Opinion
No. NNH-CV-044015238-S
October 24, 2005
MEMORANDUM OF DECISION (RE #141.00)
This matter is before the court on the Defendants' Motion for Partial Summary Judgment (#141.00) directed to the First through Fourth, Sixth, and Twenty-Fourth Counts of the Plaintiffs' First Revised Verified Complaint (the "Complaint"), which presently is the operative complaint in this civil action. The Defendants' motion has been filed with supporting exhibits and memorandum. It is opposed in part by the Plaintiff, who has filed a memorandum in opposition with supporting exhibits with regard to the Sixth and Twenty-Fourth Counts. The Plaintiff on October 11, 2005 filed a withdrawal of the First through Fourth counts of the Complaint. Therefore, the Defendants' motion is moot with respect to those Counts.
In the challenged Sixth and Twenty-Fourth Counts, the Plaintiff alleges, among other things, that the Defendants Summerville Senior Living, Inc. ("SSL") and Summerville at South Windsor, LLC ("SSW") usurped a corporate opportunity of SSW by exercising an option held by SSW to purchase an assisted living facility, and thereafter transferring ownership of the facility to a wholly owned subsidiary of SSL, the Defendant South Windsor Senior Living Properties, Inc. ("SWSLP"). At the time of the alleged usurpation, the Plaintiff owned a minority interest in SSW, with SSL owning the majority interest. The Defendants contend in their Motion for Partial Summary Judgment that the Plaintiff's corporate usurpation claim is barred by the applicable three-year statute of limitations. CT Page 13351-ie
This matter has a rather complex factual background. The following facts are not in dispute. Commencing in June of 1997, the Plaintiff and SSL entered into a series of agreements relating to the development and operation of assisted living health care facilities within the state of Connecticut. These agreements contemplated that the Plaintiff would identify site locations and provide development and management services for assisted living facilities, in exchange for which the Plaintiff would receive, among other things, a minority ownership interest in the facilities as well as certain distributions therefrom, with SSL to own the majority interest in each facility. One such facility became known as Summerville at South Windsor, which was located in South Windsor, Connecticut. SSW was formed for the purpose of developing and running the South Windsor facility.
In connection with the financing of the South Windsor facility, SSW entered into a Lease Agreement (the "Lease") with the Defendant Health Care REIT, Inc. ("HCR") on or about April 30, 1998. The Lease, as initially executed, was for a term of thirteen years and provided SSW with an option to purchase the South Windsor property and facility from HCR. SSW could exercise this option only within a specific 90-day window of time, which was defined in the Lease as "no earlier than the date which 180 days, and no later than the date which is 90 days" from the expiration date of the Lease.
On or about December 30, 1999, SSW and HCR entered into a Second Amendment to Lease which, in pertinent part, amended the Lease to provide SSW with an immediate option to purchase the South Windsor facility along with other, out of state assisted living facilities (with which facilities the Plaintiff was not involved). This option could be exercised between December 30, 1999 and February 29, 2000. The period for the exercise of the option was then extended to July 31, 2000 pursuant to a Third Amendment to Lease executed on March 31, 2000.
In May of 2000, SSW and HCR engaged in a transaction wherein the interest of HCR in the South Windsor property and facility was assigned to SWSLP, which, as noted above, was a wholly-owned subsidiary of SSL CT Page 13351-if (hereinafter the "May 2000 transaction"). The Plaintiff claims, in the Sixth and Twenty-Fourth Counts of the Complaint, that the May 2000 transaction constitutes a usurpation of the corporate opportunity of SSW, in that SSL exercised SSW's option to purchase the South Windsor property and facility, and caused ownership of the South Windsor facility to be transferred to SWSLP, for the benefit of SSL rather than SSW. The Plaintiff further asserts that the Defendants concealed and misrepresented the nature of the transaction, as well as the Third Amendment to Lease that extended SSW's option to purchase the South Windsor facility, from the Plaintiff until after February 23, 2001.
The Court notes that, although neither of the aforementioned Counts recite May 2000 transaction as the basis of the Plaintiff's corporate usurpation claim, the Court is satisfied from the moving papers and the representations of the Plaintiff's counsel at oral argument (for purposes of the disposition of the motion before it), that the May 2000 transaction constitutes the basis of the Plaintiff's claim of corporate usurpation for the Sixth and Twenty-Fourth Counts of the Complaint.
The Defendants contend that they are entitled to summary judgment on the Sixth and Twenty-Fourth Counts because the Plaintiff's corporate usurpation claim is barred by the applicable three-year statute of limitations, as set forth in General Statutes § 52-577. It is not disputed that the transaction giving rise to the Plaintiff's claim occurred in May of 2000, and that this action was initiated by service of process on or about February 26, 2004. The Plaintiff, however, contends that its failure to bring the instant lawsuit within three years of the May 2000 transaction is excused under the continuing course of conduct doctrine, as well as under the fraudulent concealment of claims statute, General Statutes § 52-595. According to the Plaintiff, it was unaware of the true nature of the May 2000 transaction until after February 23, 2001, as a result of misleading and obfuscating conduct of the Defendants. The issue before the court, then, is whether there exists a genuine issue of material fact as to the applicability of the continuing course of conduct doctrine and/or General Statutes § 52-595, such that the statute of limitations was tolled with regard to the May 2000 transaction.
General statutes § 52-577 provides that "No action founded upon a tort shall be brought but within three years from the date of the act or omission complained of." This statute is applicable to breach of fiduciary duty claims, see, e.g., Levine v. Levine, 1998 WL 258192 (Conn.Super. May 11, 1998) (Koletsky, J.). A corporate usurpation claim is a species of breach of fiduciary duty. See Katz Corp. v. T.H. Canty Co., 168 Conn. 201, 208, 362 A.2d 915 (1975).
"Practice Book [§ 17-49] provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law . . . In deciding a motion for summary judgment, the trial court must view the evidence in the light most CT Page 13351-ig favorable to the nonmoving party." (Citation omitted; internal quotation marks omitted.) Davies v. General Tours, Inc., 63 Conn.App. 17, 20-21, 774 A.2d 1063, cert. granted on other grounds, 256 Conn. 926, 776 A.2d 1143 (2001) (appeal withdrawn October 18, 2001).
The continuing course of conduct doctrine has been described by our Supreme Court as follows:
In its modern formulation, we have held that in order "to support a finding of a `continuing course of conduct' that may toll the statute of limitations there must be evidence of the breach of a duty that remained in existence after commission of the original wrong related thereto. That duty must not have terminated prior to commencement of the period allowed for bringing an action for such a wrong . . . Where we have upheld a finding that a duty continued to exist after the cessation of the `act or omission' relied upon, there has been evidence of either a special relationship between the parties giving rise to such a continuing duty or some later wrongful conduct of a defendant related to the prior act."
(Citations omitted.) Blanchette v. Barrett, 229 Conn. 256, 275, 640 A.2d 74 (1994). The court went on to describe the doctrine as being "conspicuously fact bound." Id. at 276.
In the context of a motion for summary judgment, the Court "must determine if there is a genuine issue of material fact with respect to whether the defendant: (1) committed an initial wrong upon the plaintiff; (2) owed a continuing duty to the plaintiff that was related to the alleged original wrong; and (3) continually breached that duty." Witt v. St. Vincent's Medical Center, 252 Conn. 363, 370, 746 A.2d 753 (2000).
Under this test, the Court first must consider whether there is a genuine issue of material fact as to whether the Defendants committed an initial wrong on the Plaintiff, i.e., whether the May 2000 transaction constitutes a usurpation of corporate opportunity. Other than the operative pleadings, there is no evidence or legal argument before the Court directed to the merits of the Plaintiff's corporate usurpation claim. In the absence of any evidence to eliminate the Plaintiff's claim, a genuine issue of material fact exists with regard to whether the May 2000 transaction constitutes a usurpation of corporate opportunity. See Witt v. St. Vincent's Medical Center, supra, 252 Conn. 370. CT Page 13351-ih
Next, the Court considers whether the Defendants owed the Plaintiff "a duty that remained in existence after commission of the original wrong related thereto." Again, the parties have failed to directly address this element of the continuing course of conduct doctrine. However, based upon the pleadings and summary judgment papers, it appears to be undisputed that SSL was the majority member of SSW, and the Plaintiff was the minority member of SSW, from before the time of the May 2000 transaction through the dissolution of SSW in 2004. Members and managers of a limited liability company generally owe a fiduciary duty to other members. See General Statutes § 34-141(a) (Providing that "A member or manager shall discharge his duties under section 34-140 and the operating agreement, in good faith, with the care an ordinary prudent person in a like position would exercise under similar circumstances, and in the manner he reasonably believes to be in the best interests of the limited liability company . . ."); Fine v. Bork, 2002 WL 207538, at *2-*3 (Conn.Super. Jan. 15, 2002) (Bryant, J.) (Finding probable cause that the defendant, a majority member of a limited liability company, breached his fiduciary duty to minority member under General Statutes § 34-141(a) by engaging in a self-dealing transaction.) Moreover, a continuing duty of full disclosure is, as a general matter, part and parcel of a fiduciary relationship. See Blanchette v. Barrett, supra, 229 Conn. 281 (Noting that "under the continuing course of conduct doctrine, a fiduciary would be required to disclose what he knows."). Accordingly, the Court finds that a material issue of fact exists as to whether the Defendants owed the Plaintiff a duty that remained in existence after the original alleged wrong.
Finally, the Court must determine whether there exists a genuine issue of material fact as to whether the Defendants breached their duty by misrepresenting and/or concealing the true nature of the May 2000 transaction from the Plaintiff. The Defendants argue that the Plaintiff was fully informed of the nature of the transaction by no later than June 30, 2000. In support of this contention, the Defendants point to various written communications between SSL and/or SWSL, on the one hand, and the Plaintiff, on the other hand regarding the May 2000 transaction.
These documents, however, do not settle the issue of when the Plaintiff became aware that the May 2000 transaction involved the exercise of SSW's option to purchase the South Windsor facility. For example, Exhibit 9 in support of the Defendants' motion is a letter "Memorandum" from Beth DeLucenay, a manager of SSW and an employee of SSL, to the Plaintiff. The stated subject of the Memorandum is "PL Statements," which apparently are addressed in the first paragraph. The second paragraph, however, states that HCR "is in the process of assigning their interest in the CT Page 13351-ii real estate to a Summerville subsidiary. They, like many other REITS in the industry, are facing capital crunches. As a favor, we are assisting them with their liquidity needs."
The notion that the May 2000 transaction constituted a "refinancing," and was completed to assist the liquidity of HCR, is repeated throughout the course of the documents relied upon by the Defendants. See Defendants' Exhibit 10 (facsimile cover sheet dated May 9, 2000 directed to Plaintiff referring to "the South Windsor financing transaction"); Defendants' Exhibit 13 (Notice of Special Meeting of Managers of SSW, purportedly faxed to Plaintiff on May 11, 2000, stating that the purpose of the meeting was to, among other things, "approve the refinancing of the facility"); Defendants' Exhibit 14 (Letter to Plaintiff from SSL dated May 12, 2000 referring to the "refinancing" of South Windsor and stating, among other things, that the transaction was contemplated to assist HCR "with their liquidity needs" and that "the real estate will be held in a Summerville wholly owned subsidiary, South Windsor Senior Living Properties, Inc."); Defendants' Exhibit 19 (Memorandum addressed to Plaintiff dated June 30, 2000 referring to "refinancing" of the South Windsor property and the assignment of the "real estate contract" from HCR to SWSLP).
It does appear from the Defendants' submissions that the Plaintiff, as of June 30, 2000, was informed that the May 2000 transaction involved the assignment of HCR's interest in the South Windsor facility to SWSLP and a refinancing of the South Windsor facility. Notably, however, SSW's option to purchase the South Windsor facility is never discussed, directly or impliedly, in any of the documents submitted in support of the Defendants' motion, and there is nothing to indicate when the Plaintiff was informed that the May 2000 transaction involved the exercise of SSW's option to purchase the South Windsor facility. Nor is there any mention of the Third Amendment to Lease, which extended SSW's option to purchase the South Windsor facility through July 31, 2000. These omissions, coupled with the Defendants' repeated representations that the May 2000 transaction was a "refinancing" designed to assist HCR with its liquidity, give rise to a genuine issue of material fact with regard to whether the Defendants breached their duty by misrepresenting and/or failing to fully disclose the nature of the May 2000 transaction to the Plaintiff prior to February of 2001.
The Defendants also argue that the continuing course of conduct doctrine does not apply because, following the May 2000 transaction, "the means of knowledge existed and circumstances were such as to put a plaintiff of ordinary prudence on inquiry." This argument is refuted by the Defendants' own evidence, which indicates that the Plaintiff made immediate and detailed written demands for information upon learning of the proposal for the May 2000 transaction, one of which was made through the Plaintiff's then counsel. Indeed, it appears that some of the Plaintiff's requests for information were ignored or answered in a less than complete fashion. See Defendants' Exhibits 11, 16, and 17.
For the same reasons, the Court also concludes that a genuine issue of material fact exists as to the applicability of General Statutes § 52-595, which provides:
If any person, liable to an action by another, CT Page 13351-ij fraudulently conceals from him the existence of the cause of such action, such cause of action shall be deemed to accrue against such person so liable therefor at the time when the person entitled to sue thereon first discovers its existence.
There is a genuine issue of material fact as to whether the Defendants misrepresented the nature of the May 2000 transaction to the Plaintiff. Therefore, an issue of fact exists as to whether any such misrepresentation constitutes a fraudulent concealment of the Plaintiff's corporate usurpation claim.
The Defendants' Motion for Partial Summary Judgment is denied.