Opinion
No. X02 CV-03-4004679 S
April 26, 2007
MEMORANDUM OF DECISION RE DEFENDANTS' MOTION TO STRIKE
I. BACKGROUND
Plaintiffs are limited partners of a Delaware limited partnership, Founders Financial Group, L.P. (hereinafter referred to as "Founders"). The complaint asserts both derivative and individual claims against the Chief Executive Officer of Founders, entities that controlled Founders, and a member of the Executive Committee of Founders, who are alleged to have sold the two Delaware limited liability companies, through which Founders transacted its businesses, at substantially below their fair market value and under terms which benefitted them. The Complaint alleges that one subsidiary, Forum Capital Markets LLC (hereinafter referred to as "Forum"), was sold for approximately $27 million, which was at least $13 million below its fair market value and that $13 million was paid to insiders, in the form of "retention payments," including the defendant Harold L. Purkey, who negotiated the transaction. The Complaint also alleges that the other subsidiary, Forest Investment Management LLC (hereinafter referred to as "Forest"), was sold to insiders, including the Chief Executive Officer of Founders, defendant Michael A. Boyd, for $20 million, which was at least $13 million less than its fair market value.
The Complaint further alleges derivative damages as to the limited partners of Founders. Individual damages are alleged by the plaintiffs, in that, unlike almost all of the other limited partners of Founders, plaintiffs benefitted neither from participation in the "retention payments" in connection with the sale of Forum nor were they permitted to participate in the purchase of Forest at $13 million less than its fair market value.
The Complaint asserts seventeen counts, twelve of which are for breach of fiduciary duty. Defendants have moved to strike all counts that allege a reckless, intentional or wanton breach of fiduciary duty, intentional conspiracy to commit breach of fiduciary duty, and intentional aiding and abetting breach of fiduciary duty. Defendants have also moved to strike all claims for punitive damages as they relate to the counts for reckless, intentional or wanton breach of fiduciary duty as mentioned above. The parties argued the Motion to Strike before the Court on April 19, 2007, at which time the Court reserved decision.
II. LAW
In deciding a motion to strike, the court must read the allegations in the contested pleading in the light most favorable to the pleader. Faulkner v. United Technologies Corp, 240 Conn. 576, 580, 693 A.2d 293 (1997). The purpose of a motion to strike is to contest the legal sufficiency of the allegations in the complaint and to challenge whether they state a claim upon which relief can be granted. Peter-Michael, Inc. v. Sea Shell Associates, 244 Conn. 269, 270, 709 A.2d 558 (1998).
The question before this Court is whether punitive damages can be recovered when a plaintiff proves a reckless, intentional or wanton breach of fiduciary duty? All counts at issue rest on that question. Defendants claim that there is not a Connecticut case which specifically authorizes such an action. They further cite cases which state that proof of a breach of fiduciary duty necessarily requires more than a merely negligent intent. See ST. Denis v. De Toledo, Superior Court, judicial district of Stamford-Norwalk at Stamford. Docket No. CV00 0180606 (April 5, 2002, Downey, J.), and Memoli v. Galpin, Superior Court, judicial district of Litchfield at Litchfield. Docket No. CV04 4001269 (June 30, 2006, Pickard, J.).
Plaintiffs claim that the breach of a fiduciary duty is a tort claim. Ahern v. Kappalumakkel, 97 Conn.App. 189, 192 n. 3, 903 A.2d 266 (2006). Therefore, they argue, the traditional common law tort rule of awarding punitive damages for reckless or intentional conduct should apply.
The closest Connecticut case on point appears to be Dunn v. Peter L. Leepson, P.C., 79 Conn.App. 366, 371, 830 A.2d 325 (2003). In Dunn the trial court ruled in favor of the plaintiffs on the count in the complaint alleging a breach of fiduciary duty on the part of the defendant lawyer. The court ruled in favor of the defendant, however, on all other counts and did not award punitive damages because the court did not find recklessness in the defendant's actions. The plaintiffs appealed to the Appellate Court claiming, inter alia, that the court improperly failed to award them punitive damages. They argued that punitive damages may be awarded in an action for deceit, which they asserted was the essence of the breach of fiduciary duty claim on which they had prevailed.
The Dunn Court denied the claim on factual grounds. However, it did not categorically reject the claim. The Court opined:
As a general matter, punitive damages, applying the rule in this state as to torts, are awarded when the evidence shows a reckless indifference to the rights of others or an intentional and wanton violation of those rights . . . Whether the defendant acted recklessly is a question of fact subject to the clearly erroneous standard of review.
Id. at 371.
The court then analyzed the evidence and observed that the trial court had specifically found that there was no evidence that the defendant's conduct was reckless. That finding, upon a review of the record, the court found was not clearly erroneous, therefore, there was no error on that issue.
Defendants argue that the Dunn court used language which had been quoted from Luciani v. Stop Shop Cos., 15 Conn.App. 407, 413, 544 A.2d 1238, cert. Denied, 209 Conn. 809, 548 A.2d 437 (1988), which was a conversion case. Conversion, they argue, is one of the class of cases which typically would allow punitive damages under common law. Indeed, they argue, all cases that can be found on this subject, in Connecticut, have some statutory basis or common law precedent for punitive damages.
It is noteworthy to the court, however, that the Dunn court did not reject the plaintiff's claims as a matter of law. It performed a factual-based analysis in order to determine the correctness of the trial court's decision. Plaintiff's arguments are supported by the case law of several other jurisdictions. See In re Estate of Hoellen, 367 Ill.App.3d 240, 854 N.E.2d 774 (2006); Sherry Associates v. Sherry-Netherland, Inc., 273 A.D.2d 14, 708 N.Y.S.2d 105 (N.Y.App.Div. 1st Dep't 2000); Jonas v. Jonas, 280 Ga.App. 155, 633 S.E.2d 544 (2006).
In Connecticut, the law appears to be clear that in the absence of some underlying statutory basis or intentional conduct, a finding that the defendant breached a fiduciary duty does not necessarily mean that the plaintiff is entitled to punitive damages. Fenn v. Yale University, United Stated District Court, Docket No. Civ.A. 396CV(CFD), Civ.A. 396CV990(CFD), Civ.A. 396CV1647(CFD), (D.Conn. February 8, 2005). Although the court notes that there may be a suggestion in Mangiante v. Niemiec, 98 Conn.App. 567, 571-72, 910 A.2d 235 (2006), that the breach of the fiduciary relationship could form the basis for an award of attorneys fees in order to make the plaintiff whole, the award in Mangiante was based upon a breach of fiduciary duty under the Uniform Transfers to Minors Act. Defendants have not conceded that a claim for punitive damages should be allowed in the complaint for the breach of fiduciary duty counts which do not allege intentional conduct. Thus, defendants' claims that the subject counts are merely duplicative of the breach of fiduciary duty counts are not persuasive.
Defendants' claims relating to both the civil conspiracy claim for damages and the aiding and abetting claim are based upon the predicate argument that the reckless, intentional or wanton allegations are not recognized in Connecticut for a breach of fiduciary duty. The Court disagrees. The Motion to Strike is denied.
III. CONCLUSION
For the foregoing reasons, the defendants' Motion to Strike is denied in its' entirety.