Opinion
No. X08-CV05-4011699S
September 8, 2009
Memorandum of Decision on Motion to Strike (No. 223)
Factual and Procedural Background
This action has been brought by Michael Tardy against Robert Willis as an individual and doing business as Robert Willis LLC, Willis Pools, Inc., and Kelli Willis. The plaintiff alleges in his Revised Second Amended Complaint of February 25, 2009 that he and the defendants in or about January of 2003 "entered into a verbal agreement, by which the Defendants and the Plaintiff agreed to enter a partnership, which they would jointly own and operate a swimming pool business for the construction and management of newly installed swimming pools, known as Willis Pools ("Company")." He further alleges that under the agreement the Company was to be managed by the defendants (which was to include being in charge of the solicitation of business proceeds for the Company) and the Plaintiff was to supervise construction and the jobs, and that all net profits of the Company were to be divided equally between the Plaintiff and the Defendants (50% to the Plaintiff and 50% collectively to all the Defendants). Mr. Tardy claims now, on information and belief, that for about two years before commencement of this action Defendants solicited numerous contracts and collected substantial sums of deposits and payments on contracts, and delivered materials to purchasers and have received the purchase price for the construction of swimming pools and other related miscellaneous items, but have wasted and squandered or given away or expended a large portion of those funds for unauthorized purposes. Plaintiff claims he has on several occasions demanded that the defendants account to him for the operations of the company and pay over to him his share of the net profits of the Company, but they have failed and refused to do so. He believes that his unpaid share of the net profits of the Company would exceed $150,000.
The First Count demands an accounting from the defendants and judgment in favor of the plaintiff for any sums found to be due to him. The Second Count sounds in breach of the alleged oral partnership agreement and seeks compensatory damages and other relief. The Third Count alleges a breach of the covenant of good faith and fair dealing and asks for compensatory and punitive damages and other relief. Now before the court is the defendants' motion to strike all three counts of the Revised Second Amended Complaint and the claim for punitive damages. The defendants conceded at oral argument, however, that the Third Count may be stricken, which also disposes of the motion to strike the claim for punitive damages since they are sought only on the Third Count.
Discussion A. Legal Standard: Motion to Strike
Connecticut Practice Book § 10-39(a) provides that "[w]henever any party wishes to contest (1) 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, or (2) the legal sufficiency of any prayer for relief in any such complaint . . . that party may do so by filing a motion to strike the contested pleading or part thereof." In ruling on a motion to strike, the court is limited to the facts alleged in the pleading. The court must construe the facts in the pleading most favorably to the pleader. Novametrix Medical Systems, Inc. v. BOC Group, Inc., 224 Conn. 210, 215 (1992). This includes the facts necessarily implied and fairly provable under the allegations; but it does not include the legal conclusions or opinions stated in the pleading. S.M.S. Textile v. Brown, Jacobson, Tillinghast, Lahan, and King, P.C., 32 Conn.App. 786, 796 (1993). A motion to strike is properly granted if the pleading alleges mere conclusions of law that are unsupported by the facts alleged. Novametrix, supra, at 215.
B. Statute of Frauds
The first ground of the motion to strike is that the contract of partnership alleged in the First and Second Counts of the complaint is within the Connecticut statute of frauds, and must be stricken because there is no allegation of a written signed memorandum of the terms agreed upon. Conn. Gen. Stat. § 52-550a provides in relevant part:
No civil action may be maintained in the following cases unless the agreement, or a memorandum of the agreement, is made in writing and signed by the party, or the agent of the party, to be charged: . . . (5) upon any agreement that is not to be performed within one year from the making thereof."
Focusing on the allegations of the complaint that the oral agreement was made in or about January 2003 (First and Second Counts, ¶ 6), that the Company did business including the construction of swimming pools and accepting payment "between 2003 and the commencement time of this action [January 2005]" (First Count, ¶ 10; Second Count, ¶ 10); and that "prior to the commencement of this action, Plaintiff demanded of Defendants that Defendants account for on or about the summer of 2003, November 2003 and the spring of 2004 to Robert Willis, their acts in the solicitation, operations, and conduct of the Company" (First Count, ¶ 14; Second Count, ¶ 13), the defendants argue that "[a]s asserted in the Complaint, the Agreement not only could not, but also allegedly was not completed within the one year requirement, and is, therefore, unenforceable." (Defendants' Memorandum, p. 3.) Defendants' primary, and most recent, authority for their position is Burkle v. Superflow Mfg. Co., 137 Conn. 488, 497-98 (1951), where the Supreme Court, in a split decision, did hold to be unenforceable an oral contract bearing some similarity to the contract here at issue. In Burkle the defendant hardware manufacturer had orally agreed for an unspecified time to supply and the plaintiffs agreed to solicit orders for seven or eight plumbing items, and the defendant further agreed to deliver within thirty days all orders procured by the plaintiffs and to pay them a 10% commission on those orders. Claiming that the contract could not be performed within one year the defendant raised a statute of frauds defense. Citing extensive authority in Connecticut and elsewhere, and respected treatises, the court stated the governing principle: "It is the law of this state and elsewhere that a contract is not within this clause of the statute unless its terms are so drawn that it cannot by any possibility be performed fully within one year." Id. 492. The court reviewed cases where oral contracts of no stated duration had been upheld because full performance might occur within one year through the happening of a contingency upon which the contract depends, such as an agreement to support a person for life (where death of the person might occur within one year), Appleby v. Noble, 101 Conn. 54 (1924), or a promise of marriage, Clark v. Pendleton, 20 Conn. 495 (1850). Over the dissent of Justice Inglis, the majority of the court held that there were no realistic contingencies whereby the Burkle-Superflow contract could be performed within one year: "The contract in the present case does not fall within any of these categories. It binds the plaintiff partnership to solicit orders for an indefinite and indeterminate time in the future. On its face, it cannot possibly be performed within one year." Id. 493.
The dissent said: "There was no specific agreement between the parties as to how long the contract was to continue in effect and what their intent was in this regard is a matter of interpretation of the contract . . . In the present case there is nothing in the circumstances attending the making of the contract which tends to overcome the presumption that the parties intended the arrangement to continue only so long as was mutually, agreeable. Burkle, 501.
If Burkle were the last word on the subject, the defendants' motion to strike in this case would probably be well taken. But subsequent development of the law focusing on the "cannot by any possibility be performed fully within one year" requirement for inclusion in that proscription of the statute, now mandates a different result. In fact it seems to this court that, although Burkle has not been expressly overruled, it has become an anomaly such that the dissent of Justice Inglis is in all probability today more in tune with applicable law than the Burkle majority. The primary authority is C.R. Kerwin, Inc. v. Flagship Properties, 220 Conn. 569 (1991), cited by plaintiffs. In Kerwin, the Supreme Court, in answering two very direct questions certified to it by the U.S. Court of Appeals for the Second Circuit, took the opportunity to do a comprehensive review and pronouncement of Connecticut statute of frauds jurisprudence. The two questions were:
A. Whether, under the Connecticut statute of frauds, Conn. Gen. Stat. 52-550(a)(5), an oral contract that fails to specify explicitly the time for performance is a contract of indefinite duration, as that term has been used in the applicable Connecticut precedent, and therefore outside the statute's prescription? and;
B. Whether an oral contract is unenforceable when the method of performance called for by the contract contemplates performance to be completed over a period of time that exceeds one year, yet the contract itself does not implicitly negate the performance within one year?
Id. 573
The Court answered Question A "Yes" and Question B "No." In doing so, the court traced the history of the statute of frauds from its origin in a 1677 English statute entitled "An Act for the Prevention of Fraud and Perjury," to modern times with particular attention to the one-year provision here at issue. Noting extensive and conflicting judicial and academic commentary trying to identify a legitimate rationale for that provision the Court said "In any case the one-year provision no longer seems to serve any purpose very well and today its only remaining effect is arbitrarily to forestall the adjudication of possibly meritorious claims. For this reason the courts have for many years looked on that provision with disfavor and have sought construction that limited its application." Id. 577. The court reached such a construction in the case before it, acknowledging at least some tension with Burkle:
The Court noted that the British Parliament repealed most of the provisions of the statute in 1954, including the one-year provision. Kerwin, 574.
Bearing this history in mind, we turn to the questions certified to us by the federal court. Our case law makes no distinction, with respect to exclusion from the statute of frauds, between contracts of uncertain or indefinite duration and contracts that contain no express terms defining the time for performance. The two certified questions therefore raise only one substantive issue. That issue can be framed as follows: in the exclusion from the statute of frauds of all contracts except those "whose performance cannot possibly be completed within a year"; (emphasis omitted) Finley v. Aetna Life Casualty Co., supra, 197; what meaning should be attributed to the word "possibly"? One construction of "possibly" would encompass only contracts whose completion within a year would be inconsistent with the express terms of the contract. An alternate construction would include as well contracts such as the one involved in this case, in which, while no time period is expressly specified, it is (as the district court found) realistically impossible for performance to be completed within a year. We now hold that the former and not the latter is the correct interpretation. "The critical test . . . is whether `by its terms' the agreement is not to be performed within a year," so that the statute will not apply where "the alleged agreement contain[s] [no] provision which directly or indirectly regulated the time for performance." Freedman v. Chemical Construction Corporation, 43 NY2d 260, 265, 372 NE2d 12, 401 NYS2d 176 (1977). "It is the law of this state, as it is elsewhere, that a contract is not within this clause of the statute unless its terms are so drawn that it cannot by any possibility be performed fully within one year." (Emphasis added.) Burkle v. Superfiow Mfg. Co., supra, 492. Flagship contends, to the contrary, that the possibility to which this court referred in Burkle must be a reasonable possibility rather than a theoretical possibility. It is true that in Burkle this court rejected the argument that "since all the members of a partnership [that was a party to the contract] may possibly die within a year, the contract is not within the statute." We noted that [n]o case has come to our attention where the rule that the possibility of death within a year removes a contract from the statute has been extended to apply to the possibility of the death of more than one individual." Id., 494. In Burkle, however, we merely refused to extend further yet another of the rules by which the effect of the provision has been limited. Burkle did not purport to change the well established rule of narrow construction of the underlying one-year provision. Most other jurisdictions follow a similar rule requiring an express contractual provision specifying that performance will extend for more than one year. (Full citations omitted.) Id. 579-81.
The Kerwin court recapitulated its holding in terms directly applicable to this case.
We therefore hold that an oral contract that does not say, in express terms, that performance is to have a specific duration beyond one year is, as a matter of law, the functional equivalent of a contract of indefinite duration for the purposes of the statute of frauds. Like a contract of indefinite duration, such a contract is enforceable because it is outside the proscriptive force of the statute regardless of how long completion of performance will actually take. The first certified question is answered "yes." The second certified question is answered "no." Id. 583-84.
Since there is no allegation in the complaint of plaintiff Michael Tardy that his alleged oral contract with the defendants included a provision expressly calling for performance of the January 2003 contract in 2004 or thereafter, in accordance with the clear mandate of Kerwin the contract is not within the proscription of the Connecticut statute of frauds, and the contract is therefore not unenforceable. The fact that there may have been actual performance in 2004 or thereafter is irrelevant to the statute of frauds issue.
C. Sufficiency of Pleading the Terms of the Alleged Partnership Agreement
The existence of a valid partnership agreement between the parties is a necessary element of both the First and Second Counts. A claim for an accounting (First Count) rests upon the existence of a partnership. Builders Hardware v. DiPietro, Docket No. CV97-0567577, Superior Court (Sept 25, 2001, Peck, J.) 2001 WL 1231864 (Conn.Super.) And obviously, a claim for breach of partnership agreement (Second Count) depends upon the existence of a valid partnership agreement. To form a valid and binding contract there must be mutual understanding between the parties of the essential terms that are definite and certain. Ubysz v. DiPietro, 185 Conn. 47, 51 (1981). Whether an oral partnership agreement has been entered is a question of fact. Jacobs v. Thomas, 18 Conn.App. 218, 222, cert. denied 212 Conn. 806 (1989). "While an oral agreement may be proved to have been reached even if some of the terms are not agreed to immediately, numerous Connecticut cases require definite agreement on the essential terms of an enforceable agreement . . ." Willow Funding Company L.P. v. Grencom Associates, 63 Conn.App. 832, 843-45 (2001).
The plaintiff in this case has alleged in both the First Count and the Second Count that on or about January 2003 the parties entered into a verbal agreement by which they agreed to enter a partnership by which they would jointly own and operate a swimming pool business for the construction and management of newly installed swimming pools; that the name of the partnership business would be Willis Pools; that Willis Pools was to be managed by the defendants including business solicitation and collection of business proceeds; and the plaintiff was to supervise construction and the jobs; and that the net profits of the partnership were to be divided 50% to the plaintiff and 50% collectively to the defendants. In the First Count he alleges that the defendants have misappropriated funds of the partnership and have failed to turn over to the plaintiff his 50% of the net profits, and asks for an accounting. In the Second Count plaintiff alleges that the defendants have breached the partnership agreement by misappropriation of partnership funds and failure to pay over to plaintiff his 50% share of the net profits. The defendants do not question that the plaintiff has adequately pleaded the existence of a contract and breach thereof, but have moved to strike because they claim the plaintiff has not adequately pleaded the essential terms of the alleged partnership. They cite the lack of any allegation how net profits were to be determined; when a tax identification number was to be obtained and by whom; how tax returns were to be filed and who was to function as the accountant for the partnership; how the books were to be maintained and who was to function as the bookkeeper; where and how a checking account was to be established for the partnership; and whether any credit was to be procured by the partnership. They also claim there is not a single fact alleged that even hints that there was a relationship of both principal and agent between plaintiff and the defendants. Defendants fail to distinguish between evidence which might be necessary to satisfy the burden of proving a valid partnership agreement at trial; and the facts which a plaintiff must allege in the complaint. The cases cited by defendants are primarily memoranda of final judgments after a bench trial. The "missing" factors cited by defendants might very well come into evidence in trial of this case, as they did in the cited cases, but there is no obligation on a plaintiff to allege evidence in his complaint. "The first pleading on the part of the plaintiff shall be known as the complaint. It shall contain a concise statement of the facts constituting the cause of action . . ." Practice Book § 10-20. The plaintiff's allegations state sufficient facts about the alleged partnership agreement to satisfy this requirement.
A partnership is defined in the Connecticut Uniform Partnership Act, Conn. Gen. Stat. § 34-314(a) as "The association of two or more persons to carry on as co-owners a business for profit . . ." Section 34-314(c) provides in pertinent part: "In determining whether a partnership is formed, the following rules apply: . . . (3) a person who receives a share of the profits of a business is presumed to be a partner in the business, unless the profits were received in payment . . . (B) for services as an independent contractor or of wages or other compensation to an employee." Plaintiff Tardy has sufficiently alleged these essential statutory elements: co-ownership of a business for profit and his entitlement to an agreed share of the net profits. He has made no allegation that he was an independent contractor transacting business with the partnership or an employee of the partnership.
In Forino v. Forino, Docket No. CV06-5001840S, Superior Court, Judicial District of Waterbury at Waterbury (May 18, 2007, Upson J.), 2007 Westlaw 1600032 (Conn.Super.) the court denied the defendant husband's motion to strike the wife's allegations of a partnership and her claims, inter alia, for an accounting and breach of partnership agreement. The court's ruling echoes the very issues involved in this case:
Here, the plaintiff sufficiently alleged the existence of an oral partnership contract because her allegations contain the essential terms of the partnership agreement. The plaintiff's complaint alleges i[n] sufficiently definitive terms how the partnership was to divide its income and what specific labor each partner was to contribute. The plaintiff and defendant were to "evenly" split the profits of the corporation, and the plaintiff was to manage the office, while the defendant brought in new business. The cases that have held that no partnership agreement existed did so because no terms regarding the division of profits or labor were provided . . . For the purposes of the present motion to strike, it does not matter that a definition for the term "profit" is not provided in the complaint. "[I]f the parties so intend, they may reach a binding agreement even if some of the terms of that agreement are still indefinite. What is necessarily implied [in an allegation] need not be expressly alleged . . . Therefore, because the plaintiff adequately pleaded the existence of a partnership between the plaintiff and the defendant, the plaintiff is not required to specifically plead each duty owed under the partnership. (Citations and internal quotation marks omitted.) Id.
Under the foregoing criteria the allegations of the First Count and the Second Count are sufficiently pleaded.
Order
For the foregoing reasons the Motion to Strike is denied as to the First Count and the Second Count, and granted as to the Third Count and the Claim for punitive damages.
So Ordered,