Summary
holding that CUTPA allows for aiding and abetting liability
Summary of this case from In re Trilegiant Corp.Opinion
No. X08 CV 01 0183603 S
March 24, 2005
MEMORANDUM OF DECISION RE MOTION TO STRIKE ( 211.00)
In his Second Amended Complaint the plaintiff Rossman alleges the following. Rossman and Jerome Terracino owned Guardian Systems, Inc. (Guardian Systems). Rossman owned and was equitably entitled to 25 percent of Guardian Systems and Jerome Terracino owned 75 percent. Each was an officer and director of Guardian Systems. In 1997, at a special meeting of shareholders, Terracino removed Rossman as an officer and director of Guardian Systems and elected the defendants Thomas Terracino and Tracy Emro as directors and appointed them officers.
Later in 1997 Jerome Terracino acting as president of Guardian Systems entered into an Exchange Agreement with defendant Guardian Alarm Services, Inc. (Guardian Alarm) and defendant Patricia Morasco whereby Guardian Systems sold all its assets, allegedly worth $1.6 million, to Guardian Alarm in return for 375 shares of Guardian Alarm stock. Morasco received 1125 shares of Guardian Alarm in exchange for a payment of $5,000 and a promise to loan up to $100,000 to Guardian Alarm. The agreement was signed on behalf of Guardian Systems by Jerome Terracino, on behalf of Guardian Alarms by Jerome Terracino, and Morasco signed on her own behalf. It is alleged that Thomas Terracino and Emro as directors of Guardian Systems approved and consented to the Exchange Agreement.
The Second Amended Complaint is in Five Counts alleging breach of fiduciary duty, a violation of General Statutes § 52-564, conversion, unjust enrichment, and a violation of the Connecticut Unfair Trade Practices Act, General Statutes § 42-110 et. seq. (CUTPA). All counts are directed against all defendants, and the defendants have moved to strike three counts in their entirety and all the counts as to Morasco and Guardian Alarm.
Standard of Review
The court's analysis of a motion to strike is guided by well accepted standards:
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.) Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997); see Practice Book § 10-39. A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court . . . We take the facts to be those alleged in the complaint . . . and we construe the complaint in the manner most favorable to sustaining its legal sufficiency. Thus, [i]f facts provable in the complaint would support a cause of action, the motion to strike must be denied. (Citations omitted; internal quotation marks omitted.) Vacco v. Microsoft Corp., 280 Conn. 59, 64-65, 793 A.2d 1048 (2002). "A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged. Novametrix Medical Systems, Inc. v. BOC Group, Inc. 224 Conn. 210, 215, 618 A.2d 25 (1992)."
Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498 (2003).
Discussion A. Breach of Fiduciary Duty.
Morasco and Guardian Alarm move to strike this count as to them asserting that they did not owe Rossman a fiduciary duty. This count alleges that Morasco and Guardian Alarm knew that Jerome Terracino was breaching the fiduciary duty he owed as majority shareholder of Guardian System to Rossman, and their actions in entering into the Exchange Agreement constituted substantial assistance in that breach of duty. In support of his claim the plaintiff cites the Restatement (Second) of Torts § 876 which states:
For harm resulting to a third person from the tortious conduct of another, one is subject to liability if he . . . (b) knows the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself . . .
The Connecticut Supreme Court has adopted this rule. Carney v. DeWees, 136 Conn. 256, 262 (1949); see also Slicer v. Quigley, 180 Conn. 252 (1980).
In reply, the defendants argue that the Second Amended Complaint does not allege that the assistance of Morasco and Guardian Alarm was a substantial factor in causing harm to the plaintiff and the resulting tort, citing Restatement (Second) of Torts, supra, comment d. This failure, they claim, is fatal. The court disagrees for two reasons. First, the Second Amended Complaint alleges that as "a direct and proximate cause of the aforesaid breaches of fiduciary duty, the plaintiff suffered . . . injuries." The "breaches" can be read to include the actions of Guardian Alarm and Morasco since, as the above referenced comment d notes, the provider of assistance or encouragement can be a tortfeasor himself and thus a person who breaches a duty.
Second, a fair reading of the pleading as construed in favor of the plaintiff certainly gives rise to the logical inference that the actions of Guardian Alarm and Morasco in entering into and executing the Exchange Agreement were critical and substantial factors in causing the alleged injury to Rossman. Without the Exchange Agreement the transfer of assets to Guardian Alarm would not have occurred and the company and Morasco, its principal owner would not have benefitted.
B. Conversion; Statutory Theft.
In his Second and Third Counts Rossman sets forth claims of conversion and a violation of General Statutes § 52-564 which states that a person may be liable for treble damages for stealing the property of another. A necessary element common to each of these claims is that the plaintiff must establish that he has been deprived of his property, and liability for conversion is a necessary predicate for liability under Section 52-564. See News America Marketing In-Store, Inc. v. Marquis, 86 Conn.App. 527, 544-46 (2004), cert. granted, 273 Conn. 905 (2005).
In this court's view Rossman has not been deprived of any property. According to his allegations he has not been deprived of his equity or stock interest in Guardian Systems rather the value of that interest has allegedly been decreased because Guardian Systems is now an owner of just a quarter of Guardian Alarm. The fluctuation of value is not a basis for a claim of conversion or statutory theft. See this court's discussion in a similar context in Brandt v. Walker Digital, Superior Court, judicial district of Stamford-Norwalk at Stamford, complex litigation docket, X08 CV 03 0194566 (November 1, 2004).
Rossman contends that Restatement (Second) of Torts § 242 provides a basis for his claim. Specifically, Section 242(2) recognizes a liability similar to conversion when one prevents the exercise of certain intangible rights which arise out of a document. An example would be where a stockholder was prevented from voting on corporate matters. See Restatement ( Second) of Torts § 242, Illustration 2. However, Rossman has neither lost any stock nor any rights that accompany the ownership of stock, and the court concludes Section 242 does not cover this situation.
For the reasons stated the motion to strike the Second and Third Counts is granted.
C. Unjust Enrichment.
In the Fifth Count Rossman alleges that Morasco was unjustly enriched by means of the Exchange Agreement. Morasco, in support of the motion to strike, contends that she did not personally receive any assets from Guardian Systems, that she had no obligation to pay Rossman and that Rossman has no standing to assert an unjust enrichment claim.
As the defendants have noted, the right of recovery for unjust enrichment is equitable in nature and, as such, is a broad and flexible remedy. Cecio Brothers, Inc. v. Greenwich, 156 Conn. 561, 564 (1968). It is available in circumstances when it is contrary to good conscience and equity for a defendant to retain a benefit which has come at the expense of the plaintiff. National CSS, Inc. v. Stamford, 195 Conn. 587, 597 (1985); see also Hartford Whalers Hockey v. Uniroyal Goodrich Tire, 231 Conn. 276, 282 (1994), and cases cited therein.
The essential allegations of Rossman's unjust enrichment claim are that Morasco received 75 percent of the equity in a corporation by paying $5,000 and agreeing to loan up to $100,000. The company, Guardian Alarm, received $1.6 million in assets from Guardian Systems while Rossman's interest in those assets declined from 25 percent to 6.25 percent (Rossman's 25 percent of Guardian Systems' 25 percent of Alarm). As a legal matter these allegations state a cause of action for unjust enrichment.
D. CUTPA.
Plaintiff claims that the actions of all defendants violated CUTPA in that they were unfair and deceptive. Morasco and Guardian Alarms seek to strike this count as to them, arguing that they took no part in the decision of Jerome and Thomas Terracino and Emro to sell all the assets to Guardian Alarm. However, the Second Amended Complaint does allege, as pointed out earlier, that Morasco and Guardian Alarm, through their participation in the Exchange Agreement, provided substantial assistance to the other defendants in their alleged unfair and deceitful acts. As adverted to earlier a person who gives substantial assistance to one who breaches a duty may be a tortfeasor as well. Restatement (Second) of Torts § 876, comment d. Substantial assistance is the key to aider and abettor liability.
The question presents itself as to whether one may be held liable under CUTPA as an aider and abettor of a CUTPA violation. This court concludes that under the Restatement analysis that the provision of substantial assistance to the commission of a tort gives rise to tort liability itself is a sound basis for holding an aider and abettor liable under CUTPA.
CUTPA, in essence, is a tort created by statute providing an expanded remedy for unfair or deceptive practices in a business setting. While equitable relief is available, the primary remedy is, like the tort remedy, money damages. The Connecticut Supreme Court has, on numerous occasions, emphasized the legislative intent expressed in the statute that the law be construed as a remedial measure [General Statutes § 42-110b(d)] and interpreted it expansively, "generously" and liberally. See Kim v. Magnotta, 249 Conn. 94, 108 (1999); Web Press Services Corp. v. New London Motors, 203 Conn. 342, 354 (1987); Heslin v. Connecticut Law Clinic of Trantolo Trantolo, 190 Conn. 510, 520 (1983).
This court is also influenced by the careful analysis of the issue by Judge Levin in Feen v. Benefit Plan Administrators, Inc. Superior Court, judicial district of New Haven, D.N. 406726, (September 7, 2000) ( 28 Conn. L. Rptr. 137). That decision notes that federal cases held that aiding and abetting liability existed under the Federal Trade Commission Act, 15 USC § 41 et seq., prior to the time the Connecticut General Assembly enacted CUTPA and specifically instructed that courts should be guided in their interpretation of CUTPA by federal court interpretations of FTCA. See General Statutes § 42-110b(b). Judge Levin also pointed out that Massachusetts courts had found aid and abetting liability available under that state's unfair trade practices act which, as the Connecticut Supreme Court has often noted, is very similar to CUTPA and a source for interpretative guidance. See Normand Josef Enterprises v. Connecticut National Bank, 230 Conn. 486, 521 (1994). Having considered the above the court denies the motion to strike the CUTPA count as to Morasco and Guardian Alann.
Conclusion
As set forth herein the motion to strike is granted as to the Second and Third Counts and otherwise denied.
So Ordered.
TAGGART D. ADAMS SUPERIOR COURT JUDGE