Opinion
FSTCV155014808S
09-19-2017
William Lomas v. Partner Wealth Management, LLC et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION ON MOTION TO STRIKE
Donna Nelson Heller, J.
The plaintiff William Lomas commenced this action, returnable June 29, 2015, against the defendant Partner Wealth Management, LLC (PWM) and his former colleagues, the defendants Kevin Burns (Mr. Burns), James Pratt-Heany (Mr. Pratt-Heany), and William Loftus (Mr. Loftus) (collectively, the defendants). In his seven-count amended complaint, filed December 15, 2015, the plaintiff seeks (i) to recover for the defendants' alleged breach of contract (first count), breach of fiduciary duty (second count), wilful and wanton misconduct (third count), and oppression (fourth count); (ii) an accounting of the books and records of PWM under common law (fifth count) and pursuant to General Statutes § 52-402 (sixth count); and (iii) a declaratory judgment that a certain amended agreement, as described more fully therein, is null and void as to the plaintiff, his withdrawal from PWM, and the defendants' financial obligations to him (seventh count) (#136.00).
On January 29, 2016, the defendants filed a motion to strike the second through sixth counts of the amended complaint, together with a supporting memorandum of law (#137.00; #138.00). The plaintiff filed a memorandum of law in opposition to the motion to strike on March 28, 2016 (#142.00). The defendants filed a reply memorandum on April 20, 2016 (#148.00).
The parties were before the court on the May 9, 2016 short calendar. The court heard argument from counsel and reserved decision at that time. By order entered on September 1, 2016, the court denied the motion to strike and stated that this memorandum of decision, further articulating its order, would follow (#137.01).
I
The plaintiff alleges the following in the amended complaint: the plaintiff, Mr. Burns, Mr. Pratt-Heany, and Mr. Loftus (collectively, the PWM members) formed PWM on November 24, 2009 as a limited liability company under the Connecticut Limited Liability Company Act. PWM is engaged in the businesses of wealth management, investment advisory services, and financial advisory services. PWM's principal place of business is in Westport, Connecticut. The plaintiff, Mr. Burns, Mr. Pratt-Heany, and Mr. Loftus were the members of PWM. Each member had equal voting power and owned 25 percent of PWM. The plaintiff was PWM's treasurer. Mr. Burns and Mr. Pratt-Heany served as co-presidents. Mr. Lotfus was the secretary.
On November 30, 2009, the PWM members entered into an Agreement of Limited Liability Company (the LLC agreement). The LLC agreement outlined, inter alia, the procedure to be followed if a member withdrew from PWM. The LLC agreement, which the plaintiff attached to the amended complaint, provided that " if any Member withdraws from [PWM] for any reason . . . [PWM] or the remaining Members shall be obligated to purchase from the Member, and the Member shall be obligated to sell to [PWM] or the remaining members, all of his Interests in [PWM] at the price established in accordance with the provisions of Section 8.7(b). The Company Value to be utilized to determine the purchase price for such Member's Interest shall be the Company Value as of December 31 of the year prior to the year in which withdrawal occurs. Each Member shall give at least three (3) months prior written notice of his desire to withdraw from [PWM]." The LLC agreement further detailed how to calculate the company value and provided the remaining members with an option to pay the purchasing price over a five-year period, with the withdrawing member receiving 6% interest.
On October 13, 2014, the plaintiff gave written notice of his withdrawal from PWM. His withdrawal became effective on January 14, 2015. The plaintiff alleges that his notice of withdrawal triggered his right to have his interest in PWM purchased by either PWM or the three remaining PWM members. The plaintiff alleges that, under the LLC agreement, the purchase price for his 25% interest in PWM was $4, 159, 791.25. Additionally, the plaintiff alleges that because the remaining PWM members did not pay the amount in full, the plaintiff is owed 6 percent interest on the balance due.
After the plaintiff initiated his withdrawal from PWM, the plaintiff alleges that the remaining PWM members--Mr. Burns, Mr. Pratt-Heaney, and Mr. Loftus--took steps to avoid their obligations to the plaintiff. The plaintiff alleges that, beginning on October 18, 2014, the remaining PWM members devised a strategy to pay the plaintiff less for his 25 percent interest in PWM than the amount to which he was entitled. In December 2014, the remaining PWM members adopted an amended LLC agreement, over the plaintiff's objection. The amended LLC agreement purported to retroactively change the calculation of the value of a PWM member's interest upon withdrawal. Under these new provisions, the remaining PWM members would purchase the plaintiff's interest in PWM at a lower price. To date, the plaintiff has not been compensated for his interest in PWM.
On these allegations, the plaintiff asserted claims against the remaining PWM members and PWM for breach of contract (first count), breach of fiduciary duty (second count), willful and wanton misconduct (third count), oppression (fourth count), a common-law accounting (fifth count), and a statutory accounting (sixth count).
II
" The purpose of a motion to strike is to contest . . . the legal sufficiency of the allegations of any complaint . . . to state a claim upon which relief can be granted." (Citation omitted; internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003). " It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted . . . The role of the trial court in ruling on a motion to strike is to examine the [complaint], construed in favor of the [plaintiff], to determine whether the [pleading party has] stated a legally sufficient cause of action." (Citation omitted; internal quotation marks omitted.) Coe v. Board of Education, 301 Conn. 112, 116-17, 19 A.3d 640 (2011). " A motion to strike attacks the legal sufficiency of the allegations in a pleading . . . In reviewing the sufficiency of the allegations in a complaint, courts are to assume the truth of the facts pleaded therein and to determine whether those facts establish a valid cause of action." (Citation omitted; internal quotation marks omitted.) Kortner v. Martise, 312 Conn. 1, 47-48, 91 A.3d 412 (2014). " In ruling on a motion to strike, the court is limited to the facts alleged in the complaint." (Citation omitted; internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997).
" A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged." (Citation omitted; internal quotation marks omitted.) Santorso v. Bristol Hospital, 308 Conn. 338, 349, 63 A.3d 940 (2013). " [I]f facts provable in the complaint would support a cause of action, the motion to strike must be denied . . ." (Citation omitted; internal quotation marks omitted.) Coppola Construction Co. v. Hoffman Enterprises Ltd. Partnership, 309 Conn. 342, 350, 71 A.3d 480 (2013).
A
The defendants have moved to strike the second count of the amended complaint--for breach of fiduciary duty--on the ground that members of a limited liability company do not owe a fiduciary duty to each other.
It is axiomatic that in order for there to be a breach of fiduciary duty, a fiduciary relationship must exist in the first instance. See Ahern v. Kappalumakkel, 97 Conn.App. 189, 194, 903 A.2d 266 (2006). Failure to allege or establish the existence of a fiduciary relationship implicates a plaintiff's standing to assert a breach of fiduciary duty claim. See Local 84 v. Francis, 138 Conn.App. 77, 87, 51 A.3d 401 (2012).
" [A] fiduciary or confidential relationship is characterized by a unique trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other . . . The superior position of the fiduciary or dominant party affords him great opportunity for abuse of the confidence reposed in him . . . We have not, however, defined that relationship in precise detail and in such a manner as to exclude new situations, choosing instead to leave the bars down for situations in which there is a justifiable trust confided on one side and a resulting superiority and influence on the other . . . [E]quity has carefully refrained from defining a fiduciary relationship in precise detail and in such a manner as to exclude new situations." (Internal quotation marks omitted.) Falls Church Group, Limited v. Tyler, Cooper & Alcorn, LLP, 281 Conn. 84, 109, 912 A.2d 1019 (2007).
Our courts have recognized that a fiduciary relationship may exist among members of a limited liability company. " Like a partner in a partnership, a member of a limited liability company has a fiduciary duty to the other members." (Internal quotation marks omitted.) Yavarone v. Jim Moroni's Oil Service, LLC, Superior Court, judicial district of Middlesex, Docket No. CV-03-0102318-S, (Feb. 18, 2005, Aurigemma, J.). Cf. AW Power Holdings, LLC v. FirstLight Waterbury Holdings, LLC, Superior Court, judicial district of Hartford, Docket No. CV-14-6047836-S (Feb. 17, 2015, Peck, J.) (58 Conn. L. Rptr. 889, ) (denying motion to strike claim for breach of fiduciary duty against sole owner of manager of limited liability company).
Viewing the allegations of the second count of the amended complaint in the light most favorable to sustaining its legal sufficiency, the court finds that the plaintiff has sufficiently alleged a claim for breach of fiduciary duty. The plaintiff initiated his withdrawal from PWM in October 2014. Days after the plaintiff announced his withdrawal, the three remaining PWM members began communicating about how to decrease the price of the plaintiff's shares. In view of his reduced role in PWM and his exclusion from these discussions, the plaintiff has sufficiently alleged that the defendants had superior knowledge as to the ongoing activities of PWM, thus meeting the standard for alleging a fiduciary duty, as set forth in Falls Church Group, Limited, supra, 281 Conn. at 108-09.
In addition to pleading that a fiduciary duty exists, the plaintiff must also sufficiently allege that the defendants breached their fiduciary duty to him. Determining whether, and under what circumstances, the members of a limited liability company owe a fiduciary duty to each other, is a fact-specific inquiry. See Ruotolo v. Ruotolo, Superior Court, judicial district of New Haven, Docket No. CV-09-5026804-S, (December 29, 2009, Jones, J.). In Ruotolo, the plaintiff's allegations for a breach of fiduciary duty arose from the defendants' deliberate actions to devalue the plaintiff's interest in the limited liability company. The court found that " [t]hough [the defendant's] actions harmed the limited liability company, he allegedly sought to and did harm the plaintiff individually by rendering worthless [the plaintiff's] interest in [the LLC]." Ruotolo v. Ruotolo, supra, Superior Court, Docket No. CV-09-5026804-S.
Considering the allegations of the revised complaint in a light most favorable to the plaintiff, the court finds that the plaintiff has sufficiently pleaded his claim that the defendants breached their fiduciary duty to him when they retroactively changed the LLC agreement to devalue his interest in PWM. Therefore, the motion to strike the second count of the amended complaint is denied.
B
The defendants have moved to strike the third count of the amended complaint--for willful and wanton misconduct--on the ground that amending the operating agreement of a limited liability company does not rise to the level of willful and wanton misconduct. " In order to award punitive or exemplary damages, evidence must reveal a reckless indifference to the rights of others or an intentional and wanton violation of those rights. In fact, the flavor of the basic requirement to justify an award of punitive damages is described in terms of wanton and malicious injury, evil motive and violence . . . It is clear that tort law has no exclusivity on punitive or exemplary damages. Surely, exemplary damages may be awarded for breach of contract, but only when the breach is aggravated by particularly egregious conduct on the part of the defendant." (Citation omitted; internal quotation marks omitted.) L.F. Pace & Sons, Inc. v. Travelers Indemnity Co., 9 Conn.App. 30, 47, 514 A.2d 766 (1986).
" Breach of contract founded on tortious conduct may allow the award of punitive damages. Such tortious conduct must be alleged in terms of wanton and malicious injury, evil motive and violence, for punitive damages may be awarded only for outrageous conduct, that is, for acts done with a bad motive or with a reckless indifference to the interests of others . . . Thus, there must be an underlying tort or tortious conduct alleged and proved to allow punitive damages to be granted on a claim for breach of contract, express or implied . . . To furnish a basis for recovery of [punitive] damages, the pleadings must allege and the evidence must show wanton or wilful malicious misconduct, and the language contained in the pleadings must be sufficiently explicit to inform the court and opposing counsel that such damages are being sought." (Citation omitted; internal quotation marks omitted.) Corbett v. Hartford Financial Services Group, Inc., Superior Court, judicial district of Hartford, Docket No. CV-11-6019434-S, (July 26, 2012, Berger, J.) (quoting Markey v. Santangelo, 195 Conn. 76, 77, 485 A.2d 1305 [1985]).
The plaintiff has alleged that defendants' actions were done with premeditation to deprive the plaintiff of his right to have his interest in PWM purchased at a certain value. Viewing the allegations of the third count of the amended complaint in a light most favorable to the plaintiff, the court finds that the plaintiff has sufficiently pleaded that the defendants' actions reveal their reckless indifference to his rights, or their intentional and wanton violation of those rights, so as to support a claim for punitive damages for a breach of contract based on tortious conduct. See L.F. Pace & Sons, Inc., supra, 9 Conn.App. at 47. Therefore, the motion to strike the third count of the amended complaint is denied.
C
The defendants have moved to strike the fourth count of the amended complaint, for oppression, on the ground that a singular breach of contract cannot rise to the level of illegal or fraudulent conduct necessary to support a claim for oppression of the plaintiff's rights under the LLC agreement.
" There is no appellate authority in Connecticut regarding shareholder oppression . . . In [ Stone v. R.E.A.L. Health, P.C., Superior Court, judicial district of New Haven, Docket No. CV-98-0414972 (November 15, 2000, Munro, J.)] [29 Conn. L. Rptr. 219, ], the court looked to the Model Business Corporation Act for guidance. If the court finds that the value of a corporation has been diminished by the wrongful conduct of controlling shareholders, it would be appropriate to include as an element of fair value the petitioner's proportional claim for any corporate injury. Oppressive conduct has been defined as that which defeats the reasonable expectations of a minority shareholder . . . Oppressive conduct is that which may be described as harsh and wrongful conduct, a lack of probity and fair dealing in the affairs of a company to the prejudice of some of its members, or a visible departure from the standards of fair dealing, and a violation of fair play on which every shareholder is entitled to rely." (Citation omitted; internal quotation marks omitted.) Johnson v. Johnson, Superior Court, judicial district of Tolland, Docket No. CV-99-0060602-S (August 15, 2001, Bishop, J.) [30 Conn. L. Rptr. 260, ].
" Minority shareholder oppression . . . is not synonymous with the statutory terms illegal or fraudulent. The term can contemplate a continuous course of conduct and includes a lack of probity in corporate affairs to the prejudice of some of its shareholders . . . Oppression has variously been described as burdensome, harsh and wrongful . . . and harsh and wrongful conduct, a lack of probity and fair dealing in the affairs of a company to the prejudice of some of, its members, or a visible departure from the standards of fair dealing, and a violation of fair play on which every shareholder . . . is entitled to rely." (Citations omitted; internal quotation marks omitted.) Stone v. R.E.A.L. Health P.C., Superior Court, judicial district of New Haven, Docket No. CV-98-414972, (November 15, 2000, Munro, J.).
The plaintiff alleges that he, as a member of PWM, had a reasonable expectation under the LLC agreement that, should he withdraw from PWM, the value of his interest would be determined based on the formula contained in the LLC agreement. The plaintiff further alleges that the three remaining PWM members, who together make up 75 percent of its membership, collaborated to retroactively change the LLC agreement so that they could repurchase the plaintiff's shares at a lower value, contrary to his reasonable expectation of how his interest in PWM would be valued. While the defendants argue that amending the LLC agreement was a single act, the court finds that the plaintiff has sufficiently alleged that the defendants' ongoing conduct in devising a strategy to devalue the plaintiff's interest was a course of conduct, rather than an individual act.
Viewing the allegations set forth in the fourth count of the amended complaint in the light most favorable to the plaintiff, the court finds that the plaintiff has sufficiently pleaded a claim for oppression. Therefore, the motion to strike the fourth count of the amended complaint is denied.
D
The defendants have moved to strike the fifth and sixth counts of the amended complaint, in which the plaintiff seeks an accounting under common law and pursuant to General Statutes § 52-402, respectively, on the ground that an accounting is a remedy and not a cause of action. " To support an action of accounting, one of several conditions must exist. There must be a fiduciary relationship, or the existence of a mutual and/or complicated accounts, or a need of discovery, or some other special ground of equitable jurisdiction such as fraud . . . The right to compel an account in equity exists not only in the case of those relationships which are traditionally regarded as those of trust and confidence, but also in those informal relations which exist whenever one person trusts in, and relies upon, another. The relationship between . . . parties to a business agreement . . . [has] . . . been deemed to involve such confidence and trust so as to entitle one of the parties to an accounting [in equity] . . ." (Internal quotation marks omitted.) Mankert v. Elmatco Products, Inc., 84 Conn.App. 456, 460-61, 854 A.2d 766, cert. denied, 271 Conn. 925, 859 A.2d 580 (2004).
There is a split of authority in the Superior Court as to whether a claim for an accounting is a remedy or a cause of action. Compare Aw Power Holdings, LLC v. Firstlight Waterbury Holdings, LLC, supra, Superior Court, Docket No. CV- 14-6047836-S (58 Conn. L. Rptr. 889, ) with Huber v. Bakewell, Superior Court, judicial district of Danbury, Docket No. CV-14-6015023-S (Jan. 13, 2016, Truglia, J.) (61 Conn. L. Rptr. 640, ) and AHP Holdings, LLC v. New Meadows Realty Co., LLC, Superior Court, judicial district of New Haven, Docket No. NNH-CV-12-6031174-S (April 22, 2013, Zemetis, J.) (56 Conn. L. Rptr. 117, ).
This court finds the analysis in Huber and AHP Holdings to be instructive. In Huber, the court concluded that " the weight of authority on this issue . . . indicates that an action for accounting may be plead as a cause of action, and not simply as a remedy." Huber v. Bakewell, supra, Superior Court, Docket No. CV-14-6015023-S (61 Conn. L. Rptr. 640, ). The court held that " [a]n action for an accounting may be brought where it is alleged that a person standing in a confidential and/or fiduciary relationship has breached his or her duty of trust. A plaintiff is not required to plead a separate cause of action to which the remedy of an accounting may attach." Id. In AHP Holdings, the court found that " [t]he plaintiff has, therefore, alleged that a fiduciary relationship exists between itself and the defendants, which is sufficient to support an action for an accounting." AHP Holdings, LLC v. New Meadows Realty Co., LLC, supra, Superior Court, Docket No. NNH-CV-12-6031174-S (56 Conn. L. Rptr. 117, ). The plaintiff has sufficiently pleaded a claim for an accounting in the fifth and sixth counts of the amended complaint. Therefore, the motion to strike the fifth and sixth counts of the amended complaint is denied.
III
For the reasons set forth above, the defendants' motion to strike the second, third, fourth, fifth, and sixth counts of the amended complaint (#137.00) is DENIED.