Opinion
FBTCV166055140S
11-02-2016
Joseph Lipovich v. People's United Financial, Inc. et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION RE MOTION TO DISMISS
Richard E. Arnold, Judge.
Pursuant to Practice Book § 10-30, the defendants have moved to dismiss the plaintiff's Complaint for the reason that the Complaint is moot. In support of their motion to dismiss, the defendants have submitted a memorandum of law, copies of applicable statutes from the State of Delaware, resolutions from the defendant corporation and its Board of Directors, Proxy Statement from the 2016 Annual Meeting of Shareholders, State of Delaware Certificate of Amendment to the defendant's Certificate of Incorporation and a reply memorandum of law. The plaintiff has submitted his objection to the motion to dismiss and his opposing memorandum of law. The plaintiff has also submitted a copy of a transcript regarding certain rulings from the Chancery Court for the State of Delaware in the matters of In Re Valco Energy, Inc. Stockholder Litigation, dated December 21, 2015, and In Re Colfax Corporation, dated April 2, 2015.
The plaintiff's Complaint is dated February 1, 2016, and alleges two causes of action. The first count alleges a breach of fiduciary duty against the individual defendants and the second count seeks a declaratory judgment. According to the plaintiff, he commenced this action against " People's United" and the individual members of its Board of Directors seeking certain relief, including, but not limited to: (1) injunctive relief prohibiting the defendants from attempting to enforce an invalid provision in the company's Certificate of Incorporation (" Charter") that prevented stockholders from removing directors without cause; (2) a judgment invalidating and striking the illegal Charter provision; (3) a judgment declaring the defendants breached their fiduciary duties in connection with their efforts to entrench themselves in office through the invalid Charter provision; and (4) a judgment declaring that People's United's directors may be removed and replaced without cause. Plaintiff alleges that Section 5.07 of the Charter violated the plain language of Delaware General Corporate Law (" DCL") section 141(k). The plaintiff also alleges that two days following the commencement of this action, People's United resolved to amend Section 5.07 of the Charter to state that its directors may be removed with or without cause, and People's stockholders approved the amendment on April 21, 2016.
The complaint begins with twenty-five introductory paragraphs of preliminary allegations, reciting what the plaintiff claims is the " nature of the action, " " jurisdiction and venue, " " the parties, " and " substantive allegations." The first count begins with paragraph 26, which states that paragraph 26 incorporates by reference and re-alleges the first 25 paragraphs. The first count consists of paragraphs 1 through 30. The second count incorporates by reference and re-alleges the first 30 paragraphs and adds paragraphs 31 through 34. The prayer for relief seeks not only declaratory relief, but also seeks injunctive relief, as well as costs and attorneys fees, among other items. There is no claim for damages, other than an award of costs, attorneys fees and " expert's fees."
While the plaintiff agrees that People's United has amended its Charter, the plaintiff disagrees that the matter is moot, and that the defendants still have a right to move forward with his claims that the defendants breached their fiduciary duties. Second, the plaintiff argues that the court can still issue a permanent injunction requiring that People's United not, in the future, modify or amend its Charter to re-insert " the illegal items, " so that " the same wrongdoing does not recur in the future." The plaintiff contends that these issues have not been resolved or mooted by People's amendment of Section 5.07 of its Charter, and argues the court can grant practical relief.
Standard of Law: Motion to Dismiss
Before proceeding further, the court reviews the relevant standard of law when entertaining a motion to dismiss. A motion to dismiss shall be used to assert (1) lack of jurisdiction over the subject matter, (2) lack of jurisdiction over the person and (3) improper venue. " 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." Richardello v. Butka, 45 Conn.Supp. 336, 717 A.2d 298 (1997) ; Gurliacci v. Mayer, 218 Conn. 531, 544, 590 A.2d 914 (1991). " A motion to dismiss is used to assert jurisdictional flaws that appear on the record or are alleged by the defendant in a supporting affidavit as to facts not apparent on the record." Villager Pond, Inc. v. Darien, 54 Conn.App. 178, 182, 734 A.2d 1031 (1999); Bradley's Appeal from Probate, 19 Conn.App. 456, 461-62, 563 A.2d 1358 (1989).
" In ruling upon whether a complaint survives a motion to dismiss, a court must take the facts to be those alleged in the complaint, including those facts necessarily implied from the allegations, construing them in a manner most favorable to the pleader." Villager Pond, Inc. v. Darien, supra, 54 Conn.App. 183; Mahoney v. Lensink, 213 Conn. 548, 567, 569 A.2d 518 (1990). " In contrast, if the complaint is supplemented by undisputed facts established by affidavits submitted in support of the motion to dismiss . . . other types of undisputed evidence; . . . and/or public records of which judicial notice may be taken; . . . the trial court, in determining the jurisdictional issue, may consider these supplementary undisputed facts and need not conclusively presume the validity of the allegations of the complaint . . . Rather, those allegations are tempered by the light shed on them by the [supplementary undisputed facts] . . . If affidavits and/or other evidence submitted in support of a defendant's motion to dismiss conclusively establish that jurisdiction is lacking, and the plaintiff fails to undermine this conclusion with counter-affidavits . . . or other evidence, the trial court may dismiss the action without further proceedings . . . If, however, the defendant submits either no proof to rebut the plaintiff's jurisdictional allegations . . . or only evidence that fails to call those allegations into question . . .; the plaintiff need not supply counter affidavits or other evidence to support the complaint, but may rest on the jurisdictional allegations therein . . ." (Citations omitted; emphasis in original; footnote omitted; internal quotation marks omitted.) Conboy v. State, 292 Conn. 642, 651-52, 974 A.2d 669 (2009).
" Mootness . . . implicates subject matter jurisdiction, which imposes a duty on the [trial] court to dismiss a case if the court can no longer grant practical relief to the parties." (Internal quotation marks omitted.) Curley v. Kaiser, 112 Conn.App. 213, 229, 962 A.2d 167 (2009). " Mootness presents a circumstance wherein the issue before the court has been resolved or had lost its significance because of a change in the condition of affairs between the parties." (Internal quotation marks omitted.) State v. Begley, 122 Conn.App. 546, 550-51, 2 A.3d 1 (2010). " A case becomes moot when due to intervening circumstances a controversy between the parties no longer exists." (Internal quotation marks omitted.) Waterbury Hospital v. Connecticut Health Care Associates, 186 Conn. 247, 252, 440 A.2d 310 (1982).
Discussion
The plaintiff alleges he is a stockholder of People's United common stock. People's United is a Delaware Corporation with its principal offices being located in Bridgeport, Connecticut. The defendant Barnes is the President and Chief Executive Officer and a director. Defendant Carter is the Non-Executive Chairman of People's United and a director. Defendant Carter was also lead Director and Vice Chairman of People's United from at least December 2006, to November 2008. The defendants Franklin, Baron, Hoyt, Hansen, Dwight, Richards, Walters, Bottomley, McAllister and Cruger are directors of People's United.
The plaintiff's complaint states that the " Charter Provisions" of People's United violated Section 141(k) of the DCL which provide that directors or the entire board of directors could be removed with or without cause, by the holders of a majority of the shares entitled to vote. Prior to the amendment of the " Charter" at the 2016 Annual Meeting of the Shareholders, the People's United Certificate of Incorporation stated that the directors (subject to Section 5.04 of the Certificate of Incorporation) could be removed at any time, but only for cause, and such removal shall require the vote, in addition to any vote required by law, of not less than two-thirds (66.7%) of the total votes eligible to be cast by the holders of all outstanding shares of Capital Stock entitled to vote generally in the election of directors at a meeting of shareholders expressly called for that purpose, voting together as a single class. The plaintiff argues that this plainly contradicts Section 141(k) of the DCL, allowing stockholders to remove directors with or without cause by a simple majority vote.
The plaintiff's Complaint refers to the " Charter, " but the court assumes the plaintiff meant to refer to the provisions of the Certificate of Incorporation for People's United.
Title 8, Delaware Code § 141 is titled " Board of directors; powers; number, qualifications, terms and quorum; committees; classes of directors; non-stock corporations; reliance upon books; action without meeting; removal" and § 141(k) states as follows:
(k) Any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except as follows:
(1) Unless the certificate of incorporation otherwise provides, in the case of a corporation whose board is classified as provided in subsection (d) of this section, stockholders may effect such removal only for cause; or
(2) In the case of a corporation having cumulative voting, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against such director's removal would be sufficient to elect such director if then cumulatively voted at an election of the entire board of directors, or, if there be classes of directors, at an election of the class of directors of which such director is a part.
Whenever the holders of any class or series are entitled to elect 1 or more directors by the certificate of incorporation, this subsection shall apply, in respect to the removal without cause of a director or directors so elected, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares as a whole.
The plaintiff alleges that People's United formerly fell under the exception contained in § 141(k)(1) relating to a corporation that had a classified board of directors. Under that scenario directors could only be removed for cause unless the certificate of incorporation provided otherwise. However, in 2013, stockholders voted to declassify the Board and the Certificate was amended. The plaintiff alleges, despite this change neither the company or its Board removed the provisions in the Certificate. Thus, the Certificate provisions that remained in place imposed an artificial and incorrect super-majority voting requirement to remove and replace directors of People's United.
In claiming a breach of fiduciary duty against the individually named defendants the plaintiff alleges these defendants have caused are continuing to harm the plaintiff by impairing his fundamental franchise rights to remove and elect directors free of coercion. The plaintiff requests a declaration that the individual defendants breached their fiduciary duty, along with injunctive relief to rectify such breaches, including, inter alia, an injunction prohibiting the defendants from attempting to enforce the invalid Certificate provisions. The plaintiff asks the court to invalidate and strike the invalid provisions to prevent future harm and confusion.
The defendant, in moving to dismiss this matter for mootness, states that the People's United Board of Directors adopted Resolutions on February 18, 2016 to: (1) amend the Certificate of Incorporation, effective, as and when, such amendments are approved by the shareholders; and (2) to submit the proposed amendments to the shareholders for a vote at the 2016 Annual Meeting of Shareholders. The proposed amendment was approved by the shareholders at said meeting on April 21, 2016. Therefore, the Certificate of Incorporation presently contains no provision requiring that a director's removal be " only for cause, " which may be or might have been inconsistent with DCL § 141(k). Thus, argues the defendants, there is no relief the court can award, and the case should be dismissed as moot.
Additionally, the defendants argue they are under no requirement to revise the provisions of the Certificate of Incorporation which requires a vote of not less than two-thirds (66.7%) of the total votes eligible to be cast by the holders of all the outstanding shares of Capital Stock (" the Super-Majority Vote Provision") as such provision is allowed by Delaware law, DCL § 102(b). DCL § 102(b) reads in relevant part:
The certificate of incorporation may also contain any or all of the following matters . . . (4) Provisions requiring for any corporate action, the vote of a larger portion of the stock or of any class or series thereof, or of any other securities having voting power, or a larger number of the directors, than is required by this chapter . . .
The defendants argue that the Super-Majority Vote Provision contained in section 5.07 of the People's United Certificate of Incorporation, as amended is allowed by DCL § 102(b)(4), and there is no basis to declare the provision invalid, unenforceable or illegal. Therefore, there is no jurisdiction or legal basis to provide the plaintiff with the relief he seeks. The court agrees.
The plaintiff seeks a declaratory judgment declaring the defendants have breached their fiduciary duty by using the corporate machinery to entrench themselves in office. " The essential elements to pleading a cause of action for breach of fiduciary duty under Connecticut law are: (1) That a fiduciary relationship existed which gave rise to (a) a duty of loyalty on the part of the defendant to the plaintiff, (b) an obligation on the part of the defendant to act in the best interests of the plaintiff, and (c) an obligation on the part of the defendant to act in good faith in any manner relating to the plaintiff; (2) That the defendant advanced his or her own interests to the detriment of the plaintiff; (3) That the plaintiff has sustained damages; and (4) That the damages were proximately caused by the fiduciary's breach of his or her fiduciary duty." Banning v. Right Choice Real Estate, LLC, Superior Court of Connecticut, judicial district of Ansonia-Milford, No. CV106003818S, (Feb. 22, 2011, Arnold, J.); see also, T. Merritt, 16 Connecticut Practice Series: Elements of an Action (2010-2011 Ed.) § 8:1, p. 534.
The complaint is devoid of facts to support this claim for breach of fiduciary duty. There are no allegations the Board took any actions that would interfere with fundamental stockholder rights. There are no allegations that there was any move or desire by stockholders to remove any members of the Board that was stifled by, or opposed by the Board. The claimed breach of fiduciary duty arises solely out of the language contained in the Certificate of Incorporation, which was amended, as soon as, was practicable after the decision in In Re Valco Energy, Inc. Consol. S'holder Litig., supra, C.A. No. 11775-VCL (Del.Ch. Dec. 23, 2015). There is no ongoing breach. Additionally, the plaintiff has not sought any monetary relief for any previous alleged breach.
There is no practical relief set forth in the plaintiff's claim for relief that the court can award in: (1) declaring a non-existent provisions in the Certificate " invalid and unenforceable"; (2) enjoining the defendants from attempting to enforce non-existent provisions; (3) requiring the defendants to remove non-existent provisions that were previously removed. The plaintiff speculates as to future harm, but it is no more than mere speculation. Thus, the court is left with the plaintiff's claim for an award of an attorneys fee. " The general rule of law known as the American rule is that attorneys fees and ordinary expenses and burdens of litigation are not allowed to a successful party absent a contractual or statutory exception." ACMAT Corp. v. Greater New York Mut. Ins. Co., 282 Conn. 576, 582, 923 A.2d 697 (2007); see also, Peterson v. Norwalk, 152 Conn. 77, 80, 203 A.2d 294 (1964) (plaintiff's request for attorneys fees in declaratory judgment action denied because " [n]either the statues or the rules provide for an allowance for counsel fees in declaratory judgment actions").
" Mootness is a question of justiciability that must be determined as a threshold matter because it implicates [this] court's subject matter jurisdiction . . . We begin with the four-part test for justiciability established in State v. Nardini, 187 Conn. 109, 445 A.2d 304 (1982) . . . Because courts are established to resolve actual controversies, before a claimed controversy is entitled to a resolution on the merits it must be justiciable. Justiciability requires (1) that there be an actual controversy between or among the parties to the dispute . . . (2) that the interests of the parties be adverse . . . (3) that the matter in controversy be capable of being adjudicated by judicial power . . . and (4) that the determination of the controversy will result in practical relief to the complainant." (Citation omitted; internal quotation marks omitted.) State v. Preston, 286 Conn. 367, 373-74, 944 A.2d 276 (2008); Patterson v. Commissioner of Correction, 112 Conn.App. 826, 829-30, 964 A.2d 1234 (2009).
" Mootness presents a circumstance wherein the issue before the court has been resolved or had lost its significance because of a change in the condition of affairs between the parties." (Internal quotation marks omitted.) Wilcox v. Ferraina, 100 Conn.App. 541, 547, 920 A.2d 316 (2007). " The test for determining mootness is whether a judgment, if rendered, would have any practical legal effect upon an existing controversy. Thus, the central question in a mootness problem is whether a change in the circumstances that prevailed at the beginning of the litigation has forestalled the prospect for meaningful, practical, or effective relief." Statewide Grievance Committee v. Burton, 282 Conn. 1, 13, 917 A.2d 966 (2007). " [T]he test for determining mootness is not [w]hether the [plaintiff] would ultimately be granted relief . . . The test, instead, is whether there is any practical relief this court can grant the [plaintiff] . . . If no practical relief can be afforded to the parties, the [case] must be dismissed." (Internal quotation marks omitted.) In re Jeremy M., 100 Conn.App. 436, 441-42, 918 A.2d 944, cert. denied, 282 Conn. 927, 926 A.2d 666 (2007).
" A case that is non-justiciable must be dismissed for lack of subject matter jurisdiction." (Internal quotation marks omitted.) Chapman Lumber, Inc. v. Tager, 288 Conn. 69, 86, 952 A.2d 1 (2008). " [J]usticiability comprises several related doctrines, namely, standing, ripeness, mootness and the political question doctrine, that implicate a court's subject matter jurisdiction and its competency to adjudicate a particular matter." (Internal quotation marks omitted.) Coalition for Justice in Education Funding, Inc. v. Rell, 295 Conn. 240, 254, 990 A.2d 206 (2010).
" [R]ipeness is a sine qua non of justiciability . . . An issue regarding justiciability . . . must be resolved as a threshold matter because it implicates [the] court's subject matter jurisdiction . . . If it becomes apparent to the court that such jurisdiction is lacking, the [cause of action] must be dismissed." (Internal quotation marks omitted.) Liberty Mutual Ins. Co. v. Lone Star Industries, Inc., 290 Conn. 767, 812, 967 A.2d 1 (2009). A trial court properly grants a motion to dismiss if it determines that the cause of action is " unripe for adjudication." Bloom v. Miklovich, 111 Conn.App. 323, 336, 958 A.2d 1283 (2008).
" [T]he rationale behind the ripeness requirement is to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements . . . Accordingly, in determining whether a case is ripe, a trial court must be satisfied that the case before [it] does not present a hypothetical injury or a claim contingent upon some event that has not and indeed may never transpire." (Internal quotation marks omitted.) St. Paul Travelers Companies, Inc. v. Kuehl, 299 Conn. 800, 816 n.7, 12 A.3d 852 (2011)" 'A hypothetical injury or threat is not a ripe or justiciable claim.' Cumberland Farms, Inc. v. Town of Groton, 699 A.2d 310, 46 Conn.App. 514 (1997), quoting United Public Workers v. Mitchell, 330 U.S. 75, 89-90, 67 S.Ct. 556, 91 L.Ed. 754 (1947)." Richardson v. Bloomfield Board of Education, Superior Court, judicial district of Hartford, Docket No. CV 08 5017287, (September 3, 2008, Dubay, J.) .
" We have consistently held that we do not render advisory opinions. If there is no longer an actual controversy in which we can afford practical relief to the parties, we must dismiss the [action] . . . Because courts are established to resolve actual controversies, before a claimed controversy is entitled to a resolution on the merits it must be justiciable. Justiciability requires . . . that there be an actual controversy between or among the parties to the dispute: Courts exist for determination of actual and existing controversies, and under the law of this state the courts may not be used as a vehicle to obtain judicial opinions on points of law . . . [W]here the question presented is purely academic, we must refuse to entertain the appeal . . . A case becomes moot when due to intervening circumstances a controversy between the parties no longer exists." (Citations omitted; internal quotation marks omitted.) Domestic Violence Services of Greater New Haven, Inc. v. Freedom of Information Commission, 240 Conn. 1, 6-7, 688 A.2d 314 (1997).
" In Burton v. Dominion Nuclear Connecticut, Inc., 300 Conn. 542, 23 A.3d 1176 (2011), the court reaffirmed the case law precedent regarding the issue of mootness as it relates to injunctive relief: Connecticut courts have rejected injunctive remedies on the grounds of mootness where the issue before the court has been resolved or has lost its significance because of intervening circumstances." Farrar-James v. Bridgeport Board of Education, Superior Court of Connecticut, Judicial District of Waterbury, No. X06CV116010995S, (Aug. 31, 2011, Agati, J.), citing Waterbury Hospital v. Connecticut Health Care Associates, 186 Conn. 247, 249-52, 440 A.2d 310 (1982) (court dismissed as moot plaintiff's request for injunctive relief to restrain picketing during strike because strike and picketing had ended while appeal was pending); Daley v. Gaitor, 16 Conn.App. 379, 381 n.2, 547 A.2d 1375 (court dismissed as moot plaintiff's request to enjoin city of Hartford from administering promotional examination to police officers following city's promotion of officers during pendency of appeal), cert. denied, 209 Conn. 824, 552 A.2d 430 (1988).
There are no provisions in People's United's Certificate of Incorporation, as amended, requiring that a director's removal be for cause that is now inconsistent with DCL § 141(k). The language in Section 5.07 of the Certificate of Incorporation, as amended, requiring a vote of not less than two-thirds (66.7%) of the total vote eligible to be cast by the holders of all outstanding shares of Capital Stock is allowed by DCL § 102(b)(4). There is no legal basis for the plaintiff's claim for an award of attorneys fees. There is simply no practical relief that can be granted by the court. The defendants' motion to dismiss is granted.