Opinion
No. CV 08 5008426
January 14, 2009
MEMORANDUM OF DECISION
FACTS
On August 27, 2008, the plaintiff William Schwartz, filed a three-count complaint against the defendants, Ernest Watrous, Deborah Watrous and Deborah Watrous-Johnston. In the complaint the plaintiff alleges the following facts.
Deborah Watrous-Johnston is an individual with a principal residence at 37 Pleasant Street, Greenville, Maine. Ernest Watrous was indebted to the plaintiff in the amount of $92,970.60 for a judgment dated January 11, 2007 and later modified on March 27, 2007. The action which resulted in the judgment was commenced in New London Superior Court in November 2005. After this action was commenced, Ernest Watrous transferred three shares of Watrous Associates, Inc. stock to Deborah Watrous-Johnston with the intent of avoiding the plaintiff's debt or hindering its collection. This transfer occurred on or after December 8, 2005. Watrous-Johnston knew or had reason to know that Ernest Watrous was indebted to the plaintiff and in accepting the transferred stock knowingly aided, abetted and conspired with Ernest Watrous for the purpose and intent of avoiding plaintiff's debt or hindering its collection. The stock transfer deprived Ernest Watrous of sufficient means to satisfy his debt to the plaintiff Watrous-Johnston received service of process through certified mail of a true and attested copy of the original writ, summons and complaint. (Marshal's return.)
In the plaintiff's objection to the defendant's motion to dismiss, the plaintiff maintains that Watrous-Johnston owns a total of approximately eighty shares of Watrous Associates, Inc. and has been a shareholder for the last nine years. The plaintiff states that the value of these shares is between $25,000 and $30,000.
The first count alleges fraudulent conveyance as to all defendants. The second count alleges civil conspiracy as to all the defendants. The third count alleges unjust enrichment as to the defendants Deborah Watrous and Deborah Watrous-Johnston.
On September 30, 2008, Watrous-Johnston filed a motion to dismiss on the grounds that "the court lacks personal jurisdiction over her." (Motion to Dismiss, p. 1.) The motion is accompanied by a memorandum of law and an affidavit. On November 12, 2008 the plaintiff filed an objection to the defendant's motion to dismiss and included a memorandum of law. On November 17, 2008, Watrous-Johnston filed a reply to the plaintiff's objection.
DISCUSSION
"A motion to dismiss . . . properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court . . . A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction." (Internal quotation marks omitted.) Beecher v. Mohegan Tribe of Indians of Connecticut, 282 Conn. 130, 134, 918 A.2d 880 (2007). "Because a lack of personal jurisdiction may be waived by the defendant, the rules of practice require the defendant to challenge that jurisdiction by a motion to dismiss." (Internal quotation marks omitted.) Golodner v. Women's Center of Southeastern Connecticut, Inc., 281 Conn. 819, 825, 917 A.2d 959 (2007).
"When a defendant files a motion to dismiss challenging the court's jurisdiction, a two-part inquiry is required. The trial court must first decide whether the applicable state longarm statute authorizes the assertion of jurisdiction over the [defendant]. If the statutory requirements [are] met, its second obligation [is] then to decide whether the exercise of jurisdiction over the [defendant] would violate constitutional principles of due process." (Internal quotation marks omitted.) Knipple v. Viking Communications, 236 Conn. 602, 606, 674 A.2d 426 (1996). "The federal due process clause permits state courts to exercise in personam jurisdiction over . . . [an individual] defendant that has certain minimum contacts with the forum such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice . . ." Id., 606 n. 6.
In the memorandum of law in support of her motion to dismiss, Watrous-Johnston argues that General Statutes § 52-59b(a), Connecticut's long-arm jurisdiction statute, does not permit the court to exercise jurisdiction over her. She maintains that § 52-59b(a) cannot apply to her because the plaintiff fails to allege any facts indicating that she transacted any business in Connecticut, committed a tortuous act in Connecticut, derived substantial revenue from Connecticut or interstate commerce, owns real property in Connecticut, or uses a computer or computer network within Connecticut. Furthermore, Watrous-Johnston argues that she does not maintain sufficient minimum contacts with Connecticut necessary for proper jurisdiction.
General Statutes 52-59b(a) provides, "As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any nonresident individual, foreign partnership or foreign voluntary association . . . who in person or through an agent: (1) transacts any business within the state; (2) commits a tortious act within the state, except as to a cause of action for defamation of character arising from the act; (3) commits a tortious act outside the state causing injury to person or property within the state, except as to a cause of action for defamation of character arising from the act, if such a person or agent (A) regularly does or solicits business; or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or (B) expects or reasonably should expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce; (4) owns, uses or possesses any real property situated within the state; or (5) uses a computer, as defined in subdivision (1) of subsection (a) of section 53-451, or a computer network, as defined in subdivision (3) of subsection (a) of said section, located within the state."
The plaintiff counters, in the memorandum of law in support of his objection to the motion to dismiss, that Watrous-Johnston is subject to the court's jurisdiction pursuant to General Statutes § 52-59b(a). Specifically, the plaintiff argues that § 52-59b(a)(4) is satisfied by application of General Statutes § 52-552a to this case. Section 52-552a, the Uniform Fraudulent Transfer Act, holds that transferees of fraudulent conveyances are liable to creditors. The plaintiff further maintains that Watrous-Johnston has been a shareholder at Watrous Associates, Inc., a Connecticut company whose sole assets are two parcels of land in North Stonington, for the past nine years. The plaintiff argues that this interest is substantial and satisfies the requirements of § 52-59b(a)(4). Finally, the plaintiff argues that Watrous-Johnston has maintained sufficient minimum contacts with Connecticut especially in regards to her interest in Watrous Associates, Inc.
In her reply to the plaintiff's objection to the defendant's motion to dismiss, Watrous-Johnston counters that § 52-552a is inapplicable because the plaintiff "did not plead a cause of action under [§ 52-552a]." Furthermore, Watrous-Johnston argues that the plaintiff did not establish that her "conduct was `within the state' to meet the conditions of § 52-59b(a)(2)." Watrous-Johnston also argues that § 52-59b(a)(4) does not give the court jurisdiction over her because she does not "own, use, or posses real property in Connecticut." Watrous-Jobnston maintains that "[t]he plain meaning of § 52-59b(a)(4) does not permit jurisdiction to reach a non-resident who owns shares in a corporation that owns, uses, or possesses real property in Connecticut." Her final argument is that "[o]wnership of stock does not satisfy the minimum contacts constitutionally required for a Connecticut court to establish jurisdiction."
The court does not need to address this issue because, for the reasons discussed in this memorandum, the motion to dismiss should be denied on other grounds.
Section 52-59b(a)(1) provides that jurisdiction may be properly exercised over any nonresident individual who "transacts any business within the state . . ." "The General Statutes do not define what the phrase `transacts any business' means in the context of § 52-59b." Zartolas v. Nisenfeld, 184 Conn. 471, 474, 440 A.2d 179 (1981). The Supreme Court has "construed the term to embrace a single purposeful business transaction." (Internal quotation marks omitted.) Ryan v. Cerullo, 282 Conn. 109, 119, 918 A.2d 867 (2007). "A purposeful business transaction is one in which the defendant has engaged in some form of affirmative conduct allowing or promoting the transaction of business within the forum state." (Internal quotation marks omitted.) Ruocco v. Metro Boston Hockey League, Superior Court, judicial district of New Haven, Docket No. CV 07 4024835 (December 7, 2007, Robinson, J.). "[A] nonresident individual who has not entered this state physically nevertheless may be subject to jurisdiction in this state under § 52-59b(a)(1) if that individual has invoked the benefits and protection of Connecticut's laws by virtue of his or her purposeful Connecticut related activity." (Internal quotation marks omitted.) Ryan v. Cerullo, supra, 120. "In determining whether the plaintiff's cause of action arose from the defendant's transaction of business within this state [courts] do not resort to a rigid formula. Rather, [courts] balance considerations of public policy, common sense, and the chronology and geography of the relevant factors." Zartolas v. Nisenfeld, supra, 477.
In Zartolas v. Nisenfeld, supra, 184 Conn. 475, the Supreme Court held that Connecticut had jurisdiction over out-of-state defendants in an action for breach of covenants contained in a warranty deed concerning the sale of real estate in Connecticut. The deed was executed in Iowa and the defendants did not travel to Connecticut. Id. The court construed the "transacts any business" language of § 52-59b(a)(1) "to embrace a single purposeful business transaction." Id., 474. The court concluded, "[t]he defendant's execution of the warranty deed in Iowa does not negate the transaction's connections with Connecticut . . . The defendants' purposeful Connecticut related activity suffices to locate this transaction of theirs within this state despite the absence of allegations that the sale or closing occurred here; or that they or anyone acting for them solicited the plaintiffs' purchase or entered this state to deal with the plaintiffs." Id., 475.
The Connecticut Appellate Court addressed an analogous issue in Gaudio v. Gaudio, 23 Conn.App. 287, 580 A.2d 1212, cert. denied, 217 Conn. 803, 584 A.2d 471 (1990). Gaudio involved a plaintiff in an action against her former husband, joined by the defendant, Eannelli, in a count for fraudulent conveyance. Id., 288-89. The defendants had negotiated a stock transfer that the plaintiff alleged was fraudulent as to her interests. Id., 290. The court granted the judgment as to the fraudulent conveyances and Eannelli sought review. Id., 288-89. One of the issues in Gaudio was a motion to dismiss for lack of personal jurisdiction. Id., 297.
"Testimony at the hearing on Eannelli's motion to dismiss indicated that he had traveled to Connecticut at least once and that he had reached an oral agreement to purchase the stock of a Connecticut corporation in [the] state. By purchasing the stock he purportedly became the sole stockholder of a close corporation the only asset of which was a parcel of commercial real estate in Connecticut." Id., 298-99. The court found that these facts, "support[ed] the conclusion that Eannelli's purposeful Connecticut related activity sufficiently brought him within the reach of the applicable long arm statute." Id., 299.
The court also found that "Eannelli's contacts with Connecticut were sufficient to satisfy due process requirements." Id. The court rejected Eannelli's argument that "the mere ownership of stock in a corporation does not justify the exercise of personal jurisdiction over the owner." Id. The court stated that this argument "might be persuasive if the transaction at issue involved the relatively routine and anonymous purchase of publicly traded stock through a broker or agent. Here, however, Eannelli purchased directly from a Connecticut resident all of the stock in a close corporation whose sole asset was Connecticut real estate." Id., 299-300. The court also found that Eannelli had traveled at least once to the state to view the property, "entered into an oral agreement to purchase stock while in the state, and retained two Connecticut residents as officers of the corporation to manage and sell the property." Id., 300. Based upon these facts the court concluded, "Eannelli should have foreseen that he might be called to Connecticut to defend a suit arising from his ownership of the corporation." Id.
In GATX Financial Corp. v. National Fairways Partners I, Superior Court, judicial district of Waterbury, Docket No. CV 02 0175159 (November 10, 2003, Alander, J.), the defendant, an individual residing in Florida, entered into a limited partnership agreement with a Connecticut limited partnership, formed in accordance with Connecticut law. "Among other activities the limited partnership leased and operated a golf course in Connecticut." Id. The defendant also "periodically received substantial distributions" from the limited partnership. Id. The plaintiff in this case asserted that the defendant had received fraudulent conveyances through distributions made by the limited partnership. Id. The plaintiff sought to void these distributions. Id. The defendant argued that he was a passive investor and "as such, [he] should not be subject to Connecticut's long arm jurisdiction." Id. The court did not find this argument persuasive and quoted Gaudio in concluding, "this argument might have been persuasive if the transaction at issue involved the relatively routine and anonymous purchase of publicly traded stock through a broker or agent." (Internal quotation marks omitted.) Id.
The court further found that the defendant "purposefully engaged in substantial economic activity in Connecticut and availed [himself] of the benefits of Connecticut's laws. Id. Therefore, the defendant "subjected [himself] to Connecticut's jurisdiction to resolve a dispute over the appropriateness of the substantial financial distributions made by the partnership to them." Id. The court also found sufficient minimum contacts necessary to satisfy the requirements of due process, "[w]here a nonresident defendant deliberately has engaged in significant activities within a [s]tate . . . he manifestly has availed himself of the privilege of conducting business there, and because his activities are shielded by the benefits and protections of the forum's laws it is presumptively not unreasonable to require him to submit to the burdens of litigation in the forum as well." (Internal quotation marks omitted.) Id.
Watrous-Johnston's argument that the Superior Court cannot establish personal jurisdiction over her contradicts the reasoning and conclusions of Zartolas v. Nisenfeld, supra, 184 Conn. 475, Gaudio v. Gaudio, supra, 23 Conn.App. 297-300 and GATX Financial Corp. v. National Fairways Partners I, supra, Superior Court, Docket No. CV 02 0175159. In all three decisions, the relevant business entities' primary assets were either entirely or largely constituted by real estate holdings located in Connecticut. In all three decisions, pursuant to § 52-59b(a)(1), the court established personal jurisdiction over the defendants because they had transacted business in Connecticut. In Zartolas, the defendant was conveying real estate located in Connecticut. In Gaudio, the relevant close corporation's sole asset was a parcel of real estate in Connecticut. In GATX Financial Corp., the limited partnership leased and operated a golf course in Connecticut. Similarly, the alleged sole assets of Watrous Associates Inc. are two parcels of land in North Stonington, Connecticut. Therefore, consistent with the above-mentioned decisions, Watrous-Johnston's ownership in Watrous Associates, Inc. as well as her receipt of transferred Watrous Associates, Inc. stock classify her as an individual who "transacts business" in Connecticut under § 52-59b(a)(1).
The reasoning and conclusions of Zartolas, Gaudio, and GATX Financial Corp., also lead to the conclusion that Watrous-Johnston's contacts with Connecticut satisfy the minimum contacts requirement of the due process clause. The defendants in Zartolas and GATX Financial Corp. did not travel to Connecticut as part of their transaction. Yet, in both cases the court found that the defendant had a significant relationship with Connecticut. In GATX Financial Corp., the court cited the defendant's membership in a Connecticut limited partnership with a principal office located in Connecticut as well as his financial benefit from the membership as evidence of his significant relationship with the state. In Zartolas, the court found that the defendants' privilege of ownership of Connecticut land satisfied the minimum contacts requirement. Watrous-Johnston claims that on December 8, 2008, the date the shares of stock were allegedly transferred to her, she was not in Connecticut. Nevertheless, Zartolas and GATX Financial Corp., illustrate that presence in Connecticut on the date the transaction occurred is not necessary to find sufficient minimum contacts. Through her ownership interest in Watrous Associates Inc., Watrous-Johnston enjoyed the protection of Connecticut law. As articulated in Zartolas, this ownership was also a privilege. These facts lead to a finding of sufficient minimum contacts in Zartolas and GATX Financial Corp., and do the same in this instance.
In both Gaudio and GATX Financial Corp., the court rejected the out-of state defendants' argument that they were merely passive investors in Connecticut business entities and, therefore, not subject to personal jurisdiction in Connecticut. In Gaudio, the court rejected this argument to hold that the defendant had sufficient minimum contacts with Connecticut. In GATX Financial Corp., the court rejected this argument to hold that the defendant had transacted business in Connecticut pursuant to § 52-29b(a)(1). Watrous-Johnston argues in her reply to the plaintiff's objection to the motion to dismiss, that "it would be absurd to assert jurisdiction over persons for merely owning shares of stock in a corporation that is organized or does business in Connecticut." Nevertheless, "this argument might have been persuasive if the transaction at issue involved the relatively routine and anonymous purchase of publicly traded stock through a broker or agent." Gaudio, supra, 23 Conn.App. 299. In her memorandum of law attached to the motion to dismiss, Watrous-Johnston indicates that she is a family member related to her co-defendants. Therefore, it was a family-member who transferred to her the Watrous Associates, Inc. stock on or after December 8, 2005. Such a transfer is neither routine nor anonymous. Furthermore, the stock transfer ledger attached to the memorandum of law in support of the plaintiff's objection to the motion to dismiss reveals that Watrous Associates, Inc. is a corporation with a limited number of shareholders. In other words, consistent with the decisions of Gaudio and GATX Financial Corp., this transaction leads to the conclusion that Watrous-Johnston has both sufficient minimum contacts with Connecticut and comes within the reach of § 52-59b(a)(1).
CONCLUSION
For the foregoing reasons, the defendant's motion to dismiss is denied.