement claims made here the court will address preliminary concerns with its application.
There are difficulties at least for the court in accepting the fraudulent inducement argument for one thing it would appear that the plaintiff did not need any inducement from the defendant, fraudulent or otherwise, in desiring to sell his shares to the defendant. His testimony underlines the toxic atmosphere that unfortunately existed in this family. As noted the plaintiff testified concerning an hour long phone conversation with the plaintiff in June of 2009 in which the defendant expressed his outrage over a family birthday party he was not invited to. The plaintiff, whose nine year old hid in a closet during the apparently loud goings on, said to the defendant just buy me out, I am sick and tired of dealing with this. Some two months later the defendant called him and said are you serious about selling your shares- the plaintiff testified he would sell for the right price- nothing more for example, such as what if there’s a sale of Statewide. The plaintiff told the defendant to go do his own due diligence and come up with a price you would be willing to sell your shares for. The plaintiff testified he then was trying to come up with a number but it was not about the number, he just wanted to sell his shares and get out of Statewide so he could be a brother again with the defendant.
Mr. Giglietti testified that prior to 2009 the plaintiff might have talked to him about the possibility of selling his Statewide shares but he could not remember when these conversations took place. Later in his testimony Giglietti said David Falcigno was upset about all the fighting in the family and he wanted it to end. Giglietti said "he thought that would end it if he sold his shares." The plaintiff never told Giglietti that the defendant was putting pressure on him to sell his shares.
Another line of testimony casts some doubt on the plaintiff’s assertion that the defendant’s misrepresentations and failure to disclose relevant information he was obligated to disclose are what lead him to sell his shares. Thus the defendant takes the position the plaintiff told him he wanted to sell his shares in Statewide because he was in the process of buying a parcel of land to build a house on. The plaintiff adamantly denies this, and maintained at trial that he did not need to sell his Statewide shares to build his new house. He owned two rent producing properties and was a 1/3 owner (with his brothers) of another property.
The plaintiff, however, was shown his deposition at trial wherein he said one of the reasons he sold his shares was to get money to build his house although this was not the only reason. At the deposition he also said he could not recall if he used the entire $200,000 to build his new home.
ii.
Moving from any problem with the "inducement" aspect of "fraudulent inducement as a way to avoid operation of the parol evidence rule and concentrating on the fraud aspects of the plaintiff’s claims in this regard the plaintiff argues that (1) the defendant misrepresented the value of Statewide; (2) the plaintiff was fraudulently induced to sell his shares by the defendant’s representation he would cut the plaintiff back in after he sold his shares if Statewide was sold in the future; and (3) the defendant failed to disclose relevant information prior to the sale of the plaintiff’s shares.
(a)
For the court at least the misrepresentation claim is not convincing. At the meeting at Luce’s Restaurant where the putative sale of the plaintiff’s shares was first discussed in some detail, the plaintiff said he wanted $450,000 to $500,000 for his shares. But the defendant represented, falsely by implication, that Statewide was a dinosaur, he would only offer $200,000 for the plaintiff’s shares because the place was falling apart. Also the defendant said to the plaintiff that he was only a minority shareholder the plaintiff’s 20% ownership interest compared to the defendant’s 60% ownership interest. The defendant had no need to buy the plaintiff’s shares since he already owned a majority interest in Statewide.
Leaving aside the possibility of a sale and looking at Statewide as an operating business it is difficult to conclude the defendant misrepresented. The court has examined the tax filings for 2003 through 2007 and the balance sheet for 2008, the year before the sale of Statewide to Sysco. The gross receipts are in the range of $17,000,000 to $18,000,000 but when one takes account of expenses the taxable income is never higher than $131,000. The 2008 balance sheet shows net income before taxes was only $67,275.17. The plaintiff testified one year showed a loss. Mr. Giglietti, who worked as a CPA for Statewide for over twenty years said a meat business like Statewide is not an easy business, you work on a "small margin" and it is not a business to make a lot of money in, profits fluctuate.
But more to the point Sysco in fact bought Statewide for $8,000,000 over a year and a half after the plaintiff sold his shares to the defendant. Giglietti testified that the only way to put a value on a business like Statewide is what someone is willing to pay for it. Sysco did not confine itself to profit margins for the existing Statewide business operations. Giglietti who was involved in the sale of Statewide to Sysco, testified Sysco determined what to offer based on gross sales Statewide’s CAB license (License to sell high quality meat), and mainly Statewide’s customer list. There is nothing to indicate the defendant misrepresented any of these matters to the plaintiff.
Even more importantly the plaintiff always knew the defendant intended to sell Statewide- he knew this since 2005 at least. Giglietti and Attorney Sklarz both testified Statewide was worth in their opinion, between two and four million dollars upon sale. Giglietti was his accountant, also the accountant for everyone in the family and for Statewide. The plaintiff was asked if Giglietti ever told him what Statewide was worth in 2009. The plaintiff first said he did not remember then said he was told it was worth around $2,000,000. He said Giglietti may have told him this before 2009- i.e., the sale of his shares.
In the context of the foregoing it is not possible to conclude that the plaintiff was misled about the defendant’s description of the business from a day to day operational point of view as a dinosaur and in that context his shares were not even worth $100,000. The point is that there was a prospect of a sale which both parties were well aware of and both parties knew that, that sale might reap much more money for shareholders. Thus at the Luce meeting the plaintiff asked what would happen if Statewide was sold- he knew exactly that if it did and he retained his shares he could get much more than $200,000. The defendant’s response was if Statewide sells for millions I’ll cut you back in according to the plaintiff. How on earth can it be said that the defendant misrepresented what the worth of Statewide was in the context of a commodity the defendant, as the plaintiff well knew, intended to sell. It was in this regard Mr. Giglietti told the plaintiff not to sell his shares. He reasoned that if a buyer came along one could take into account what the buyer offered and could get much more for his shares than could be garnered from just accepting an offer for his shares prior to any sale. Later in his testimony Giglietti was asked if he specifically told the plaintiff this reasoning. His response was: "You know, I’m sure I might of I definitely told him not to sell and those would have been the reasons I would have told him not to sell."
Finally it is interesting to note that the plaintiff did his own due diligence to see what he would ask for his shares at Luce. He said based on the shareholder’s equity in the tax documents and his 20% ownership of statewide shares he arrived at his figure of $450,000 to $500,000. Oddly enough this is roughly about 20% of the two or three million Giglietti and Attorney Sklarz, Statewide’s attorney, said Statewide was worth at the time of the sale of the plaintiff’s shares. That he accepted only $200,000 and relied on a generalized cut you back in or revisit language was his mistake not based on misrepresentations as to Statewide’s value or, better put, Statewide’s value if it were to be sold by the defendant but on his desire to remove himself from the toxic atmosphere engendered by continuing involvement in Statewide- especially in light of the fact that he would be receiving $200,000 at the same time he was constructing a home which ended up having a value of over $500,000.
(b)
As mentioned the plaintiff also claims that he was fraudulently induced to enter into a contractual arrangement to sell his shares because of the cut you back in promise of the defendant. The defendant said he used the word "revisit" if Statewide was sold and in the June 1, 2012 audio recording of a meeting held by the parties he admitted he said I did tell you I would give you something if Statewide was sold. The court discussed the bearing of this language previously in this opinion and will not repeat that discussion. Suffice it to say, even if there was a binding oral agreement to this effect- more difficult to posit if "revisit" was used- there is no indication from the testimony that 20% of any future sale would revert to the plaintiff. And taking a step backward how can there be said there was some enforceable agreement as to ascertain, let alone arrive at any amount, that would be owing to the plaintiff after any sale.
It is true that the plaintiff did say he would not have gone through with the sale of his shares to the defendant if he had not received an assurance that he would be cut back in for 20% of any sales price for Statewide. The pre-litigation evidence however, more convincingly establishes the plaintiff just wanted to sell his shares at the time that he did so because he simply wanted to remove himself from the toxic family relationships involved with continuing to be involved with Statewide.
(c)
The failure to disclose relevant information argument as a reason to avoid operation of the parol evidence rule is summed up in the plaintiff’s brief as follows: ..."the defendant made no representations during negotiations about the value of Statewide or the plaintiff’s interest ... In fact, the defendant told the plaintiff to do his own due diligence and did not inform the plaintiff of anything there was no discussion of prospective buyers. No discussion about the CAB license. And no discussion about any other aspect of the Statewide business. As president since 1993 and majority stockholder in control of Statewide since 2001, logic and reason dictate that the defendant must have possessed knowledge and information as to at least something relevant to the value of Statewide or the plaintiff’s shares. Yet the defendant chose not to disclose anything (and) thereby utilized his inside information to take advantage of the plaintiff."
The plaintiff asserts that the defendant violated his fiduciary duties to the plaintiff by his non-disclosure of information which would have been relevant to the plaintiff’s decision on whether to sell his shares and for how much. In this way it is argued the plaintiff was fraudulently induced to sell his shares. As the president of Statewide and majority shareholder, the defendant did have a fiduciary duty to disclose relevant information regarding sale of the plaintiff’s shares to the defendant.
It is true that the defendant did not make any representations about the value of Statewide or the plaintiff’s shares before the transfer of the shares to the defendant. But he told the defendant to use due diligence in coming up with a price for his shares. The defendant said he told the plaintiff to see Mr. Giglietti to get the tax returns. As noted Mr. Giglietti was Statewide’s CPA for twenty years and the Falcigno brothers were his cousins and David Falcigno was also his personal client. Stephen Falcigno was the president of Statewide. Both David and Richard Falcigno testified the defendant ran Statewide on his own and excluded his brothers from its operation. Giglietti worked for Statewide but under the defendant. No evidence was presented to indicate that the defendant told Giglietti not to talk in any detail with David Falcigno about his planned sale of his shares and the plaintiff’s due diligence efforts. The plaintiff said he picked up the returns and did not ask Giglietti about the prospective sale and its desirability. His response as to why this was so seems to be that Giglietti was always busy and if he ever asked Giglietti anything it would get back to the defendant who would raise a ruckus. Giglietti, when informed of this testified why would he communicate with Stephen about contacts with David Falcigno and so what if he did. This, it seems, would be particularly true in a situation where the plaintiff was seeking to sell his shares and get out of Statewide. In any event Giglietti said he told David Falcigno not to sell his shares on several occasions and he believes he would have told him on these occasions that if the shares were sold the plaintiff would stand to garner more than if he simply sold them to the defendant prior to any sale. David Falcigno did admit Giglietti told him not to sell his shares but says he gave no reason why. Giglietti also said he told Stephen Falcigno and David Falcigno that Statewide was worth about two million. Giglietti was an employee of Statewide directly under the defendant’s supervision. Even if the defendant personally did not explain the problem with selling his shares- which the plaintiff knew in any event as reflected in his asking what would happen if Statewide sold, Giglietti told him the company was worth two million. Interestingly David Falcigno’s initial demand of $450,000 to $500,000 for his shares, as noted, is roughly equivalent to a valuation of Statewide of over two million dollars, after application of the plaintiff’s 20% ownership interest.
The plaintiff points out, however, that the defendant, in violating his obligations, did not discuss prospective buyers for Statewide with the plaintiff. However, David Falcigno knew that at least from 2005 Stephen Falcigno’s goal was always to sell Statewide. More immediately to the events here, Attorney Sklarz said there were no offers to buy Statewide in 2009 or 2010- he was Statewide’s attorney at the time. The defendant told the plaintiff at the Luce meeting buyer’s would corn around and "kick the tires" and then just leave. No evidence was offered to show the defendant knew that a deal to buy Statewide was imminent and Giglietti and Sklarz were astounded by the fact that Sysco offered $8,000,000 in 2011 to buy Statewide.
The plaintiff also argues prior to the sale there was no discussion about the CAB license or Statewide’s book of clients. The defendant testified about what a CAB license was, he must have had an inkling about Statewide’s customer base after a cursory glance at the income tax returns- they showed gross profits of $17,000,000 to $18,000,000.
The last two sentences of the language of the plaintiff’s brief previously quoted by the court are worth repeating: "As president since 1993 and majority shareholder in control of Statewide since 2001, logic and reason dictate the defendant must have possessed knowledge and information as to at least something relevant to the value of Statewide or the plaintiff’s shares. Yet the defendant chose not to disclose anything thereby (utilizing) his inside information to take advantage of the plaintiff."
These comments, for the court at least, only underline the fact that they conflate the fact that Statewide was eventually sold for eight million dollars with an argument based on fraud in the inducement which finds its true basis in the fact that Statewide was sold for this large amount. On the parol evidence issue they are analytically unrelated. There is nothing to indicate there was some "inside information," known only to the defendant that Statewide would be sold in a year and a half after the sale of the plaintiff’s shares for $8,000,000 or that Statewide was worth more than two million dollars in 2009. What possible information could the plaintiff have been given to challenge or question the two million dollar evaluation? The point is that he should not have sold his shares, and the sale of Statewide after he sold his shares, should have nothing to do with the parol evidence rule as it applies to the time at which he sold his shares to the defendant.
The court does not find in favor of the plaintiff on the Breach of Contract claim.
Breach of Fiduciary Duties
A.
The court will now discuss the remaining claims the plaintiff makes against the defendant. As noted in the plaintiff’s brief the breach of fiduciary duty claim overlaps, legally and factually fraudulent nondisclosure, fraudulent misrepresentation, and negligent misrepresentation claims. To add to the complexity, the discussion in the Breach of Contract claim and various observations and arguments regarding the parol evidence rule involved not only aspects of fiduciary duty but the three other claims just mentioned leading to much overlapping in any discussion.
As said in Yarow v. Teal Industries, Inc., 178 Conn. 262 (1979): "The rule of corporation law and of equity invoked by plaintiff is well settled: the majority has the right to control, but when it does so, it occupies a fiduciary relationship toward the minority, as much as the corporation itself of its officers and directors," id. page 283. Stephen Falcigno at the time of David Falcigno’s sale of his stock to him was the majority stockholder of Statewide and its president and this had been so for several years.
An obligation to disclose material facts Iaccurci v. Sax et al., 313 Conn. 786, 791-92 (2014) and candor and fidelity are hallmarks of a fiduciary relationship, Satti v. Rago 186 Conn. 360, 367 (1982), also see Speed v. Transamerica Corp., 99 F.Supp. 808, 829 (D.Del., 1951). It is also true as noted in introductory remarks by the court that a majority shareholder has a duty to disclose to a selling minority shareholder facts that have a rational bearing on the value of the shares, Business Organizations Cavitch, Vol. 9, § 120.0412) where it is also noted that failure to will result in damages or rescission of the sale.
This is also related to the concept of "freeze out" where a majority shareholder freezes out a minority shareholder so as to acquire the minority’s shares at an inadequate price. Finally as previously noted once a fiduciary relationship is established the burden of proving fair dealing shifts to the fiduciary. Konover Development Corp. v. Zeller, 228 Conn. 206, 219 (1984), and to meet that burden proof by only a preponderance of evidence will not do, proof by clear and convincing or clear and satisfactory evidence or clear evidence required, Murphy v. Wakelee, 247 Conn. 396, 400 (1998). It is clear that a fiduciary relationship existed between Stephen Falcigno and his brother David Falcigno as a result of Stephen Falcigno’s position as president of Statewide and his ownership of a majority interest in the company. Murphy v. Wakelee, supra, is a leading case in this area and at 247 Conn. pp. 405-06 the court said ... "it is only when the ‘confidential relationship’ is shown together with suspicious circumstances, or where there is a transaction, contract, or transfer between persons in a confidential or fiduciary relationship, and where the dominant party is the beneficiary of the transaction, contract, or transfer that the burden shifts to the fiduciary to prove fair dealing." Murphy v. Wakelee cities the article on "Duress and Undue influence in 25 Am.Jur.2d 551 at Section 38 in the 1996 edition of Am.Jur. The 2014 edition of Am.Jur. Has the "Duress and undue influence" article begin at page 611 and the legal analysis just cited is set forth in Section 44 at page 660. That Section begins with the following sentence: "As a general rule, in the absence of a confidential or fiduciary relationship between the parties to a transaction, the burden of proving undue influence is ordinarily upon the party who asserts it. However, a presumption of undue influence arises if a confidential relationship is shown together with suspicious circumstances or if there is a transaction, contract, or transfer between persons in a confidential or fiduciary relationship and the dominant party is the beneficiary of the transaction, contract, or transfer. "What is interesting is the next Section, Section 45 in 25 Am.Jur.2d (2014) entitled "45. Rebuttal of Presumption of undue influence." That Section reads as follows:
The presumption of undue influence arising from transactions between those in confidential or fiduciary relationships’ may be rebutted by competent evidence or by clear and convincing evidence.
To rebut the presumption of undue influence, it is necessary to show that the person alleged to have been influenced had competent and disinterested advice, or that he or she performed the act or entered into the transaction voluntarily, deliberately, and advisedly, knowing its nature and effect, and that his or her consent was not obtained by reason of the power and influence to which the relation might be supposed to give rise. Also, the presumption may be rebutted by proof that the transaction was fair, just, and equitable.
Among the cases cited by the Section are Chilchess v. Cierie, 74 S.W.3d 324 (Tenn. 2002) and Oster tag v. Donovan, 331 P.2d 355 (N.M. 1958), also see Hogan v. Cooper, 619 S.W.2d 516, 520 (Tenn., 1981).
In its post-trial brief the plaintiff cites 15 aspects of this case which establish "suspicious circumstances surrounding the timing of the sale. The information the defendant knew but failed to disclose during negotiations, and the likelihood that the defendant abused his position as majority shareholder to purchase the plaintiff’s shares at a reduced amount knowing a sale of Statewide was imminent." The court will try to examine each one of the 15 points that are made but would first note that the plaintiff and defendant met at Luce’s Restaurant on September 9, 2009 and came to an oral agreement regarding the sale of the plaintiff’s shares, which was consummated by the plaintiff’s signing of papers to transfer his stock in early October 2009. Around September 2010 the defendant talked to a Sysco representative who said Sysco which eventually bought Statewide, might be interested in buying the company. The defendant said if you’re interested "give me a call." He got the call but a meeting was not held until January 2011 between the defendant and a Sysco representative. Negotiations for the sale began with Attorney Sklarz in March or April 2011 over a year and a half after the plaintiff sold his shares to the defendant Sysco according to Sklarz exercised its due diligence and made an offer resulting in the sale of Statewide to Sysco in August 2011- approaching two years after the plaintiff sold his shares. How on earth can it be said that at the time of the plaintiff’s sale of his shares the sale to Sysco was "imminent," even if we take the January 11, 2011 contact between the defendant and a Sysco representative as the point of reference? And what is the "reduced amount" referred to resulting from any alleged machinations by the defendant when he knew a sale was "imminent"? Is it based on the $8,000,000 figure which Statewide was eventually sold for but was extraordinary and not to be expected by Giglietti and Attorney Sklarz? These initial observations, at least for the court, present a problem for the plaintiff’s entire position in this case.
The court will now proceed to examine the fifteen points raised by the plaintiff in its post-trial brief.
The plaintiff states by way of introduction to the fifteen point discussion that:
(1) The evidence demonstrates the plaintiff and defendant had a fiduciary relationship and the contractual agreement between them in which the defendant received a benefit from purchasing the plaintiff’s minority shares.
The court agrees that the plaintiff and the defendant had a fiduciary relationship. The court also agrees that the defendant would receive a benefit from acquiring the plaintiff’s shares if and when Statewide were to be sold. Apart from that eventuality, since the defendant already owned 60% of the shares, it is difficult to see what "benefit" the defendant received from the sale except or the fact that the plaintiff would no longer receive from Statewide the approximately $14,000 a year as a consulting fee.
It is true however that Murphy v. Wakelee, 240 Conn. 396 (1998) does say that where a fiduciary relationship exists between, parties to a contract or transaction "if the superior party obtains a possible benefit, equity raises a presumption against the validity of the transaction or contract, and casts upon such party the burden of proving fairness, honesty, and integrity in the transaction," id. pp. 405-06. The court then says this burden shifting rule operates in the circumstances just mentioned but also where there is a confidential relationship together with suspicious circumstances, id.
This court believes the possible benefit from a prospective sale of Statewide for a party owning 80% as opposed to 60% of stock is self-evident and this is enough, standing alone, to shift the burden to the defendant to establish the transaction in question was fair and honest. But the plaintiff felt a need to discuss certain suspicious circumstances. However, the court will examine the suspicious circumstances allegations seriatim since though such proof is not necessary for burden shifting purposes such discussion, in its opinion, will offer insight on the validity of the plaintiff’s position that the defendant has not met its burden of showing that the stock transfer here was fair and honest.
In subparagraph 2 the plaintiff sets out the 15 factors which it is claimed demonstrate suspicious circumstances surrounding the timing of the sale, failure by the defendant to disclose during negotiations material information and the likely fact that the defendant as majority shareholder purchased the plaintiff’s share’s at a reduced amount knowing a sale of Statewide was imminent.
First
The plaintiff notes that in and around 2009 the defendant knew Sysco and other corporations were targeting companies in the meat industry with a CAB license, there was consolidation in the industry. But according to the uncontradicted testimony of the defendant it was only in 2009 that he learned that Sysco was targeting companies in the meat industry with CAB licenses. There was nothing to indicate that possession of a CAB license was unique to Statewide or that Sysco confined its aims to companies having CAB licenses in Connecticut and adjacent states. Interestingly, although it seems uncontested that the defendant wished to sell Statewide, the first Sysco contact between that company and the defendant was at a CAB conference in May 2006. Other companies besides Statewide had a goal of selling and the defendant notes a group of company people were sitting around having a drink with Sysco representatives. The defendant had a conversation with a Sysco representative at the meeting about his goal of selling Statewide but these conversations did not result in negotiations or offers. As Attorney Sklarz testified there were no offers to buy Statewide in 2009 or 2010. It was not until a CAB conference in 2010 that a Sysco representative approached the defendant and asked if the defendant was interested in selling Statewide. The defendant said "call me" but a meeting was not set up until January 2011, a year and several months after the plaintiff sold his shares to the plaintiff. The actual sale of Statewide to Sysco did not take place until August 2011, approaching two years after the plaintiff’s transfer of his shares.
Unfortunately, the court’s comments are repetitious in this case but the absence of fair dealing argument presented by the plaintiff must also be considered against the following factual background. Since the early 2000s the plaintiff knew it was the defendant’s goal to sell Statewide and the plaintiff knew what a CAB license was. Before the plaintiff’s shares were actually transferred to the defendant (1) Mr. Giglietti told him not to sell his shares and arguably why he should not; (2) he knew of the possibility of a sale and this was underlined at the Luce meeting by is asking the defendant what would happen if Statewide sold; (3) the defendant certainly did not limit or disparage this possibility when, despite his negative comments regarding Statewide as an operating entity, he told the defendant if it sells for millions I’ll cut you back in or revisit the Situation.
Second
The plaintiff notes the defendant’s goal was, to sell Statewide and his testimony was that he wanted a fair price he "didn’t discriminate." Yet the plaintiff notes Thurston Foods, Inc. (a possible prospective buyer) "was someone (the defendant said) he wasn’t interested in"- he "never got a good feeling from (Thurston Foods, Inc.)." How all of this is relevant to the point, absence of fair dealing, ought to be made, at least to the court is not explained let alone clear on its face. But some sinister motive is applied to the defendant when the plaintiff argues "it would appear the defendant had knowledge i.e., insider information, of some form to support why the defendant was not interested in Thurston. "But what this insider information might have been was never pursued ..." Not pursued or good reason apparently, because all the defendant finally said was "I don’t think Thurston Foods would have been someone that was interested," this prefaced his later remark that he "never got a good feeling from Thurston," although he described it along with Sysco and two other prospective buyers as good quality companies.
Third, Fourth
These two allegations of suspicious circumstances involving Attorney Sklarz are interrelated. First the plaintiff notes Attorney Sklarz was hired in July or August 2009. He was a corporate and transactional attorney with experience and knowledge of how to handle negotiations for the sale of Statewide and any actual sale. In his first conversation with Attorney Sklarz upon hiring the defendant discussed his goal to sell Statewide and three prospective buyers, Sysco, U.S. Foods and Hartford Meats.
Why is it "suspicious" for a corporate officer and majority shareholder to hire a lawyer proficient in negotiating the sale of a business when it had been the intention for years to do so? This is especially true in the context of a situation where a plaintiff, raising the specter of "suspicious circumstances, knew for years that the goal was always to sell the company in which he had a 20% interest. Also after the oral agreement was reached at Luce for the sale of his shares the suspiciously acting defendant says- if- sell Statewide for millions I’ll cut you back in (or revisit the situation).
Sklarz was told of three prospective buyers but two never came through, Sysco did not make contact to buy Statewide for a year and a half after the attorney was hired and two years before it as actually sold.
Fifth
The defendant called the plaintiff "out of the blue" in August 2009, and asked the plaintiff if he was still interested in selling his shares in Statewide. This comment is not convincing on several levels. Is there a suggestion that in August 2009 sale was imminent and/or very likely? Hardly a supposition supported by any evidence, testimonial or otherwise. Perhaps more to the point it is out of context. It ignores the heated hour-long exchange the parties had in June 2009, so heated a child had to hide in a closet and which arose out of a family incident having nothing to do with Statewide. The plaintiff told the defendant just buy me out, I’m sick and tired of dealing with this. During his direct examination the plaintiff noted he was told to do his due diligence by the defendant in coming up with a number that he would be willing to sell his shares for to the plaintiff. Interestingly he testified it was not about the number, he just wanted to sell his shares and get out of Statewide so he and his brother Stephen could be brothers again.
In his testimony the plaintiff said he was always in the middle of arguments between his mother, Richard Falcigno his brother and the defendant starting in 2001. The arguments mostly concerned Statewide. Things "became so awful and ugly and toxic." Giglietti said over the years the plaintiff mentioned several times his desire to sell his shares. His desire to use any monies from a sale to build a house in 2009 can this be viewed as a convenient way out of the turmoil which he always wanted to pursue whether or not he could use the money from the sale of the shares for building his house.
From another perspective can this call be characterized as part of a scheme to get the plaintiff’s shares if and when the company sold, leaving aside the "if and when" problem there is not an iota of evidence the defendant over the years, since he had made it his goal to sell Statewide, ever tried to induce the plaintiff to sell his shares. The first mention of this was on the June 2009 outburst of emotion just discussed.
Sixth
The plaintiff notes that the defendant’s conversation with Attorney Sklarz about his goal of selling Statewide and the prospective buyers occurred only one or two months prior to the Luce’s meeting. The Luce’s meeting took place at the end of September 2009, but Sklarz was only hired in July or August 2009, how could he tell him that before the hiring date. The point goes back to the fact that when he hired Sklarz, the defendant had in mind for several years the goal of selling Statewide.
Seventh
The defendant points out the defendant told the plaintiff to go to Giglietti’s office and get tax returns in order to exercise his due diligence in determining an asking price for his shares but did not tell the plaintiff of Statewide’s two valuable assets- the book of clients and the CAB license.
The plaintiff knew of the CAB license and was aware of the customer base of Statewide. He had tax returns and the balance sheet 2008 going back several years before 2009 indicating seventeen to eighteen million is gross profits for this meat business which could only result from a strong customer base.
Eighth
The plaintiff points out that the defendant made no attempt at offering his opinion about the plaintiff’s shares or whether he should sell. He only told the plaintiff he was the majority shareholder and did not need his shares and initially offered the plaintiff only $100,000 although he was willing to pay more.
But the defendant was aware of the fact that he was sending the plaintiff to see Giglietti, the CPA of Statewide and their cousin. In fact Giglietti told the plaintiff not to sell his shares and believes he probably told him why. From examining the shareholders equity in the tax documents the plaintiff came up with an initial demand at Luce’s of $450,000 to $500,000. This parallels the 20% value of the plaintiff’s shares which Giglietti and Sklarz believed Statewide was worth upon sale- two to three million. There is no evidence from Giglietti or the defendant that the defendant told Giglietti not to discuss the sale option and its wisdom with the plaintiff. As previously discussed there was no good reason why such a conversation could not have been pursued by the plaintiff with Mr. Giglietti.
There is also a comment noted above that the defendant initially offered $100,000 for the plaintiff’s shares but was willing to pay more. Negotiations such as these do not violate fiduciary obligations- in a family business where one of the members has a fiduciary responsibility that does not mean or dictate the person having a fiduciary responsibility cannot protect his or her own interests. The fact remains is that the defendant was willing to and did offer more.
Ninth
The plaintiff makes several points regarding the meeting at Luce’s (1) the defendant made mention of prospective buyers, (2) there was no discussion of Statewide’s business by the defendant, (3) the significance of the minority discount was not discussed, (4) the defendant did not explain two of Statewide’s most valuable assets- CAB license and book of clients- are not reflected in tax returns.
As to (1) the defendant said it was his goal to sell Statewide so it would come as no surprise that there might be companies willing to buy it. Also in his conversation at Luce’s the defendant did say company representatives would drop by and "kick the tires" but this did not result in any offers buy. But by telling the plaintiff if Statewide sold for millions he would revisit the situation (cut back in according to the plaintiff) it underlined the fact that for years it was no secret that the plaintiff had hopes of selling Statewide to another company whether it could be described as only prospective or bound to happen at any moment. The response- I’ll cut you back in- was in reply to the plaintiff’s inquiry- "What if it sells." The plaintiff was well aware of the prospect of a sale. There is no relevance or suspicious imitations that could be drawn if either party did not know if a sale would take place in a month, six months or a year and a half- under these circumstances how could suspicion be raised by the fact that certain entities at any particular point in time where not identified for the plaintiff; (2) The plaintiff had knowledge of the general nature of the business. He worked there for several years until 1998. The tax documents would have informed the plaintiff of the gross profits of the business and, in some detail of the expenses and types of expenses. To coin a phrase this is not rocket science, this was a business that sold meat with a CAB license to a base of customers all of which required temporary storage of the product and delivery to customers; (3) As to the minority discount, the defendant did say he was the controlling or majority shareholder therefore he could discount the value of the plaintiff’s shares; (4) CAB license and book of customers, this has been discussed previously.
Tenth
The plaintiff notes that the plaintiff met with the defendant and attorney Sklarz on October 13, 2009 but he was the only one who did not know of prospective buyers. This has already been discussed in the ninth claim and Sklarz has noted there were no offers to buy in 2009 and 2010. The sale did not take place with one of the "prospective" buyers until August 2011. Under these circumstances the word "prospective" would appear to lose its analytical relevance.
Eleventh, Twelfth and Thirteenth
The Eleventh, Twelfth and thirteenth claims of suspicious circumstances involve the Certificate of Purchase and Certificate of Satisfaction. It is claimed (1) when Attorney Sklarz drafted these documents when he did not know what the agreement was; (2) Prior to the October 13, 2009 meeting the plaintiff was given the Certificate of Purchase and another document, the stock power document to sign before he was made aware that he would be asked to sign the Certificate of satisfaction; and (3) Attorney Sklarz claims the Certificate of Satisfaction was necessary to protect Statewide but it was the defendant in his individual capacity as the purchaser of the stock who was relying on this document and is seeking to enforce it- "indeed the Certificate of Satisfaction makes no reference to giving Statewide any right or ability to enforce the language stated in the Certificate of Satisfaction." As to the position set forth in (1), it is difficult for the court to understand how this raises a suspicious circumstance. In number 13 the plaintiff concedes that this certificate give certain fights to the purchaser of shares- how does the fact that the defendant was presented with this document on October 13, 2009 when he signed the certificate of purchase raise any suspicion? Does not the Certificate of Satisfaction validate the transfer of the stocks so why would not an attorney draft such a document as part of the transaction transferring the stocks. Therefore, how can any suspicion be attached to the drawing up of the document when the attorney who did so did not know the details of the agreement, which was to take place and be formalized at a later date.
As to (2) how can the plaintiff complain about not being aware he would be asked to sign the Certificate of Satisfaction- it merely validates the Certificate of Purchase and the sale of his stock which he had agreed to already. As to (3) would not the attorney for Statewide have an interest in assuring him or herself of the stock base of his company- who owned what, how much, as of when. Giving the right to the purchaser of stock to enforce his agreement would ensure finality to these questions.
Fourteen
The plaintiff argues that despite his claim he had no reason to purchase the plaintiff’s shares within a few months of that purchase the defendant attempted to also purchase Richard Falcigno’s shares. This comment fails to recognize a dichotomy in the mode of valuation of this business which the parties were well aware of. As an operating business with high gross profits but with expenses that left a low profit margin it would not be worthwhile for a majority shareholder to offer a great sum to buy a minority shareholder’s stock. It is only the prospect of sale which makes such a purchase something worth considering for the majority shareholder. The immediate parties seemed to have certainly realized that, that is why the plaintiff said what if Statewide sells and the defendant responded if it sells for millions I will revisit this according to him, cut you back in according to the plaintiff.
Speaking generally that is why there is an incentive on the plaintiff’s part to paint the prospect of a sale as imminent and in any event sure to occur. But where is the evidence of that. In any event Giglietti and Attorney Sklarz prophesied if the company were to be sold it would be valued at two million dollars, one who other saying the best of all possible scenarios three million. No formal evaluation was done, however.
With this background the defendant’s call to Richard Falcigno cannot be understood as part of a general scheme to buy all the shares the plaintiff did not own because a sale was bound to occur forthwith. The sale was not even in the process of going forward for a year and a half and did not actually occur for two years after the defendant called Richard Falcigno. The latter’s "friendly," expletive deleted response to the defendant’s inquiry and the plaintiff’s lengthy letter to his brothers wherein he described the relationship between Stephen and Richard Falcigno as particularly toxic would have been an incentive for the defendant to try to buy Richard Falcigno out just as the toxic atmosphere prompted the plaintiff to want to sell his shares. Again there is no evidence that the defendant over the years when he first made it his goal to sell Statewide ever dunned either of his brothers to sell their shares. In fact over the years in question he continued to allow them to get free gas and meat and since around 2005 provided a consulting fee to each one of them of about $14,000 a year in the absence of any consultation services the court has been made aware of.
Fifteen
In this allegation of suspicious circumstances the plaintiff notes the defendant had a three-hour meeting with a Sysco representative in January 2011. The post-trial brief goes on to say: "Thereafter, without receiving any financial documentation, Sysco provided a letter of intent indicating they were interested in paying between $7,000,000 and $9,000,000 for Statewide. However, according to the defendant, he spent not much more than two to three minutes discussing the sale of the plaintiff’s shares before they had an agreement." This is offered as another demonstration of "the suspicious circumstances surrounding the defendant’s purchase of the plaintiff’s minority shares in 2009." Apparently it is offered to show the sale of Statewide for millions was both a foregone conclusion in 2009 when the sale of the plaintiff’s shares took place and less convincingly was an imminent expectation at that time.
The foregoing is difficult to evaluate in light of the testimony of Attorney Sklarz who was Statewide’s attorney and basically handled the sale transaction with Sysco. In May 2011 Sysco did send a letter of intent to Statewide indicating that it was willing to suggest a price of seven to nine million dollars. For Attorney Sklarz this was only the beginning of the transaction and negotiations went on for months. A prospective sale like this can fold a week before an agreed-upon sale date. The following testimony of Attorney Sklarz occurred at trial which rebuts any forgone conclusion argument:
Q. Do you know what documents Sysco was given in terms of financial records or any Statewide business records or any Statewide business records for that matter during negotiations?
A. There was massive due diligence as is common in this type of transaction. We create what we call an electronic data room and into that data room goes financial statements of the company, tax returns of the company, list of venders that’s all done pursuant to a nondisclosure agreement so that the confidentiality and privacy is preserved. But list of employees, all of the relevant data that a party may use to evaluate the transaction.
The defendant agreed that Sysco spent a couple of months doing their due diligence, a necessary precursor to the actual sale to Sysco in August 2011.
The court concludes that the fifteen alleged suspicious circumstances are not persuasive as establishing independently that the defendant has the burden of proving fair dealing regarding the sale of the plaintiff’s shares because of the fiduciary relationship between the parties. But as indicated previously a fiduciary relationship existed between the parties. Therefore, because of the defendant’s position as majority shareholder and his control of the operations of Statewide the defendant has the burden of proving fair dealing since the transactional and contractual relationship he entered into with the plaintiff for the sale of the latter’s shares resulted in a possible benefit to the plaintiff, Murphy v. Wakelee, supra, 247 Conn. Pages 405-06.
B.
The court will now examine the ways the defendant is alleged to have violated his fiduciary duties. It will rely on its general discussion earlier in its opinion on the ambit of a breach of fiduciary duties and will now list the plaintiff’s claims.
i.
The defendant breached his fiduciary duty by failing to disclose relevant information the defendant knew or should have known that pertained to the plaintiff’s shares.
The court believes the foregoing claim should have ended with "pertained to the sale of the plaintiff’s shares." In any event as the court has discussed in its introductory remarks the defendant had a fiduciary duty to disclose all material information relative to the sale of the plaintiff’s stocks to the plaintiff before the plaintiff sold his shares and the defendant has the burden this duty was met, see Business Organizations, Cavitch, Vol. 9 § 120, 04(2)(c). Walta v. Gallegos Law Firm, LLC, 40 P.3d 449, 458-59 (N.M., 2002), Kahn v. Lynch Communication Systems, Inc., 669 A.2d 79, 88 (Del. 1995); Lawton v. Nyman, 327 F.3d 30, 41 (CA 1, 2005); Sugarman v. Sugarman, 797 F.2d 3 (EA 1, 1986).
As the court discussed in its general comment on fiduciary obligations the court quoted from Business Organizations, Cavitch, Vol. 9, Section 120.04(2)(c) ordinarily a controlling shareholder has fiduciary obligation "to disclose to the selling minority shareholders those facts that have a material bearing on the value of the shares. Failure to do so will result in damages or the recision of the sale." Cavitch cites Walta v. Gallegos Law Firm, 40 P.3d 449 (NM. 2002) which at page 458 said that the fiduciary duty in such cases "requires disclosure beyond mere access to the books and records of the corporation," id. page 458. The Walta case goes on to hold that "a majority shareholder, as well as an officer or director of a close corporation, when purchasing the stock of a minority shareholder, has a fiduciary obligation to disclose material facts affecting the value of which are known to the purchasing shareholder, officer, or director by virtue of his (or her) position but not known to the selling shareholder" (emphasis by this court). Walta whet on to adopt the standard for what information is material established by the United States Supreme Court in TSC Indus, Inc. v. Northway, 426 U.S. 438, 449 (1976) (An omission or misstatement is material if there is a "substantial likelihood that under all the circumstances the omitted (or misstated) fact would have assumed actual significance in the deliberations of a reasonable shareholder," Walta, 40 P.3d at pages 458-59.
A cursory reading of the factual background of Walta shows that the valuation of the stocks of the defendant law firm was a complicated process depending on whether the shares were vested, the by laws said the valuation would not include unbilled work in progress but shall include collectible accounts receivable. The court said it was undisputed that the defendant law firm did not follow the letter of the shareholder agreement either as to the plaintiff’s termination or the valuation of her shares.
This is not the Walta case. The business involved concerned the sale of higher quality CAB meat to a book of customers who would be expected to make such a purchase.
Attorney Sklarz testified that he had knowledge of the reasons why Sysco was interested in Statewide in 2011- he would have such knowledge since he represented Statewide in the sale negotiations. Attorney Sklarz said that Sysco was interested in the customers. They liked the quality of the relationships that had been developed. They were interested in what is known as a CAB license and their offer was rather extra ordinary." Mr. Giglietti was asked what information Sysco relied on in coming up with a purchase price for Statewide. He responded "the biggest thing they looked at was the gross sales, how much sales that it was doing, assuming they could do the same sales. I don’t think they were terribly interested in the operation itself. As a matter of fact they closed it up soon thereafter, so they didn’t care about his equipment, his trucks or anything like that. I think the main thing they were looking for was the customers, and quite frankly they were looking at the CAB license."
The plaintiff was told to do his own due diligence when coming up with a price he would ask for his shares. No valuation was ever done for Statewide so the defendant could not instruct him to procure any valuation. He was told to get tax returns from Mr. Giglietti, Statewide’s CPA, and the plaintiff’s personal advisor. The returns would have revealed gross profits in the millions which of course depended on a strong customer base. The plaintiff knew what a CAB License was according to his own testimony. The plaintiff said he examined the tax documents and took 20% of the shareholder’s equity to formulate his demand of $450,000 to $500,000 which he initially presented the defendant at Luce’s when sale of the plaintiff’s was first formally discussed. Mr. Giglietti said shareholder’s equity is not a good basis for valuation of a company such as Statewide. A company such as Statewide receives an accurate valuation based on what a buyer is willing to pay for it. But both Sklarz and Giglietti estimated the value of Statewide in 2009, before Sysco’s offer, was two million dollars or three million. The initial demand the plaintiff came up with is close to 20% of a two million valuation figure.
In his post-trial brief it is argued that the defendant made no representations during the negotiations about the value of Statewide or the plaintiff’s interest. But Giglietti told him the company was worth two million. And he certainly knew his 20% would be worth more than the $200,000 he was being offered, if Statewide sold, which he knew had been the defendant’s goal for years. In fact he asked the defendant at Luce’s what if Statewide sold- the defendant responded, if it sells for millions. I will revisit the matter or cut you back in if the plaintiff’s version of the conversation is accepted. When he went to get the tax returns from Mr. Giglietti, Giglietti told him not to sell. But the point is that from his conversation with the defendant at Luce’s they both knew about the possibility of a future sale and that it would be or advantage to him if he held on to his shares rather than relying on undefined cut you back in revisit language.
In any event the evidence is clear and convincing at least to the court that count three, violation of fiduciary duty, because of non-disclosure has not been established.
What in fact was non-disclosed was the unknowable possibility of a sale of the company for total of eight million dollars in 2011 as to which sum the only evidence presented described it as expected and extraordinary.
ii.
The court should find that the defendant breached his fiduciary duties by applying a minority discount on the plaintiff’s share and thereafter failing to inform the plaintiff of the significance of the minority discount or that his shares would be worth more upon the sale of Statewide to another company.
A minority discount comes into play when a minority shareholder seeks to sell his or her shares to a majority shareholder. A majority shareholder has no real incentive to buy the shares since the majority shareholder already has control of the company’s operations. As Stephen Falcigno said in his testimony: "there was really no reason for me to buy his shares. I had control of the company." The defendant said he told this to the plaintiff before he made his initial offer of $100,000 for the plaintiff’s shares at Luce’s. The plaintiff testified that the defendant said the shares were not worth $100,000, $450,000 was out of the question; the plaintiff said further "You’re a minority shareholder. I’m the majority. I have 60%. I control- I control Statewide" the significance of the minority discount was explained in practical terms.
But we return then to the what if it sells- if Statewide sells for millions I’ll cut you back in or alternatively I will revisit it. The minority discount applies to a sale of shares by the minority to the majority shareholder inter se and without more. But the plaintiff having received a $200,000 offer at Luce’s knew by the very asking of the question- what if Statewide sells- that if he kept his shares they would be worth more and the defendant’s comment of cutting back in or revisiting the matter only confirmed what he already knew. All of this, of course, before he signed the Certificates of purchase and satisfaction which actually transferred the shares from the plaintiff to the defendant. And this must be coupled with the fact that the plaintiff had known for several years the defendant’s goal was always to sell Statewide, Giglietti told him not to sell. And that Giglietti also told him Statewide was worth two million dollars at some point before the sale of his shares.
Though not directly related to the issue at hand, all of this underlines for the court at least, that David Falcigno’s real motive was to be bought out from Statewide because of the toxicity of the relations that he felt were engendered by this family business at a time when he could use any monies he received for his shares to help construct his new house.
The court cannot find a breach of fiduciary on these facts based on this argument.
The court should find that the defendant committed a "Freeze-out" of the plaintiff as a minority shareholder in violation of his fiduciary duties. The plaintiff, in effect claims that the "defendant effected a freeze out of the plaintiff as a minority shareholder in order to acquire his shares at a reduced price." This is the classic definition of a freeze out, see Business Organizations, Cavitch, Vol. 3, § 50.03(4), page 50-20. Cavitch at Volume 9, § 120-04(2)(b), page 120-21 states that "tactics employed against the minority may include inadequate payment of dividends, restriction or elimination of employment in the corporation, payment of excessive compensation to majority shareholders, the withholding of information related to the operation of the corporation, appropriation or misappropriation of corporate assets, denial of appraisal right to dissenting shareholders, failure to hold meetings, and exclusion of the minority from meaningful participation in the management of the business.
The evidence indicates that in all the years the defendant was running Statewide, from 1993 until it was sold, there was only one meeting of the shareholders. David Falcigno said there was a bitter argument at the meeting. There were many family fights often about Statewide. But the transcripts of David and Richard Falcigno’s testimony never described exactly what these fights were about and who initiated them. Both David and Richard Falcigno both testified the defendant gave them limited access to Statewide and therefore its records. Between 2000 and 2009 the plaintiff never asked the defendant about his interests in Statewide because it would end up in a fight. He assumed he would not be allowed access to paper work involving Statewide. He said once he went to a cabinet in the offices of Statewide but Stephen told him he could not go in there. Richard Falcigno tells of one time where he went to Statewide’s offices and the defendant walked him out saying you do not belong here. He would try to get documentation regarding Statewide’s business operations and would be told go see Giglietti and get tax returns but he felt they only would say what the defendant wanted them to say. The defendant disagreed with these observations, testifying the plaintiff always had access to company information and could come by the offices whenever he wanted to look at Statewide’s financial records and stated the plaintiff always had access to Mr. Giglietti to get anything that he wanted.
Mr. Giglietti was Statewide’s CPA and all three brothers are still his clients. He said David Falcigno came by his office a lot and he would give him copies of the company’s tax returns. There was no indication or even questioning as to whether Giglietti had to ask the defendant first before he gave these tax documents to David Falcigno or any other documentation the plaintiff might request.
The plaintiff also notes that the defendant, his wife and children received a variety of personal benefits from Statewide such as cell phones, vehicle leases, health, life or long-term care insurance. No dividends were paid to David or Richard Falcigno. But for years David Falcigno received approximately $14,000 a year as a consulting fee when no consultation occurred. Also he received free gas and meat on a weekly basis.
The plaintiff also notes that the defendant acquired an ownership interest in one of three stalls at Long Wharf were Statewide was located and which were apparently used for Statewide business purposes. The defendant charged Statewide $1,100 a month for use of the stalls while a company owning the other three stalls for both of them charged six or seven thousand a year. The defendant testified that at the time the stall became available for purchase, Mr. Laub who was at that time a co-owner of Statewide would not agree to Statewide’s purchase of the stall. There was no evidence presented that the defendant purchased the stall with Statewide assets, he apparently used his own money and would seemingly be entitled to reimbursement.
In the post-trial brief the plaintiff noted from 2001 to 2009 the defendant increased his salary from $110,600 to at least $274,000. But it was a business that toward the end of that time period had gross profits of between sixteen and eighteen million dollars. There was no evidence to contradict the defendant’s testimony that he opened Statewide at 4:30 a.m. in the morning and closed it when finished. He also built up and nourished a customer base and secured a CAB license which according to the evidence offered by Giglietti and Attorney Sklarz led to the large amount of money Sysco was willing to pay for the operation. Mr. Giglietti testified that in his opinion, the defendant’s salary was reasonable. Richard Falcigno, who is an attorney, said that in the mid-1990s he wanted to work at Statewide but his attempts were rebuffed by the defendant. The defendant said he stopped working at Statewide and went into law enforcement because he was tired of being assigned to do menial work at Statewide; there was no room for him at Statewide because as he described it the defendant made clear that Statewide was the hen house, and he Stephen Falcigno, was the rooster.
The foregoing discussion is not convincing as a basis on the defendant’s purpose of acquiring plaintiff’s shares. A tense family situation existed for years, they had not celebrated a holiday together since 1996. A letter was written by the plaintiff David Falcigno to his brothers Richard and Steven in 2000, (plaintiff’s Exhibit 24) long before the requirements of litigation had to met. The letter tells of bitter family disputes and attitudes that interestingly have nothing to do with the operation of Statewide which is not even mentioned. At one point, after discussing his desire that they all should be acting like brothers and go to a concert together, David Falcigno says about all his complaints: "Stephen, I know this doesn’t apply to you as much as it does to Richard considering you’ve been attempting to make some kind of progress in this whole matter."
In other words none of the foregoing actions or alleged actions can be characterized as a plot to force the plaintiff to sell his shares at a reduced price because of an imminent sale. There were just ongoing tensions in this family apparently for a variety of reasons. There was no evidence presented that in the fifteen years before the defendant bought the plaintiff’s shares he even suggested the shares be sold to him although he had a goal of selling Statewide for years. The plaintiff made the first specific mention of wanting to do that in a heated June 2009 call that had nothing to do with Statewide but with the defendant’s anger that he was not invited to a family Birthday party. Besides, what kind of orchestrated squeeze takes place when one of the parties receives free gas and meat on a weekly basis and fourteen thousand dollars a year for consultation fees when no consultation has taken place.
Furthermore the evidence suggests that although the court does believe there were family disputes about Statewide and its operation, as noted the plaintiff made the first proposal to sell his shares which was unsolicited but he also wanted the money to help him to buy land and build a house on the property.
The court concludes the evidence is clear that there was no violation of fiduciary duties.
Fraudulent Non-disclosure
The plaintiff argues that the defendant fraudulently concealed and failed to disclose relevant and material information for which he had a duty to speak. The post-trial brief then states "as argued above, the defendant failed to disclose any relevant information pertaining to Statewide or the plaintiff’s shares. The court had discussed this claim in addressing the alleged violation of the defendant’s fiduciary obligations and for the reasons stated this claim is rebutted by clear and convincing evidence.
Fraudulent Misrepresentation
The plaintiff claims the defendant fraudulently misrepresented material information pertaining to Statewide and the financial condition of the business. The plaintiff then states the claim was raised in the alleged violation of his fiduciary duties by the defendant; also see pages 37-40 of this opinion where the court discussed whether there should be an exception to the applicability of the parol evidence rule based on this representation. The court there as here does not accept this argument for the reasons stated.
Negligent Misrepresentation
The plaintiff argues that the defendant negligently misrepresented material information pertaining to Statewide and the financial condition of the business.
The plaintiff then refers to previous arguments made in regards to the claimed violation by the defendant of his fiduciary obligations. The court concludes material information was not misrepresented in any event in its previous discussion of the alleged violation of fiduciary obligations and refers to that discussion in denying this allegation.
The court concludes that the plaintiff has not established his claims. Breach of Contract has not been established, the contract should not be rescinded or recovery permitted on any other basis set forth in the Revised Complaint.
Counterclaim
The defendant claims he is entitled to Judgment on his counterclaim for legal fees because of the plaintiff’s breach of the representations and warranties contained in the "Certificate of Satisfaction. Representations, and Warranties and Indemnification regarding shares of stock" which was signed by the plaintiff.
The plaintiff contests this claim citing this so called American Rule cited in ACMAT v. Greater New York Mutual Ins. Co. 282 Conn. 576, 582 (2007). ACMAT, quoting from earlier cases said as follows: "The general rule of law known as the American Rule is that Attorneys fees and ordinary expenses and burdens of litigation are not allowed to the successful party absent a contractual or statutory exception," also see Stratford v. Wilson 151 Conn.App. 39, 55 (2014).
There are exceptions to the rule, however, the ACMAT court referred to the language in Maris v. McGrath, 269 Conn. 834, 844 (2004) holding the court has inherent authority to award attorneys fees when the losing party has acted in bad faith, vexatiously wantonly, or for oppressive reasons." Citing earlier case law Perry v. Perry, 312 Conn. 600 (2014) confirmed the view that this exception had a "narrow scope." It went on to quote with approval another Connecticut case to the effect that "To ensure ... that fear of an award of (attorneys) fees against them will not deter persons with colorable claims from pursuing those claims, we have declined to uphold awards under the bad faith exception absent both clear evidence that the challenged actions are entirely without color and (are taken) for reasons of harassment or delay or for other improper purposes, id. page 630. In Tunti v. Akbari, 553 S.E.2d 769 (VA. 2001) the court which follows that rule said, quoting an earlier case, "Yet the threat of a sanction should not be used to stifle counsel in advancing novel legal theories or asserting a client’s rights in a doubtful case, id., p. 771. As said in Ridley v. Lawrence County Commission, 619 N.W.2d 254 (SD. 2000) which applied the American Rule and discussed a claimed exception to it on the basis that the action was frivolous, the court said: "Simply because a claim or defense is adjudged to be without merit does not mean that it is frivolous ... Instead, frivolousness connotes an improper motive or (a) legal position so wholly without merit as to be ridiculous," id., page 259. As said in Section 49 of Am.Jur.2d, "Costs" at page 59: "Actions for bad faith litigation should be used sparingly because granting an award of attorneys fees under it is an extra ordinary remedy. An award of attorneys fees as a sanction should never be a routine matter.
Beyond such general policy concerns the courts have recognized contractual exceptions to the American Rule and the plaintiff argues for the existence of such an exception to the so-called American Rule. It is stated that the court is being asked "to ignore the clear language of the "Certificate of Satisfaction, Representations and Warranties and Indemnification Regarding Shares of Stock" and the well settled law of Connecticut and other jurisdictions permitting indemnities to recover reasonable attorneys fees as part of damages incurred in defending indemnified claims."
Language in the above referenced Certificate is cited acknowledging that the $20,000 consideration was "full, final and complete satisfaction for all time, now or in the future of any and all of any and all of the undersigned’s (i.e., David Falcigno) interest in and to such shares."
Particularly relied upon is the last sentence of the certificate which reads as follows:
As a specific inducement to the Purchaser for the consideration paid for such shares and acknowledging the Purchaser’s reliance thereon, the undersigned does hereby represent and warrant that as of the date of the sale, transfer, assignment and conveyance thereof, the undersigned was the sole and exclusive owner of such shares, had the absolute right, power and authority to sell, transfer, assign and convey such shares to the purchaser, that the shares were not subject to any pledge, mortgage, lien, security interest, option, right of first refusal, restriction, contract or encumbrance of any kind or manner with respect to the sale, transfer, assignment and conveyance of the shares to the purchaser, and the undersigned will warrant and defend such interest, title and right to such shares and hold harmless and protect the purchaser from and against any claim of any party with respect to such shares.
The defendant relies on 24 Leggett Street Ltd. Partnership v. Beacon Industries, 239 Conn. 285 (1996) which was an action to recover damages for costs incurred in responding to environmental contamination on real property the plaintiff had purchased from the defendant. The court noted several exceptions to the American Rule (1) where a specific contract term provides for the recovery of attorneys fees and costs, (2) where a statute so provides, (3) an indemnities is entitled to recover from an indemnitor, as part of its damages, attorneys fees, costs and expenses. Interestingly, in the 24 Leggett Street case itself, however, the court referred specifically to contract language stating: "Here, paragraph 15(k) expressly provides for the recovery of attorneys fees and costs. Specifically that paragraph provides: "Seller shall defend, indemnify and hold purchaser harmless from and against any liabilities, costs or expenses (including reasonable attorneys fees) of any nature arising from the environmental condition of or problem with the property."
The case of Peter Fabrics, Inc. v. SS Hermes, 765 F.2d 306 (e.A2, 1985) is also cited by the defendant. At page 316 the court says:
"Indemnity obligations, whether imposed by contract or by law, require the indemnitor to hold the indemnitee harmless from costs in connection with a particular class of claims. Legal fees and expenses incurred in defending an indemnified claim are one such cost and thus fall squarely within the obligation to indemnify. Consequently, attorneys fees incurred in defending against liability claims are included as part of an indemnity obligation implied by law, ... and reimbursement of such fees is presumed to have been the intent of the draftsman unless the agreement explicitly says otherwise, ... As stated by the Fifth Circuit, [t]his rule simply gives effect to the very nature of indemnity, which is to make the party whole." Id. But such reasoning does not apply to fees and expenses incurred in establishing the existence of an obligation to indemnify, since such expenses are not by their nature a part of the claim indemnified against. Rather, they are costs incurred in suing for a breach of contract, to wit, the failure to indemnify. As such, fees and expenses incurred in establishing the indemnity obligation fall within the ordinary rule requiring a party to bear his own expenses of litigation ..."
The 24 Leggett case does not cite the Peter Fabrica case but does cite a now updated article in 41 Am.Jur.2d "Indemnity," Section 30, pp. 419-21 which refers to cases taking a different position from the Peter Fabrica case. Thus in England v. Alicea, 827 N.E.2d 5545, 559 (Ind.App. 2005) the court said: "The general rule in Indiana is that attorneys fees are not allowed on the absence of a statute or an agreement or stipulation specially authorizing the allowance ... Indemnification clauses in a contract are strictly construed and the terms are required to be set forth in clear and unequivocal terms ... In other words, if the indemnification clause at issue does not specifically say that it includes attorney fees, they are excluded." That was exactly the situation in 24 Leggett where the indemnification clause explicitly refers to the right to attorneys fees.
The certificate the defendant relies on in this case makes no reference to the right to attorneys fees in the language the defendant chooses to characterize as an indemnification clause- this at odds with the 24 Leggett Street and England v. Alicea cases. But some cases in this confusing only of the law to relax the strict application of the holdings of cases like England v. Alicea, supra . The Am.Jur. Article at page 420 cites Kinsinger v. Taco Tico, Inc., 861 So.2d 669 (La.Ct.App., 2003), for the following: "It has been said that an indemnification agreement may impose an obligation to pay reasonable attorneys fees in some instances where the obligation to pay attorneys fees is not specifically identified in the indemnification agreement but is implied by inference. However, in order for the indemnitor to be liable for attorneys fees, the indemnification language must be sufficient to infer the obligation id. at id. p. 673. The language in Kinsinger ’s indemnification agreement parallels the language in the Certificate of Satisfaction in this case and indicates this relaxed standard should not apply.
More to the point is another case cited in the Am.Jur. Article, Abakan Inc. v. Uptick Capital, LLC, 943 F.Supp.2d 410, 415 et seq. (SD.NY. 2013). There the court reasoned, quoting from other cases, that since a promise by one party to a contract to indemnify the other party for attorneys fees accrued in litigation between them is contrary to the American Rule, waiver of the benefit of the rule should not be inferred "unless the intention to do so is unmistakenly clear from the language of the promise."- A mere inference will not suffice.
The court quotes the language of In Re Refco Sec. Liting, 890 F.Supp.2d 323, 343 (SD.NY., 2012) which held that: "A provision containing only broad language that does not unequivocally indicate that the parties intended to indemnify attorneys fees in law suits between themselves will ordinarily not support a claim for indemnity in suits between the parties." The court concluded its general observations by saying ... "where it is apparent that no third-party claims were contemplated at the time the contract was executed, then the agreement should be construed to provide indemnity for claims between the parties- otherwise the agreement would be superfluous.
A cursory reading of the certificate of satisfaction indicates the undersigned David Falcigno "will warrant and defend such interest, title and right such shares (being sold to the purchaser) and hold harmless and protect the purchaser (Stephen Falcigno) from and against any claim of any party with respect to such shares" obviously protection against third-party claims was contemplated.
If the foregoing is not completely convincing the observation of the Abakon case applying New York law settles the matter against this claim. At page 416 the court said: "if the indemnity provision is subject to a reasonable interpretation one way or another the agreement must be construed not to indemnify legal expenses in an action between parties to the contract."
Given the purpose of the American rule not to stifle the bringing of colorable claims, a very strict interpretation of the right to attorneys fees is required where a colorable claim is brought in the context of a suit by a minority shareholder against a majority shareholder who runs a company and thus has fiduciary obligations and will benefit at least sometime in the future from the contract between the parties when the company is eventually sold.
There was certainly a colorable claim here, the plaintiff’s action cannot be described as vexatious or brought for the purpose of harassment, the trial took days to finish, produced over 150 pages of post-trial briefs and an opinion by the court approaching 80 pages.
Attorneys fees for the defendant should be denied.
(1) The court enters judgment for the defendant on the Breach of Contract, Breach of Fiduciary Duties, Fraudulent Non-Disclosure, Fraudulent Misrepresentation and Negligent Misrepresentation claims made in the revised complaint.
(2) The court denies the defendant’s claim for reimbursement of attorneys fees as set forth in the counterclaim.