Opinion
No. CV 03 0197877 S
March 30, 2005
MEMORANDUM OF DECISION
The present action was brought by Dean Chenarides, the plaintiff; against the defendants, Bestfoods Baking Company, Inc. (Bestfoods), Entenmann's, Inc. (Entenmann's), and George Weston Bakeries, Inc. (George Weston). Chenarides claims that his former employers, Bestfoods and Entenmann's, terminated him after he investigated and reported to his superiors instances of fraudulent conduct on the part of some of the companies' employees. At the time Chenarides was discharged, George Weston controlled and ran both Bestfoods and Entenmann's.
On June 22, 2004, Chenarides filed a revised complaint asserting causes of action against each of the defendants for wrongful discharge, breach of implied or express contract, and promissory estoppel. On August 16, 2004, the defendants moved to strike as legally insufficient counts one, two, three, six, and nine of the revised complaint. The defendants' motion was supported by a memorandum of law. On September 3, 2004, Chenarides filed a memorandum in opposition to the motion to strike. The parties filed supplemental briefs on December 27, 2004.
The revised complaint includes the following counts: (1) wrongful discharge as to Bestfoods; (2) wrongful discharge as to Entenmann's; (3) wrongful discharge as to George Weston; (4) breach of implied and/or expressed contract as to Bestfoods; (5) breach of implied and/or expressed contract as to Entenmann's; (6) breach of implied and/or expressed contract as to George Weston; (7) promissory estoppel/detrimental reliance as to Bestfoods; (8) promissory estoppel/detrimental reliance as to Entenmann's; and (9) promissory estoppel/detrimental reliance as to George Weston.
DISCUSSION
"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." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003). "A motion to strike is the proper vehicle to test whether Connecticut is ready to recognize some newly emerging ground of liability." (Internal quotation marks omitted.) Izquierdo v. Ricitelli, Superior Court, judicial district of New London, Docket No. 566731 (March 15, 2004, Hurley, J.T.R.) ( 36 Conn. L. Rptr. 698). "In ruling on a motion to strike, the court is limited to the facts alleged in the complaint. The court must construe the facts in the complaint most favorably to the plaintiff . . . If facts provable in the complaint would support a cause of action, the motion to strike must be denied." (Internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997). "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." (Internal quotation marks omitted.) Commissioner of Labor v. C.J.M Services, Inc., 268 Conn. 283, 292, 842 A.2d 1124 (2004).
The defendants assert that the first thee counts of the revised complaint are legally insufficient because Chenarides failed to allege that his discharge was in violation of some important public policy. The defendants also argue that Chenarides' allegations in counts thee, six, and nine are legally insufficient against George Weston, as a shareholder of Bestfoods and Entenmann's, and that no allegations made by him would justify piercing Bestfoods' and Entenmann's corporate veil.
Chenarides argues that the revised complaint alleges that he was terminated in his employers' attempt to cover up fraud that he had reported to his superiors. He claims that Connecticut's public policy against this kind of retaliatory measure supports his action for wrongful discharge. As for the second issue, the plaintiff claims that George Weston owned and ran Bestfoods and Entenmann's at the time the decision to fire Chenarides was taken. Chenarides maintains that George Weston can be found liable because Chenarides' superiors at Bestfoods and Entenmann's were acting as George Weston's agents.
WRONGFUL DISCHARGE
The first issue before the court is whether Chenarides' claims for wrongful discharge in violation of public policy are legally sufficient. "In Connecticut, an employer and employee have an at-will employment relationship in the absence of a contract to the contrary. Employment at will grants both parties the right to terminate the relationship for any reason, or no reason, at any time without fear of legal liability . . . [The Supreme Court] in Sheets v. Teddy's Frosted Foods, Inc., 179 Conn. 471, 427 A.2d 385 (1980), sanctioned a common-law cause of action for wrongful discharge in situations in which the reason for the discharge involved impropriety derived from some important violation of public policy . . . In doing so, [the court] recognized a public policy limitation on the traditional employment at-will doctrine in an effort to balance the competing interests of employers and employees . . . [The court] recognized the inherent vagueness of the concept of public policy and the difficulty encountered when attempting to define precisely the contours of the public policy exception. In evaluating claims, [a court must look] to see whether the plaintiff has . . . alleged that his discharge violated any explicit statutory or constitutional provision . . . or whether he alleged that his dismissal contravened any judicially conceived notion of public policy. (Citations omitted; internal quotation marks omitted.) Thibodeau v. Design Group One Architects, LLC, 260 Conn. 691, 697-99, 802 A2d 731 (2002). "Although [the Supreme Court has] been willing to recognize . . . a claim for wrongful termination in appropriate cases, [it has] repeatedly . . . underscored [its] adherence to the principle that the public policy exception to the general rule allowing unfettered termination of an at-will employment relationship is a narrow one . . ." (Internal quotation marks omitted.) Id., 700-01.
The revised complaint alleges that on or about September 13, 2000, while employed as Director of Human Resources of Bestfoods and Entenmann's, Chenarides was assigned to investigate certain reports of fraud at one of the companies' facilities. The investigation uncovered that some of the employees were engaging in fraudulent activities, which were likely to be occurring at other company locations as well. Chenarides' superiors warned him to stop the investigation. Chenarides alleges that in October 2001 his supervisors decided to dismiss him because of his investigation and disclosure of the fraudulent acts. Chenarides was terminated on January 25, 2002.
Two statutory provisions could support Chenarides cause of action, General Statutes §§ 31-51m and 33-1336. Under § 31-51m(b) "[n]o employer shall discharge . . . any employee because the employee . . . reports . . . a violation or a suspected violation of any state or federal law or regulation . . . to a public body . . ." Section 33-1336 prohibits Connecticut publicly held corporations from discharging employees who report certain violations of the law to, or assist in an investigation related to the violations and conducted by, "(A) a federal or state regulatory or law enforcement agency . . . or (C) a person with supervisory authority over the employee, or such other person working for the employer who has the authority to investigate, discover or terminate misconduct . . ."
Section 31-51m(c) creates a statutory cause of action in favor of the discharged employee.
The violations of the law include violations of "18 USC Section 1341 [(frauds and swindles)], 1343 [(fraud by wire, radio, or television)], 1344 [(bank fraud)] or 1348 [(securities fraud)], any rule or regulation of the Securities and Exchange Commission, or any provision of federal or state law relating to fraud against shareholders . . ." Section 33-1336(b) establishes a statutory cause of action for the discharged employee.
Neither section directly applies to the present case. Section 31-51m only protects so-called "external" whistleblowing i.e., to a public authority, as opposed to "internal" whistleblowing i.e., within the employer's organization. The present case falls within the second category as Chenarides alleges that he reported the wrongdoing only to his superiors, not to a public body. Section 33-1336 covers both internal and external whistleblowing, but it only applies to corporations that, unlike Bestfoods and Entenmann's, are publicly held.
Section 33-1336 applies to any Connecticut corporation "the securities of which are registered under Section 12 of the Securities Exchange Act of 1934 . . . or that is required to file reports under Section 15(d) of the Securities Exchange Act of 1934 . . ."
The public policy embodied in § 31-51m and § 33-1336, nonetheless, could support Chenarides' common law actions for wrongful discharge. The Supreme Court in Thibodeau v. Design Group One Architects, LLC, supra, 260 Conn. 691, clearly stated that such an action can stand in the absence of a direct violation of a statutory provision where an employee's discharge offends the public policy expressed in the statute. In that case, the plaintiff brought a wrongful discharge action alleging that her employer, which had less than three employees, terminated her because of her pregnancy. The Fair Employment Practices Act General Statutes § 46a-51, prohibited discrimination related to pregnancy, but only applied to employers with more than three employees. The Appellate Court found that even though there was no direct violation, the termination of the plaintiff was against the public policy embodied in the statute, and that the plaintiff could bring a valid action for wrongful discharge. See Thibodeau v. Design Group One Architects, LLC, 64 Conn.App. 573, 781 A.2d 363 (2001). According to the Appellate Court, "[a] distinction exists between the policy underlying a statute and the remedy provided by the statute to accomplish that policy." Id., 586.
The Supreme Court reversed the Appellate Court's decision. See Thibodeau v. Design Group One Architects, LLC, supra, 260 Conn. 691. The court acknowledged "that there exists a general public policy in [Connecticut] to eliminate all forms of invidious discrimination," but it found that "the exemption contained in the act for employers with fewer than three employees is, itself, an expression of public policy that cannot be separated from the policy reflected in the act's ban on discriminatory employment practices . . . Although the legislative history of the act is silent as to why the legislature chose to exempt small employers from the purview of the act the primary reason for the exemption cannot be doubted: the legislature did not wish to subject [Connecticut's] smallest employers to the significant burdens, financial and otherwise, associated with the defense of employment discrimination claims." Id., 706-07. The court, therefore, held that the plaintiff had failed to bring a valid wrongful discharge action. Id., 718.
The court also noted: "It also is likely that [Connecticut's] legislature, like Congress, was concerned with the protection of intimate and personal relations existing in small businesses . . . In addition, we reasonably may presume that the legislature was motivated to exempt small employers in part because its fundamental objective was to eliminate discrimination on a larger scale . . . and because of the difficulties inherent in detecting and policing discrimination on a small scale." (Citations omitted; internal quotation marks omitted.) Id., 708.
The Thibodeau decision did not hold that a direct violation of the act was necessary to support a cause of action for wrongful discharge. The court addressed the dissent's "concern that [the court's] resolution of the present case `may be construed to vitiate the exception to the at-will employment' doctrine by requiring the plaintiff to show that `her [allegedly wrongful] discharge violated an express statutory provision.' " Id., 78 n. 24. The court found such concern to be unfounded because the court did "not reject the plaintiff's claim because she failed to allege that the defendant had violated a specific statutory provision but, rather, because her claim of a public policy violation [was] defeated by the policy reflected in a specific statutory provision . . ." Id. A common law action for wrongful discharge, therefore, can be validly based on a statutory provision even in the absence of a direct violation of a statute, as long as the public policy embodied in that statute supports said action. In particular, the action stands if the legislature has not made a policy choice to exclude from protection the particular plaintiff bringing the action.
In Burnham v. Karl Gelb, P.C., 252 Conn. 153, 745 A.2d 178 (2000), the Supreme Court denied validity to a wrongful discharge action based on the policy embodied in § 31-51m. In that case, the plaintiff brought an action for wrongful discharge against her former employer. The employer, a dental practice, allegedly terminated the plaintiff because she had filed an anonymous complaint with the Connecticut State Dental Association, and reported that the employer engaged in practices violating the federal Occupational. Safety and Health Act. The plaintiff claimed that her discharge violated the public policy against retaliatory discharges embodied in § 31-51m. The Supreme Court held that the plaintiff had failed to present evidence that her employer violated § 31-51m because the dental association was not a "public body" as required by § 31-51m. The plaintiff could not base her action on that statutory provision. Burnham predated Thibodeau and did not discuss whether the § 31-51m requirement that the employee report the violation of the law to a public body embodied in itself a policy against protecting internal whistleblowers. Burnham, nonetheless, stands for the proposition that the policy underlying § 31-51m does not support an action for wrongful discharge where the employee is discharged for blowing the whistle only internally, as in the present case.
Chenarides argues that the public policy against fraud embodied in § 33-1336 and 18 U.S.C. § 1514A supports his cause of action. Section 33-1336 applies only to employees who report fraudulent conduct, as Chenarides alleges to have done. It protects employees who are discharged for either internal or external whistleblowing, but it does not directly apply to the present case because it only regulates publicly held corporations. Whether the public policy embodied in § 33-1336 validly supports a wrongful discharge action in a case of internal whistleblowing within the context of a privately held corporation is an issue of first impression, to which the legislative history of Public Act 2003, No. 03-259 does not provide an answer.
Public policy may derive from federal law as well as from state law. "[C]laims brought pursuant to the public policy limitation on the at-will employment doctrine can be predicated on the violation of a public policy expressed in a federal statute." Faulkner v. United Technologies Corp., supra, 240 Conn. 585-86. Public Act 2003, No. 03-259 is the Connecticut response to the Sarbanes-Oxley Act of 2002, which introduced 18 U.S.C. § 1514A. Section 33-1336 mirrors the federal statutory rule.
In Thibodeau, the Supreme Court concluded that the fact that § 46a-51 only applied to employers with more than three employees was the result of a policy against protecting individuals working for employers with less than three employees. See Thibodeau v. Design Group One Architects, LLC, supra, 260 Conn. 706-07. The same reasoning does not apply to § 33-1336. Limiting the applicability of § 33-1336 to public companies was not the expression of a policy against protecting whistleblowers of privately held companies. Such a conclusion, in fact, could not be reconciled with the fact that, at the time § 33-1336 was adopted, § 31-51m already gave broad protection from retaliatory discharge to employees of both public and private companies.
Section 31-51 protects external whistleblowers employed by any type of employer, while § 33-1336 public companies whistleblowers, both internal and external. One could argue that with § 33-1336, the Connecticut legislature chose to deny protection to internal whistleblowers of private companies. However, as indicated by the lack of any coordination between the two Sections (§ 33-1336 duplicates 31-51m in the part that protects external whistleblowers of public companies), it is very unlikely that the legislature made such a deliberate choice. This court believes instead that § 31-51m embodies an old policy for the protection of external whistleblowers only, while § 33-1336 expresses, within the context of securities legislation, a new policy for the protection of internal and external whistleblowers who report fraudulent conduct.
Section 33-1336 only applies to public companies because it is part of a legislative effort addressing only corporations that access public markets. Within the securities law context, however, § 33-1336 expresses a more general policy with regard to whistleblowers. The policy is one against retaliatory actions targeting employees who report fraudulent conduct. The protection afforded to the employees is an indirect means to foster the more general policy against fraud within corporate entities. The protection extends to individuals who blow the whistle either internally and externally.
The need to protect general investors, who do not have actual control over management of the corporation, makes this policy more compelling within public corporations. A need to protect innocent third parties, however, exists also within private corporations. Even though they may be more closely involved in the life of the corporation, private companies' shareholders and other constituencies can find no adequate protection from fraudulent conduct through ordinary contractual means.
Accordingly, Connecticut's public policy, as expressed in § 33-1336, supports a cause of action for wrongful discharge in violation of public policy in the case of an employee of a privately held corporation who, like Chenarides, reports fraud only internally. Chenarides is alleging that, as Director of Human Resources, he was assigned to investigate a complaint of wrongdoing. He claims that he uncovered fraud and reported it to his superiors. Chenarides also alleges that his employers fired him "because of his investigation and his team's disclosure of wrongdoing." See revised compl. ¶ 24. Whether that was really the case is irrelevant in a motion to strike setting where the court is required to take all well-pleaded facts as admitted. Chenarides, therefore, has a valid cause of action for wrongful discharge in violation of the public policy embodied in § 33-1336.
This court need not address whether a whistleblower reporting misconduct other than fraud would have an equally valid cause of action.
Chenarides is not claiming that he was fired because he disagreed with his superiors on whether to extend his investigation to additional locations.
In his memorandum in opposition to the motion to strike, Chenarides also cites to a number of Connecticut cases that allegedly express a public policy against fraud in the workplace, and, therefore, support his cause of action for wrongful discharge. Among those cases, the only one that might sufficiently support Chenarides' cause of action is Schmidt v. Yardney Electric Corp., 4 Conn.App. 69, 492 A2d 512 (1985). There, the plaintiff, unlike Chenarides, had participated in the alleged fraud, which he subsequently disclosed to his employer's parent company's auditors. The Appellate Court found that the plaintiff's dismissal in retaliation for his disclosure violated an important public policy against fraud. The potential personal criminal liability that the plaintiff faced there, however, makes that case in part distinguishable from the present one, and could have been a necessary ingredient to the cause of action recognized by the Appellate Court. It appears that § 33-1336 provides stronger support than Schimdt to the legal sufficiency of Chenarides' cause of action.
Other jurisdictions have already recognized this cause of action in the case of internal whistleblowing. As noted by the Federal Court for the District of Connecticut, "[t]his rule makes sense. A rule that would permit the employer to fire a whistleblower with impunity before the employee contacted the authorities would encourage employers promptly to discharge employees who bring complaints to their attention, and would give employees with complaints an incentive to bypass management and go directly to the authorities. This would deprive management of the opportunity to correct oversights straightaway, solve the problem by disciplining errant employees, or clear up a misunderstanding on the part of a whistleblower. The likely result of a contrary rule would be needless public investigations of matters best addressed internally in the first instance. Employers benefit from a system in which the employee reports suspected violations to the employer first; the employee should not, in any event, be penalized for bestowing that benefit on the employer." Sullivan v. Massachusetts Mutual Life Ins. Co., 802 F.Sup. 716, 724-25 (D.Conn. 1992) (applying Massachusetts law).
See, e.g., Murcott v. Best Western International, Inc., 9P.3d 1088, 1097-98 (Ariz.Ct.App. 2000); Aviles v. McKenzie, 1992 WL 715248 (N.D.Cal.); Thomas v. Medical Center Physicians, P.A., 61 P.3d 557, 565 (Idaho 2002); Connelly v. State, 271 Kan. 944, 26 P.3d 1246 (2001), cert. denied 534 U.S. 1081, 151 L.Ed.2d 698, 122 S.Ct. 813 (2002); Crain v. Notational American Ins. Co., 52 P.3d 1035, 1039 (Okla.App. 2002).
GEORGE WESTON COUNTS
The defendants also ask the court to strike counts three, six, and nine of the revised complaint because they do not allege valid, causes of action against George Weston for, respectively, wrongful discharge, breach of implied and/or expressed contract, and promissory estoppel/detrimental reliance.
Counts six and nine, contain allegations that Chenarides' discharge constituted a violation of certain employee practices and policies in effect within the defendants, the Bestfoods Vision/Policies, upon which he relied to his detriment. Chenarides claims that George Weston is responsible for such a breach.
"[A] fundamental attribute of the corporate form is that it shields the shareholders, directors and officers from personal liability . . ." Campisano v. Nardi, 212 Conn. 282, 288, 562 A.2d 1 (1989). "A basic principle of agency is that a corporation can act only through the authorized acts of its corporate directors, officers, and other employees and agents. Thus, the acts of the corporation's agents are attributed to the corporation itself." (Internal quotation marks omitted.) Harp v. King, 266 Conn. 747, 776-77, 835 A.2d 953 (2003). "[A]uthority in the agent of a corporation may be inferred from the conduct of its affairs, or from the knowledge of its directors and their neglect to make objection. (Internal quotation marks omitted.) II Giardino, LLC v. Belle Haven Land Co., 254 Conn. 502, 531, 757 A2d 1103 (2000).
See also General Statutes § 33-673(b) ("a shareholder of a corporation is not personally liable for the acts or debts of the corporation except that he may become personally liable by reason of his own acts or conduct.")
The allegations of the revised complaint are not sufficient to provide a cause of action against George Weston for violating the Bestfoods Vision/Policies. Chenarides alleges that he worked for Bestfoods and Entenmann's and that when he was discharged George Weston owned and managed his employers. He claims that from this the court should infer that Chenarides' superiors were acting as George Weston's agents at that time. However, at the time the relevant promises and representations were made, George Weston did not own and run Bestfoods and Entenmann's. Chenarides has not claimed that George Weston ever employed him or specifically assumed any of Bestfoods' and Entenmann's obligations towards him. Accordingly, the court cannot accept Chenarides' characterization of the Bestfoods Vision/Policies as "a promise by [George Weston] not to subject Chenarides to negative employment action because he performed according to the policies." (See revised compl., Sixth Count, ¶ 32 at 9). It was only Bestfoods and Entenmann's that were responsible to Chenarides for the promises and representations contained in the Bestfoods Vision/Policies. George Weston is a separate entity and is not directly liable for the breach of Bestfoods and Entenmann's obligations.
George Weston did not become responsible for Chenarides' employment relationship, including the promises and representations made to him, when it acquired Bestfoods and Entenmann's. The court, in fact, will not hold George Weston responsible for Bestfoods' and Entenmann's obligations just by virtue of its being their parent company, unless in the presence of allegations sufficient to pierce the two subsidiaries' corporate veil.
This court, moreover, cannot impute to George Weston responsibility for Bestfoods' and Entenmann's alleged wrong. George Weston's position of either a shareholder or as a de facto officer of Chenarides' employers, protects it from any responsibility arising out of the actions of Bestfoods and Entenmann's. The outcome could be different were this court to pierce the corporate veil of Bestfoods and Entenmann's. The only allegations regarding the relationship between George Weston on the one hand, and Bestfoods and Entenmann's on the other, is that at all relevant times they did business at the same location, and that "[f]rom on and after July 1, 2001, George Weston Bakeries acquired and ran Bestfoods Baking Company and Entenmann's." (See revised compl ¶¶ 2-4, 7). Taking these in the light most favorable to Chenarides, the revised complaint does not provide the court with sufficient grounds for taking an extraordinary measure such as piercing the corporate veil.
"A court may pierce the corporate veil only under exceptional circumstances . . . In such unusual circumstances, [c]ourts will disregard the fiction of separate legal entity when a corporation is a mere instrumentality or agent of another corporation or individual owning all or most of its stock . . . Under such circumstances the general rule, which recognizes the individuality of corporate entities and the independent character of each in respect to their corporate transactions, and the obligations incurred by each in the course of such transactions, will be disregarded, where . . . the interests of justice and righteous dealing so demand . . . The issue of whether the corporate veil [should be] pierced presents a question of fact . . . When determining whether piercing the corporate veil is proper, [the] Supreme Court has endorsed two tests: the instrumentality test and the identity test. The instrumentality rule requires, in any case but an express agency, proof of three elements: (1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) that such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of plaintiff's legal rights; and (3) that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of . . . The identity rule has been stated as follows: If a plaintiff can show that there was such a unity of interest and ownership that the independence of the corporations had in effect ceased or had never begun, an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability arising out of an operation conducted by one corporation for the benefit of the whole enterprise . . . The concept of piercing the corporate veil is equitable in nature and courts should pierce the corporate veil only under exceptional circumstances." (Citations omitted; internal quotation marks omitted.) KLM Industries v. Tylutki, 75 Conn.App. 27, 31-32, 815 A.2d 688 (2003).
The fact that George Weston became the owner of Bestfoods and Entenmann's after July 1, 2001, only a few months before Chenarides was discharged, would make it very hard to conclude that Bestfoods and Entenmann's were mere instrumentalities of, or had no existence independent from, their parent company.
In count three, Chenarides asserts a wrongful discharge claim against George Weston. "Where . . . an agent or officer commits or participates in the commission of a tort, whether or not he acts on behalf of his principal or corporation, he is liable to third persons injured thereby." Scribner v. O'Brien, Inc., 169 Conn. 389, 404 (1975). "It is black letter law that an officer of a corporation who commits a tort is personally liable to a victim . . . The same rule would impose personal liability on a shareholder as well." (Citations omitted.) Kilduff v. Adams, Inc., 219 Conn. 314, 331-32, 593 A.2d 478 (1991). Chenarides alleges that George Weston, owner, and de facto manager of his employers, participated in his wrongful discharge. Count three is legally sufficient against George Weston as it is responsible for its part in the alleged tortuous action.
For the foregoing reasons, the defendants' motion to strike counts one, two and three of the revised complaint is denied. Their motion to strike counts six and nine is granted.
HILLER, J.