Opinion
No. X06-CV03-01834 85 S
June 28, 2004
MEMORANDUM OF DECISION
The defendants Alexander K. Chickosky and Maurine D. Chickosky, who are officers and members of the plaintiff Enfield Shade Tobacco, LLC ("Enfield Shade Tobacco"), have moved to dismiss the derivative claims brought by the individual plaintiff Brian F. Kogut on behalf of Enfield Shade Tobacco against the defendants on the grounds that Kogut lacks standing to do so because he does not fairly and adequately represent the interests of Enfield Shade Tobacco.
Enfield Shade Tobacco is a limited liability corporation with only three members: Kogut, who holds a 50% membership interest and Alexander K. Chickosky and Maurine D. Chickosky, who each hold a 25% membership interest. In the amended complaint Kogut asserts, on behalf of Enfield Shade Tobacco, claims of breach of fiduciary duties, theft, and breach of the Connecticut Unfair Trade Practices Act. Kogut also seek a dissolution of the limited liability corporation pursuant to General Statutes § 34-207 et seq. Kogut alleges that the defendants in their capacities as members and officers of Enfield Shade Tobacco engaged in numerous illegal and inappropriate actions, including paying Alexander K. Chickosky an excessive salary; usurping a corporate opportunity regarding the leasing of certain property with an option to buy; and entering into agreements costing in excess of five thousand dollars without Kogut's consent in violation of the corporation's operating agreement. Kogut has also asserted that the defendants improperly failed and refused to pay rent owed by Enfield Shade Tobacco to F.R.W. Maintenance, Inc. ("FRW") and Kogut Florist and Nurseryman, Inc. ("KFN") and improperly retained a law firm to defend litigation brought by FRW and KFN against Enfield Shade Tobacco.
In addition to the derivative claims that Kogut is making on behalf of Enfield Shade Tobacco, Kogut also asserts in the amended complaint various individual claims against the defendants. The defendants have not moved to dismiss any of Kogut's individual claims.
The defendants assert that Kogut does not fairly and adequately represent the interests of Enfield Shade Tobacco because he has personal interests in this litigation which stand in irreconcilable conflict with his role in representing the interests of the members of the limited liability corporation. Specifically, the defendants contend that, since Kogut is an officer of KFN and the property manager of FRW and there is ongoing litigation between Enfield Shade Tobacco and KFN and FRW, Kogut's personal interest in seeing that KFN and FRW prevail in that litigation will impermissibly conflict with his representation of Enfield Shade Tobacco's interests in this litigation.
In support of their contention that Kogut cannot fairly and adequately represent the interests of the other members of Enfield Shade Tobacco, the defendants point to the decision in Barrett v. Southern Connecticut Gas Co., 172 Conn. 362 (1977). In Barrett, the plaintiff brought a shareholder derivative suit against the corporate defendant and individual defendant officers of the corporation seeking damages for alleged waste of corporate assets in pursuing a corporate merger. Our Supreme Court noted that in a shareholder derivative suit, the plaintiff sues, not for himself alone, but as representative of a class comprising all who are similarly situated and must fairly and adequately represent the interests of the shareholders or members similarly situated in enforcing the right of the corporation or association. Id., 372-73. The Court found that the plaintiff in Barrett had an irreconcilable conflict of interest which prevented him from fairly and adequately representing other similarly situated shareholders because he was the plaintiff in a pending lawsuit against the defendant corporation for damages for himself for the benefits he claims he conferred on the defendant corporation by preventing the merger. The conflict existed because the damages that the plaintiff was seeking for himself would adversely affect the equity interest of the very shareholders that he sought to represent. Id., 374-75.
The Court's ruling in Barrett is not dispositive of the issue of Kogut's standing to bring a derivative action in this case. Unlike the situation in Barrett, Kogut's personal interest in the litigation involving KFN and FRW does not conflict with the interests of other similarly situated members as there are no other similarly situated members of Enfield Shade Tobacco. The only other two members of the limited liability corporation are the two defendants, Alexander K. Chickosky and Maurine D. Chickosky.
In an analogous situation, our Supreme Court ruled that a plaintiff shareholder in a closely held corporation consisting of only two shareholders was not prevented from bringing a derivative action by an objection from the wrongdoing shareholder that the plaintiff was not a fair and adequate representative of the corporation. Fink v. Golenbock, 238 Conn. 183, 206-07 (1996). The Court determined that "[T]he derivative action is appropriate, not because the plaintiff is representative of the opposing shareholders, but because the corporation has interests that need to be represented, and the plaintiff shareholder may be the only representative in a position to protect those interests." Id., 207.
The Court in Fink also stated that the determination of whether a nominal plaintiff could serve as a fair and adequate representative of a corporation is fact specific and it recognized eight factors that a court should consider in making that determination. Those factors are: "(1) whether the named plaintiff is the real party in interest; (2) the plaintiff's familiarity with the litigation and willingness to learn about the suit; (3) the degree of control exercised by attorneys over the litigation; (4) the degree of support given to the plaintiff by the other shareholders; (5) the plaintiff's personal commitment to the action; (6) the remedies sought by the plaintiff; (7) the relative magnitude of the plaintiff's personal interests as compared to the plaintiff's interest in the derivative action itself; and (8) the plaintiff's vindictiveness toward the other shareholders." Id., 205. The court noted that these factors are nonexclusive and interrelated and that not all factors will come into play in all cases. Id., 205-06. "The key is whether the nominal plaintiff's interests and issues are coextensive with those of the class of shareholders he seeks to represent and whether he is able to assure the trial court that as a representative, he will put up a real fight." (Citations and internal quotation marks omitted.) Id., 206.
Given Kogut's substantial involvement as a fifty-percent member of the limited liability corporation and his role as vice president, it is manifest that he is familiar with the subject of the litigation and committed to aggressively asserting the interests of the corporation. Kogut's personal interest in the litigation involving KFN and FRW also appears to be relatively small compared to his interest in this action given his appreciable share and his director role in Enfield Shade Tobacco. Finally, there is no evidence of any personal animosity between the plaintiff and the defendants beyond that which may spring directly from the alleged actions in dispute here. Under the facts of this case, and in light of the plaintiff's special status as the only member of the limited liability corporation not accused of wrongdoing, Kogut has established that he will fairly and adequately represent and vigorously pursue the interests of the corporation in this litigation.
The plaintiff has the burden of establishing that he has standing to assert derivative claims on behalf of the limited liability corporation. Fink v. Golenbock, 238 Conn. 183, 199 (1996).
In light of the above, the defendants' motion to dismiss the derivative claims of the plaintiff is hereby denied.
BY THE COURT
Jon M. Alander Judge of the Superior Court CT Page 9573