Opinion
No. CV11-6020036S
September 12, 2011
MEMORANDUM OF DECISION ON MOTION TO STRIKE (No. 101)
The plaintiffs, Brett Duncan and Michele Perucelli, signed a contract with defendant J.J.D., Inc. whereby the defendant agreed to install an in-ground swimming pool on the plaintiffs' property. They allege that during the construction the defendants, J.J.D., Inc. and its president, Jonathan DeMichiel, caused substantial damage to the pool and the plaintiffs' property. Although J.J.D., Inc. advertised that it was "fully insured" prior to the execution of the contract, defendants' insurance claim was rejected by their insurer. The plaintiffs terminated the contract and brought this action.
In counts one and two, the plaintiffs allege claims against J.J.D., Inc. for breach of contract and violations of CUTPA. In Count three, the plaintiffs allege that Mr. DeMichiel is personally liable for violations of CUTPA. In counts four and five, the plaintiffs seek to pierce the corporate veil and hold DeMichiel personally liable for J.J.D., Inc.'s breach of contract and CUTPA violations.
On May 16, 2011, the defendants moved to strike counts three, four and five of the complaint. On June 8, 2011, the plaintiffs filed an objection to the motion. On July 8, 2011, the defendants filed a reply. This matter was argued at short calendar on July 18, 2011.
For the following reasons, the motion to strike is denied as to count three and granted as to counts four and five.
I CUTPA
CUTPA prohibits a person from engaging in "unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." General Statutes § 42-110b(a). Trade and commerce is defined broadly and includes the distribution of services. General Statutes § 42-110a(4). "[I]n determining whether a practice violates CUTPA [the Connecticut Supreme Court] has adopted the criteria set out in the cigarette rule by the [F]ederal [T]rade [C]ommission for determining when a practice is unfair: (1) [W]hether the practice, without necessarily having been previously considered unlawful offends public policy as it has been established by statutes, the common law, or otherwise . . . (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other businesspersons] . . . A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three." (Internal quotation marks omitted.) Naples v. Keystone Building Development Corp., 295 Conn. 214, 227 (2010). There is no special requirement that a CUTPA claim be pleaded to conform to the prongs of the "cigarette rule." Macomber v. Travelers Property Casualty Corp., 261 Conn. 620, 644 (2002).
Our trial courts have consistently stricken or otherwise disposed of CUTPA claims where the facts alleged support a claim for nothing more than a simple breach of contract. "Depending upon the nature of the assertions, however, the same facts that establish a breach of contract claim may be sufficient to establish a CUTPA violation. That is generally so when the aggravating factors present constitute more than a failure to deliver on a promise." (Internal quotation marks omitted.) Banknorth, N.A. v. Black Rock Realty, Judicial District of Fairfield, Docket No. CV 09 6002566 (April 14, 2010, Hartmere, J.).
"Where a complaint alleges that a defendant made a misrepresentation during the course of the defendant's business practice, with or without the intent to deceive or fraud, and that misrepresentation led a plaintiff to lose money or property, that plaintiff has alleged a cause of action under CUTPA . . . Negligent misrepresentation suffices as a basis for a CUTPA claim and as an aggravating factor making a breach of contract action also the basis of a CUTPA claim." Friedlander Limited Parnership v. Cohen, Superior Court, Judicial District of Fairfield, Docket No. CV 04 0412547 (April 15, 2005, Skolnick, J.).
In this case, count three alleges that DeMichiel "personally engaged in . . . unfair, unethical, unlawful and/or deceptive acts and practices . . . in that he personally created, published, authorized, approved and/or condoned . . . that J.J.D., Inc. . . . was `fully insured' when, in fact, its insurance was not adequate to cover the damages and/or losses which were reasonably foreseeable in the installation and/or construction of fiberglass pools, such as that for which it contracted with the plaintiffs." Count three also alleges that DiMichiel "personally attempted to thwart the plaintiffs' efforts to complete the project by using a different contractor . . . by falsely stating . . . that the plaintiffs had failed to make timely and/or complete payment as required by their contract." Accordingly, the plaintiffs have alleged sufficient aggravating circumstances to bring their claim within the cigarette rule.
Moreover, count three alleges that DiMichiel personally participated in the unfair and deceptive conduct. "It is well established that an officer of a corporation does not incur personal liability for its torts merely because of his official position. Where, however, 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 . . . Thus, a director or officer who commits the tort or who directs the tortious act done, or participates or operates therein, is liable to third persons injured thereby, even though liability may also attach to the corporation for the tort." (Internal quotation marks omitted.) Sturm v. Harb Development, LLC, 298 Conn. 124, 132-33 (2010).
The motion to strike count three is therefore denied.
II PIERCING THE CORPORATE VEIL
"The concept of piercing the corporate veil is equitable in nature . . . No hard and fast rule, however, as to the conditions under which the entity may be disregarded can be stated as they vary according to the circumstances of each case . . . Ordinarily the corporate veil is pierced only under exceptional circumstances, for example, where the corporation is a mere shell, serving no legitimate purpose, and used primarily as an intermediary to perpetuate fraud or promote injustice . . . The improper use of the corporate form is the key to the inquiry, as [i]t is true that courts will disregard legal fictions, including that of a separate corporate entity, when they are used for fraudulent or illegal purposes. Unless something of the kind is proven, however, to do so is to act in opposition to the public policy of the state as expressed in legislation concerning the formation and regulation of corporations." (Citations omitted; internal quotation marks omitted.) Naples v. Keystone Building Development Corp., 295 Conn. 214, 233-34 (2010).
A plaintiff can attempt to pierce the corporate veil under either the instrumentality rule or the identity rule.
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 [the] 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 [the] 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, and 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. (Citations omitted; internal quotation marks omitted.)
Sturm v. Harb Development, LLC, supra, 298 Conn. 131 n. 7.
The trial judges who have addressed this issue have consistently held in veil piercing cases, that the complaint must include specific facts in support of the conclusory allegations which set forth the elements of the claim. In Harris v. Kupersmith, Superior Court, Judicial District of Stamford-Norwalk at Stamford, Docket No. CV 08 6000995 (August 31, 2009, Adams, J.), the plaintiff alleged breach of contract against two limited liability companies and an individual who was the sole member of those entities. The court denied a motion to strike the veil piercing claim because Plaintiff alleged numerous, specific facts which, if proven, would show that the limited liability companies were completely dominated by the individual defendant. Veil piercing claims which contain only legal conclusions are "routinely" stricken. Ward v. RAK Construction, LLC, Judicial District of Ansonia-Milford, Docket No. CV 09 5010067 (April 8, 2010, Bellis, J.).
In the present case, the plaintiffs have alleged the following in counts four and five in support of their veil piercing claim:
CT Page 19765
(1) [t]he defendant . . . exercised complete management and control over the conduct of business by J.J.D., Inc. so as to dominate its finances, policies and business practices, so that the corporate exercised no mind or existence of its own; (2) the defendant . . . operated in a manner which disregarded corporate formalities, instead operating for the interest and benefit of the defendant, Jonathan DeMichiel, in such a manner that the independence of the corporation ceased and/or had never begun; (3) at all times relevant to this action the defendant J.J.D., Inc. . . . was undercapitalized and/or operated in such a manner such as to avoid possessing significant assets in order to avoid payment of the corporation's lawful debts; (4) [s]ome or all of the real property, equipment and other resources used in the business of J.J.D., Inc. . . . were placed under the personal ownership of . . . DeMichiel and/or other corporations of which . . . DeMichiel was an officer and/or majority shareholder . . .; (5) [s]ome or all of the revenues from J.J.D., Inc . . . was transferred to other corporations of which . . . DeMichiel was an officer, director and/or majority stock holder, for . . . DeMichiel's personal benefit and enrichment . . .; and (6) DeMichiel exercised complete control and domination over the business practices and actions of J.J.D., Inc. . . . with respect to the contract and business transaction between J.J.D., Inc. and the plaintiffs . . .
These allegations do not state a cause of action under the identity rule or the instrumentality rule. Plaintiffs have not alleged specific facts which could establish that the defendants disregarded corporate formalities or failed to maintain separate identities, or that defendant DeMichiel exercised total control over these entities. Simply alleging that DeMichiel is the sole shareholder in J.J.D., Inc. or that the company is undercapitalized is not enough to pierce the corporate veil.
The motion to strike is therefore granted as to the fourth and fifth counts.