Opinion
No. CV 09 502 6804
December 29, 2009
MEMORANDUM OF DECISION RE MOTION TO STRIKE
Allegations in the Complaint
On February 13, 2009, the plaintiff, Rene Ruotolo, individually and derivatively on behalf of Ruotolo Heating and Plumbing, LLC, and Ruotolo Realty, LLC, filed a nineteen-count complaint in this action against defendants Ronald Ruotolo and Ruotolo Mechanical, Inc. Seven of those counts are at issue in this motion to strike.
In count one, the plaintiff individually alleges a breach of contract by Ronald Ruotolo. In count two, the plaintiff individually alleges fraud by Ronald Ruotolo. In count five, the plaintiff individually alleges a breach of the implied covenant of good faith and fair dealing by Ronald Ruotolo. In count eight, the plaintiff individually alleges a breach of fiduciary duty by Ronald Ruotolo. In count eleven, the plaintiff derivatively on behalf of Ruotolo Plumbing and Heating, LLC, and Ruotolo Realty, LLC, alleges a violation of General Statutes § 34-141(e) and seeks a trust on the corporate funds and assets that have been misappropriated by Ronald Ruotolo and Ruotolo Mechanical, Inc. In count twelve, the plaintiff derivatively on behalf of Ruotolo Plumbing and Heating, LLC, and Ruotolo Realty, LLC, alleges fraud by Ronald Ruotolo. In count eighteen, the plaintiff derivatively on behalf of Ruotolo Plumbing and Heating, LLC, and Ruotolo Realty, LLC, alleges a breach of fiduciary duty by Ronald Ruotolo.
The plaintiff alleges, inter alia, the following facts in support of the above counts. On December 27, 1995, the plaintiff and Ronald Ruotolo formed Ruotolo Plumbing and Heating, LLC (Plumbing), located at 29 Printers Lane in New Haven and owned in equal shares by the plaintiff as member and Ronald Ruotolo as managing member. On December 11, 1996, the plaintiff and Ronald Ruotolo formed Ruotolo Realty, LLC (Realty), located at 29 Printers Lane in New Haven and owned in equal shares by the plaintiff as member and Ronald Ruotolo as managing member. As the owner of the property located at 29 Printers Lane in New Haven, Realty rented the property to Plumbing, and later to the defendant corporation, Ruotolo Mechanical, Inc. Upon the formation of both Plumbing and Realty, the plaintiff and Ronald Ruotolo agreed to share equally ownership of all assets and income derived from all services provided by each business. From their formations until December 29, 2006, both limited liability companies earned substantial income.
The plaintiff also alleges that on December 29, 2006, while Ronald Ruotolo was considering whether to divorce her, he formed defendant corporation Ruotolo Mechanical, Inc. (Mechanical), without informing her. Mechanical thereafter began operations at 29 Printers Lane, taking sole possession of the property without the permission of Plumbing, and took possession of and converted for its use all furniture, fixtures, machinery, equipment vehicles, tools, supplies, inventory, contracts and deposits owned by Plumbing. In addition, she alleges that the defendants diverted, collected and converted the payment of Plumbing's accounts receivable, and took all of Plumbing's records, including, inter alia, customer lists, mail, accounts receivable, accounts payable, and all records relating thereto.
The plaintiff further alleges that Ronald Ruotolo has since prevented her from entering the premises at 29 Printers Lane, and has ousted Plumbing from the premises. As a result of the above actions, it is alleged that Plumbing's customers believe that Mechanical is in fact the same business as Plumbing, instead operating under the name Ruotolo Mechanical, Inc. All of these actions were taken without the permission of or compensation to Plumbing. Additionally, the plaintiff alleges that Ronald Ruotolo reduced the rent paid to Realty for the premises at 29 Printers Lane, without her or Realty's knowledge or consent.
The defendants have filed a motion to strike counts one, two, three, four, five, six, eight, eleven, twelve, fifteen, and eighteen on the ground that these counts are legally insufficient. Furthermore, the defendants challenge counts two, three, four, six, seven, nine and nineteen because the plaintiff in her individual capacity does not have standing to bring these claims. The defendants have submitted a memorandum of law in support of the motion.
On September 11, 2009, the plaintiff filed a memorandum of law in opposition, in which she acknowledged that she had not properly stated claims in counts three, four, six, seven, nine and fifteen. The motion was heard at the short calendar on September 21, 2009, where the parties argued the counts still at issue. At oral argument on September 21, 2009, the plaintiff acknowledged that her individual claim in count nineteen can be stricken, but both parties agreed that the claim in count nineteen by the plaintiff derivatively on behalf of Plumbing and Realty may stand. Consequently, the only counts at issue on this motion to strike are counts one, two, five, eight, eleven, twelve and eighteen on the ground that they are legally insufficient, and further as to count two, on the ground that the plaintiff in her individual capacity does not have standing to bring such a claim.
Standard for Motion to Strike
While construed so as to admit all facts well pleaded in the complaint, a Motion to Strike challenges the legal sufficiency of the allegations of any complaint, counterclaim or cross claim, or of any one or more counts thereof, to state a claim upon which relief can be granted. See Practice Book § 10-39(a). See also RK Constructors, Inc. v. Fusco Corp., 231 Conn. 381, 383 n. 2, 650 A.2d 153 (1994). Accordingly, the court must "construe the complaint in the manner most favorable to sustaining its legal sufficiency . . . [I]f facts provable in the complaint would support a cause of action, the motion to strike must be denied." (Internal quotation marks omitted.) American Progressive Life Health Ins. Co. of New York v. Better Benefits, LLC, 292 Conn. 111, 120, 971 A.2d 17 (2009).
Analysis I. Count One
In their memorandum of law in support of the motion to strike, the defendants argue that the plaintiff in her complaint fails to allege the existence of a contract between herself and Ronald Ruotolo, and so there is no allegation sufficient to support the claim for breach of contract in count one. Additionally, they argue that the plaintiff's claim for punitive damages must be stricken as punitive damages are generally not recoverable in a breach of contract action, and the plaintiff fails to plead necessary facts to justify an award of punitive damages.
The plaintiff counters by arguing that paragraphs seven and eight of the complaint allege a contract between her and Ronald Ruotolo, thereby satisfying the requirements for both counts one and five, and that paragraph twenty-seven of the complaint alleges acts done with a bad motive sufficient to support an awarding of punitive damages.
A claim in breach of contract consists of certain elements. "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." (Internal quotation marks omitted.) Chiulli v. Zola, CT Page 2124 97 Conn.App. 699, 706-07, 905 A.2d 1236 (2006).
In her complaint, the plaintiff alleges in paragraphs seven and eight that upon the formation of both Plumbing and Realty, she and Ronald Ruotolo "agreed to share equally, ownership of all assets and income derived from all services provided by [each limited liability company]." The plaintiff further alleges in paragraphs seventeen and eighteen that upon the formation of Mechanical, the defendants "diverted, collected, and converted payment of [Plumbing's] accounts receivable . . . without compensating or obtaining the consent of [Plumbing]" and took possession and converted for their use "substantially all the furniture, fixtures, machinery, equipment, vehicles, tools, supplies, inventory, contracts and deposits . . . without compensating [Plumbing] or obtaining the consent of [Plumbing]." As a result of these actions, the plaintiff alleges in paragraphs twenty-five and twenty-six that she "lost income representing one half of all net earnings obtained by [Mechanical] since it was formed" and that she additionally "suffered damages from diminution in value of her fifty percent interest in [Plumbing]."
In the present case, the plaintiff alleges a specific contractual obligation; namely, that she and Ronald Ruotolo agreed to share equally in the ownership of all assets and income derived from all services provided by Plumbing and Realty, and that Ronald Ruotolo failed to meet that obligation when he converted and diverted the property and accounts of Plumbing to Mechanical. See Commissioner of Labor v. C.J. M. Services, Inc., supra, 268 Conn. 293. Thus, construing the facts broadly and in the light most favorable to sustaining their legal sufficiency, the court finds that the plaintiff has pleaded a legally sufficient cause of action for breach of contract in count one.
Having established that the plaintiff has properly pleaded a claim for breach of contract, it is necessary to determine whether punitive damages are recoverable in this action. "Punitive damages are not ordinarily recoverable for breach of contract . . . This is so because . . . punitive or exemplary damages are assessed by way of punishment, and the motivating basis does not usually arise as a result of the ordinary private contract relationship. The few classes of cases in which such damages have been allowed contain elements which bring them within the field of tort. It is, of course, settled law that, in certain cases of tort, punitive or exemplary damages may properly be awarded . . . 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. Elements of tort such as wanton or malicious injury or reckless indifference to the interests of others giving a tortious overtone to a breach of contract action justify an award of punitive or exemplary damages. In our jurisdiction such recovery is limited to an amount which will serve to compensate the plaintiff to the extent of his expenses of litigation less taxable costs." (Citations omitted; internal quotation marks omitted.) L.F. Pace Sons, Inc. v. Travelers Indemnity Co., 9 Conn.App. 30, 47-48, 514 A.2d 766, cert. denied, 201 Conn. 811, 516 A.2d 886 (1986).
In L.F. Pace Sons, the court reasoned that the plaintiff's complaint sufficiently pleaded tortious conduct because it alleged that "the defendant acted outrageously and maliciously toward the plaintiff with wilful disregard for plaintiff's rights under the terms of its implied agreement with the plaintiff, and with the intention of causing it severe economic and financial loss." Id., 49. Here, the defendant alleges that Ronald Ruotolo's actions "were done with premeditation, willfully and by design in order to fraudulently deprive the [limited liability company] and [Rene Ruotolo]" and that Ronald Ruotolo "devised a fraudulent scheme to cheat the plaintiff out of her 50% share of the [limited liability company] and all income derived therefrom." As in L.F. Pace Sons, the plaintiff alleges that the defendant acted maliciously toward the plaintiff with the intention of causing her severe economic loss.
Thus, the court finds that the plaintiff has sufficiently pleaded an action for breach of contract with a tortious overtone sufficient to assert a claim for an award of punitive damages.
Accordingly, the court finds that the motion to strike count one should be denied.
II Counts Two and Twelve
As to count two, the defendants argue that the plaintiff "does not have standing to bring a claim in her individual capacity to recover for an [alleged] injury the basis of which is a wrong to the limited liability company." As to count twelve and in the alternative as to count two, the defendants argue that even if the plaintiff does have standing to bring such a claim, she fails to allege any of the requisite elements of fraud. The plaintiff responds by arguing that she has properly alleged a claim for constructive fraud.
As stated by our Supreme Court "[g]enerally, individual stockholders cannot sue the officers at law for damages on the theory that they are entitled to damages because mismanagement has rendered their stock of less value, since the injury is generally not to the shareholder individually, but to the corporation — to the shareholders collectively." Yanow v. Teal Industries, Inc., 178 Conn. 262, 281, 422 A.2d 311 (1979). However, "where a sole minority stockholder . . . is the victim of a fraud perpetrated by the sole controlling stockholder . . . the injury, and the action for redress, cannot be said to belong merely to the corporation. If the controlling majority stockholder seeks to injure the minority stockholder through the means of looting the corporation or so wrecking it that the minority stockholder would get nothing out of his assets, the claim resulting therefrom is sufficient to constitute an individual action." Id., 282 n. 9.
In the present case, the plaintiff alleges that she is the victim of a fraud perpetrated by the sole managing member of the limited liability company, Ronald Ruotolo, who allegedly sought to injure the sole noncontrolling member by converting all of the limited liability company's assets and accounts to Mechanical, similar to the looting illustration given in Yanow v. Teal Industries, Inc., supra, 178 Conn. 262. Though Ronald Ruotolo's actions harmed the limited liability company, he allegedly sought to and did harm the plaintiff individually by rendering worthless her interest in Plumbing.
Accordingly, the court finds that the plaintiff has standing to bring a suit for fraud in an individual capacity. Therefore, the motion to dismiss count two should be denied.
Because the plaintiff has standing to bring a claim for fraud against Ronald Ruotolo in count two, and because she has also claimed fraud derivatively on behalf of Plumbing and Realty in count twelve, there remains the issue of whether she has sufficiently pleaded those counts. "The elements of a fraud action are: (1) a false representation was made as a statement of fact; (2) the statement was untrue and known to be so by its maker; (3) the statement was made with the intent of inducing reliance thereon; and (4) the other party relied on the statement to his detriment." Mitchell v. Mitchell, 31 Conn.App. 331, 336, 625 A.2d 828 (1993). However, "[t]he burden of proof and the elements necessary in an action for constructive fraud differ markedly from the prerequisites to liability for actual fraud. The breach of a confidential or special relationship forms the basis for liability under the doctrine of constructive fraud. The plaintiff must establish the existence of a confidential or special relationship . . . Once such a relationship is found to exist, the burden shifts to the fiduciary to prove fair dealing by clear and convincing evidence." (Citations omitted.) Id., 334-35. "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." Dunham v. Dunham, 204 Conn. 303, 322, 528 A.2d 1123 (1987). "[L]ike a partner in a partnership, a member of a limited liability company has a fiduciary duty to the other members." Yavarone v. Jim Moroni's Oil Service, LLC, Superior Court, judicial district of Middlesex, Docket No. CV 03 0102318 (February 18, 2005, Aurigemma, J.).
As the managing member of both limited liability companies, Ronald Ruotolo had a special relationship with the plaintiff, owing a fiduciary duty to the plaintiff as a fellow member and to the limited liability companies as a whole. That relationship is compounded by the fact that Ronald Ruotolo was married to the plaintiff during the period in which the alleged fraud took place. Because a confidential or special relationship exists between the parties, the plaintiff has sufficiently pleaded claims for constructive fraud by Ronald Ruotolo against the plaintiff individually and against Plumbing and Realty.
Accordingly, the court finds that the motion to strike counts two and twelve should be denied.
III. Count Five
With regard to count five, the defendants argue that the plaintiff's claim for a breach of the implied covenant of good faith and fair dealing is insufficient because the plaintiff fails to allege a contract, and such a breach requires a contract upon which the covenant can be based. The plaintiff counters that she has properly alleged a breach of contract and thus has properly pleaded a breach of the implied covenant of good faith and fair dealing.
"[I]t is axiomatic that the . . . duty of good faith and fair dealing is a covenant implied into a contract or a contractual relationship . . . In other words, every contract carries an implied duty requiring that neither party do anything that will injure the right of the other to receive the benefits of the agreement . . . The covenant of good faith and fair dealing presupposes that the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party's discretionary application or interpretation of a contract term . . . To constitute a breach of [the implied covenant of good faith and fair dealing], the acts by which a defendant allegedly impedes the plaintiff's right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith . . . Bad faith has been defined in our jurisprudence in various ways. Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive . . . Bad faith means more than mere negligence; it involves a dishonest purpose . . . [B]ad faith may be overt or may consist of inaction, and it may include evasion of the spirit of the bargain . . ." (Citations omitted; internal quotation marks omitted.) Keller v. Beckenstein, 117 Conn.App. 550, 563-64, 979 A.2d 1055 (2009).
As discussed above, the plaintiff has properly pleaded a breach of contract in count one. Furthermore, the complaint alleges that Ronald Ruotolo's actions "were done with premeditation, willfully and by design in order to fraudulently deprive the [limited liability company] and [Rene Ruotolo] . . ." These facts, if believed, would support a finding of bad faith.
The court finds that the plaintiff has sufficiently pleaded a breach of the implied covenant of good faith and fair dealing. Accordingly, the motion to strike count five should be denied.
IV Counts Eight and Eighteen
As to count eight, the defendants argue that the plaintiff fails to allege that Mechanical owed a fiduciary duty to Plumbing, Realty or any of their members. In her memorandum in opposition, the plaintiff concedes that she has failed to allege properly a cause of action against Mechanical. The plaintiff also alleges in count eight a breach of fiduciary duty by Ronald Ruotolo against the plaintiff individually. The defendants fail to address this claim in their motion to strike. "Practice Book § 10-41 requires that a motion to strike raising a claim of insufficiency shall separately set forth each such claim of insufficiency and shall distinctly specify the reason or reasons for each such claimed insufficiency. Motions to strike that do not specify the grounds of insufficiency are fatally defective and, absent a waiver by the party opposing the motion, should not be granted." (Internal quotation marks omitted.) Stuart v. Freiberg, 102 Conn.App. 857, 861, 927 A.2d 343 (2007).
Accordingly, the court finds that the motion to strike count eight should be granted as to the allegations set forth against Ruotolo Mechanical, Inc., but denied as to the remaining allegations against Ronald Ruotolo.
A similar situation arises in count eighteen. The defendants argue that this count should be stricken because the plaintiff fails to allege that Mechanical owed a fiduciary duty to Plumbing, Realty or any of their members. In her memorandum, the plaintiff concedes that she has failed to allege a proper cause of action against Mechanical. Nonetheless, as in count eight, the plaintiff also alleges a breach of fiduciary duty by Ronald Ruotolo against Plumbing and Realty. The defendants again fail to address this claim in their motion to strike.
Thus, as in count eight, the court finds that the motion to strike as to count eighteen should be granted as to the allegations set forth against Ruotolo Mechanical, Inc., but denied as to the allegations relating to Ronald Ruotolo.
V. Count Eleven
With regard to count eleven, the defendants argue that the plaintiff's claim for equitable relief under General Statutes § 34-141(e) is legally insufficient because the statutory authority relied upon by the plaintiff in that count does not provide the relief the plaintiff is seeking. The plaintiff responds by arguing that the statute applies to Plumbing and Realty, but she does not address the question of whether § 34-141(e) provides for the imposition of a trust.
Section 34-141 provides in relevant part, "(e) Unless otherwise provided in writing in the articles of organization or the operating agreement, every member and manager must account to the limited liability company and hold as trustee for it any profit or benefit derived by that person, without the consent of more than one-half by number of the disinterested managers or the majority in interest of the disinterested members, from (1) any transaction connected with the conduct or winding up of the limited liability company or (2) any use by the member or manager of its property, including, but not limited to, confidential or proprietary information of the limited liability company or other matters entrusted to the person as a result of his status as a member or manager." The statute requires that every member and manager of a limited liability company must hold as trustee for it any profit derived by that person, but does not empower the court to impose a trust against a member or manager for violating the statute. Thus, § 34-141(e) establishes the statutory fiduciary duties of members in a limited liability company, but does not in itself provide for the imposition of a trust.
A number of trial court decisions have cited § 34-141 to evaluate claims that a party breached a fiduciary duty. See Fine v. Bork, Superior Court, judicial district of Hartford, Docket No. CV 0585665 (December 6, 1999, Booth, J.); Venditti v. Giansiracusa, Superior Court, judicial district of Hartford, Docket No. CV 03 0825283 (November 6, 2003, Rittenband, J.T.R.) [ 35 Conn. L. Rptr. 741]; Savanna Investors, LLC v. Vaughn, Superior Court, complex litigation docket at Stamford, Docket No. X08 CV 08 401296 (July 30, 2008, Jennings, J.) [ 46 Conn. L. Rptr. 369]. The plaintiff has provided no authority for the proposition that § 34-141 may form the basis for the imposition of a trust, and research reveals none.
Accordingly, the court finds that granting the motion to strike count eleven is in order.
VI. Conclusion
As stated above, the court finds that the motion to strike should be and hereby is denied as to the following counts: one, two, five, and twelve.
The court further finds that the motion to strike should be denied as to the claims against Ronald Ruotolo in counts eight and eighteen, and granted as to the claims against the business entity in those counts.
Finally, the motion to strike count eleven is granted.