Opinion
No. FST X08 CV 10 6002765
February 1, 2011
MEMORANDUM OF DECISION MOTION TO DISMISS/MOTION TO STAY
PROCEDURAL BACKGROUND
The plaintiff has filed a sixteen-count amended complaint dated January 16, 2010 with allegations of Statutory Theft, Conversion, Aiding and Abetting Conversion, Violation of CUTPA, Breach of Contract, Breach of Fiduciary Duty, Civil Conspiracy and Unjust Enrichment.
On January 29, 2010, the defendants, Camulos Capital LP, Camulos Capital GP, LLC, Camulos Partners GP, LLC, Richard Brennan and Richard Holahan filed a motion to dismiss or to stay the proceedings in favor of arbitration. The plaintiff submitted an objection to the motion to dismiss and motion to stay the proceedings on February 10, 2010. The defendants submitted a reply on March 4, 2010. The parties appeared and argued the motion on October 4, 2010. At oral argument, the parties agreed that they will pursue the claims subject to the Delaware forum selection clause in Delaware and not in the Connecticut courts. Therefore, the only matter before the court for argument was whether the arbitration clause applies and whether the claims should be arbitrated before this court has jurisdiction. In order to determine whether the motion to stay should be granted, the court must first determine if the "term sheet" that contains the arbitration provision is a valid and enforceable contract.
FACTUAL BACKGROUND
The plaintiff, William Siebold, along with a number of other individuals including the defendants, Mr. Holahan and Mr. Brennan, entered into a partnership agreement dated July 1, 2005 to create and manage a hedge fund. This fund is Camulos Captial, LP (Camulos). The partnership was organized in Delaware. At about the same time, the plaintiff invested in Camulos Partners LP (Camulos Partners). The total amount of startup funds was $600,000 with the plaintiff contributing $150,000. The ownership interests of each of the contributing individuals was based upon their contribution. For instance, Mr. Siebold's contributions was twenty-five percent of the startup and therefore he was to receive a twenty-five percent ownership interest.
At the initial formation of the fund for Camulos Capital LP, the parties entered into a document that has been referred to as a "term sheet" on July 1, 2005. The defendants contend the term sheet governs the economic relationship and the limited partnership provisions of Camulos. The term agreement includes within the payout provision a clause that payout disputes will be subject to arbitration. Each partner including the plaintiff signed the term agreement which also included language that by signing they intended to be legally bound by the terms.
Thereafter, on December 19, 2006 the partners entered into a supplemental term sheet. This supplement addressed only the formation of a non-voting class of interest of Camulos Capital LP which reduced the management fee and performance fee allocation by 5% for each partner. The supplemental term sheet also established committees to manage the business.
The plaintiff left the business and the partnership in May 2007. There is a disagreement as to whether the plaintiff resigned or was terminated by the partners. This is not relevant to the instant motion. Thereafter, the plaintiff filed this action and on January 15, 2010 filed the first amended complaint that sets forth a multitude of claims including that he has not been compensated. In particular, the plaintiff alleges that he is seeking the return of money that had been redeemed from the Fund, money in his capital accounts, his earned compensation and compensation for his lost equity. (First Amended Complaint, Paragraph 19.)
Other than the instant complaint, the plaintiff filed a sixteen-count verified complaint in the Court of Chancery of the State of Delaware dated December 30, 2009. This complaint is still pending in the Delaware court. Thereafter, the defendant Camulos Partners LP, Camulos Partners GP LLC, Camulos Capital LP, Camulos Capital GP LLC, Richard P. Brennan and Richard D. Holahan filed counterclaims in the Court of Chancery of the State of Delaware.
DISCUSSION
The defendants contend that the term agreement contains an arbitration provision which would require arbitration before the court has the authority to hear and decide the claims as set forth in the complaint. The defendant contends in the motion to stay that the statutory authority of General Statute § 52-408 requires that the action be stayed until any issue is referred to and decided by an arbitration panel.
The plaintiff contends that: 1) the term sheet is an unenforceable contract because the ownership provision does not indicate a meeting of the minds and thus because this is an essential term there is no enforceable contract and thus there is no valid arbitration provision, and 2) even if there is a valid contract with an arbitration clause, this action should not be stayed for an arbitration because the amended complaint consists of a number of claims that would not be subject to arbitration and thus staying the action would serve no judicial purpose and be prejudicial to the plaintiff.
The court has considered each of the parties' arguments in conjunction with the Memorandum and case law attached; and reviewed the term sheets and the claims submitted by the plaintiff in the amended complaint.
A. THE AGREEMENT
In order for the court to determine whether a stay of this action is legally appropriate for submission to arbitration, the court must first determine if the plaintiff's claim that the term sheet is not a valid and enforceable contract has any basis in law and fact. In particular, the plaintiff contends that the parties do not have an enforceable contract because the agreement lacks a meeting of the minds on essential terms of the contract. The plaintiff focuses on the provision regarding the ownership of the fund and contends that the provision is unclear based upon the language which establishes ownership to the partners and at the same time to Richard Brennan. The plaintiff also contends that this alleged uncertainty and the provision to permit additional terms in the future contributes to his position that there is no contract because there is no meeting of the minds as to this provision. Other than this provision the plaintiff does not argue that other clauses are unclear.
The defendants counter that the term sheet clearly establishes a basis of ownership and thus the contract is enforceable including the provision for arbitration.
The Partnership Agreement Term Sheet which was signed by all parties provides in paragraph two entitled ownership: "Subject to the vesting provisions hereof, the Partnership will be owned by the persons set forth on Exhibit A hereto (the "Partners") in the percentages set forth on such schedule . . . All ownership participation will be subject to vesting as set forth herein. Richard P. Brennan will serve as Managing Partner of, will control, and subject to the vesting provisions hereof, will own, the Partnership." The vesting provision of the term sheet provides: "For purposes of determining what amount if any a Partner is entitled to after disassociating from CC, Units will begin vesting on the third anniversary hereof and each anniversary (without proration for partial years) thereafter at 25% per annum; provided, however, if a Partner dies or is permanently disabled, Units will vest on an accelerated schedule beginning on the first anniversary hereof and each anniversary (without proration for partial years) thereafter at 25% per annum."
To form a valid and binding contract in Connecticut, there must be a mutual understanding of the terms that are definite and certain between the parties. To constitute an offer and acceptance sufficient to create an enforceable contract, each must be found to have been based on an identical understanding by the parties. Consumer Incentive Services v. Memberworks Incorporated, Superior Court, judicial district of Fairfield at Bridgeport, Docket Number CV 9903 62655 (December 8, 2003, Wolven, J.) ( 2003 Conn.SuperLexis 3381) [ 36 Conn. L. Rptr. 298], citing Ubysz v. DePietro, 185 Conn. 47, 51, 440 A.2d 830 (1981), Augeri v. C.F. Wooding Co., 173 Conn. 426, 429-30, 378 A.2d 538 (1977), Cavallo v. Lewis, 1 Conn.App. 519, 520 473 A.2d 338 (1984). If material terms are not agreed to there is no agreement at all. Lizotte v. Enfield, Superior Court, judicial district of Hartford/New Britain at Hartford, Docket No. 89 367352 (August 31, 1999, Sheldon, J.)
The facts of the present action regarding the issue of ownership contained in the term sheet are distinct from many of the cases cited by the plaintiff. For instance, in Drew Foundation, et al. v. Irwin Donenfield, Theodore O'Neill, Superior Court, judicial district of Fairfield at Bridgeport, Docket Number CV 020395071 and CV 030400047 (April 2, 2004, Doherty, J.) the parties entered into a handwritten memorandum for the sale of property. The parties expressed an intent to enter into a formal contract in the future and thereafter a formal contract was proposed but the buyer refused to accept it. The initial agreement in Donenfield was one paragraph in length with an address and price for the purchase of the property. The testimony of the defendant was that he never intended the writing to be a final contract and that the handwritten note was done in a cursory, haphazard or short sighted manner. Lastly, the agreement was considered a binder for real estate which has been considered by our courts as not legally enforceable. Westbrook v. Tims-Star Co., 122 Conn. 473, 481, 191 A. 91 (1937), Fowler v. Weiss, 15 Conn.App. 690, 695, 546 A.2d 321 (1988).
The instant term sheet was signed by all parties and contains the language "the parties signing below intend to be legally bound by the terms hereof." The term sheet also provided that it is intended that the provisions will be amplified in more definitive documents relating to CC and its affliates. Thereafter, the parties entered into a December 19, 2006 supplement which provided: "The Original Term Sheet shall remain in full, force and effect in all respects, as amended and supplemented hereby." The supplement made changes to form a non-voting class of interests as well as addressing the percentage interest in the Management Fee and Performance Fee/Incentive Allocation Units. The supplement did not make changes in the ownership, payout, vesting or arbitration provisions but in accordance with the term sheet it affirmed the other provisions as legally binding when signed again by each of the individuals including the plaintiff.
There were a number of other agreements and investments that are not part of this action that were also entered into by the parties.
During the time period from the initial term sheet agreement until the time when the plaintiff was disassociated with the partnership this was the only supplement to the agreement. Although it is obvious based upon the allegations in the amended complaint that the plaintiff is a seasoned investor and business manager, he did nothing to change the operation, the distribution of profits or the involvement during the time period he was working with the defendants. Plaintiff worked under the term sheet for approximately eighteen months even receiving compensation in accordance with the term sheet and never raised the issue that the ownership provision was unclear thus creating an invalid or unenforceable agreement. The fact that one term is left open for negotiation or amendment should not void the entire agreement as the defendants contend. Gebbie v. Cadle Co. et al., 49 Conn.App. 265, 271, 714 A.2d 678 (1998). In the instant action, the plaintiff has not demonstrated that the ownership provision was ever intended to be supplemented, amplified or modified such that it was left open. The operation during the time plaintiff was involved in the fund does not lend to a finding of this nature.
The plaintiff also relies upon the appellate case of Coady v. Martin, 65 Conn.App. 758, 784 A.2d 897 (2001) in support of his argument that failure to indicate the ownership interest would result in an unenforceable contract. However, the factual background and agreement in Coady is dissimilar to the instant action. The Coady court addressed the failure of the parties to delineate the percentage of the company owned by two individuals who were not part of the original partnership and to whom no percentage of the partnership was allocated in the agreement. In the instant action, the term agreement sets forth some very specific ownership percentages to each individual. What is different in the present action is that the term agreement leaves open a possiblity of a supplemental agreement even in light of the language within the term agreement that the "provisions hereof are intended to summarize the contemplated terms of the limited partnership agreement of Camulos Capital LP ("CC" or the "Partnership") and constituent documents of its affiliates." The partners each signed with the caveat that "[T]he parties signing below intend to be legally bound by the terms hereof. The terms hereof may be amplified in a partnership agreement but shall be binding on the parties notwithstanding the completion of such amplification." Twice in the agreement the language refers to the binding nature of the term sheet. Nowhere in the agreement is there a provision that the contractual obligations were tentative. The agreement did not designate the ownership provision as a temporary clause to be supplemented. At no time in the eighteen months that the plaintiff was a partner did he or anyone else change the provisions of ownership or arbitration. Even though the ownership provision of the agreement states that: "All ownership participation will be subject to vesting as set forth herein. Richard P. Brennan will serve as Managing Partner of, will control, and subject to the vesting provisions hereof, will own, the Partnership," this court does not find that there is conflict as to ownership and accepts the argument and interpretation of the defendants that this provision is consistent with the three-year vesting provision. The argument by the defendants concerning the vesting provision and the ownership is consistent with the operation of the contract for over two years. This plaintiff's complacent conduct during the time period he was involved with the fund also supports the defendants' position that the contract created clear and unambiguous legal terms and conditions for the partners. The Supreme Court has stated that: "when parties have deliberately put their engagements in writing, in such terms as import a legal obligation, without any uncertainty as to the object or extent of such engagement, it is conclusively presumed that the whole engagement of the parties, and the extent and manner of their understanding, was reduced to writing. Tallmadge v. Iroquis Gas Transmission System, 252 Conn. 479, 502, 746 A.2d 1277 (2000). The intent of the parties is to be "determined from the language used, interpreted in light of the situation of the parties and the circumstances connected with the transaction." Lawson v. Whitey's Frame Shop, 241 Conn. 678, 686, 697 A.2d 1137 (1997). The argument of counsel as well as the factual allegations of this plaintiff make it clear that for almost two years the term sheet dictated the actions of all of the parties. Even when the agreement was supplemented, the parties once again agreed that the original term sheet shall be in full force and effect. All of these circumstances with a reading of the general language of the term sheet can only lead the court to make a reasonable finding that there was a contractual agreement that included an arbitration provision. The facts are clear that the parties have operated the partnership in accordance with the term sheet even after it was supplemented leaving the original agreement with the ownership terms and arbitration in effect.
The plaintiff provided no evidence that other than the July 2006 supplement, that there was any provision that needed to be supplemented.
A number of the arguments raised by the plaintiff as to the issuance of K-1 forms to pay tax on the 25 percent ownership interest, lends support to the finding that the term agreement did address ownership. However, many of these arguments are appropriate for an arbitration. For instance, the argument as to whether Mr. Siebold is to receive compensation is an issue which can be decided at arbitration and is precisely the type of issue to be arbitrated pursuant to the agreement.
Based upon the above, the court finds that the term sheet is a valid and enforceable contract and thus the court will address the argument as to whether the action should be stayed until the parties arbitrate the claims pursuant to the payout provision.
B. THE ARBITRATION PROVISION
Based upon the finding of this court that there is an enforceable agreement, the court must determine if the arbitration clause within the payout provision applies to any or all of the issues raised by the plaintiff in the amended complaint and if so are the issues for arbitration sufficient to require a stay of the proceedings before this court until the arbitration is complete.
The defendants are requesting that the court stay the entire action. The arbitration provided for in the term sheet within the Payout provisions states: "In the event a Partner disputes the pay out from the Partnership, the Partner and the Partnership agree to arbitrate such dispute with the losing party bearing all arbitration cost." The first amended complaint consists of a series of claims including among others, breach of contract, breach of fiduciary duty, and unjust enrichment. The plaintiff seeks recovery of his capital accounts and holdback accounts (Counts 6 and 7), as well as tort claims for failure to pay (Counts 1, 2, 3, 4, 5, 8, 9, 10, 11, and 12). The claims of CUTPA Civil Conspiracy, Statutory Theft, as well as other claims involve issues that may be outside of the scope of the payout provision in the term sheet. Therefore, the court is confronted with the issue as to whether the entire complaint can be stayed if the court allows arbitration as to those claims that are encompassed by the arbitration provision.
"[A]rbitration is a favored procedure in this state . . . [I]t . . . is intended to avoid the formalities, the delay, the expense and the vexation of ordinary litigation." (Citation omitted, internal quotation marks omitted.) Waterbury Teachers Assn. v. Waterbury, 164 Conn. 426, 434, 324 A.2d 267 (1973). General Statute § 52-408 provides in relevant part: "An agreement in any written contract, or in a separate writing executed by the parties to any written contract, to settle by arbitration any controversy thereafter arising out of such contract . . . shall be valid, irrevocable and enforceable, except when there exists sufficient cause at law or in equity for the avoidance of written contract generally."
The plaintiff contends that the arbitration provision should not be invoked to stay the present civil action because the complaint consists of many causes of action that are not subject to the arbitration clause and to do so would delay and prejudice the plaintiff.
Conn. Gen. Stat. § 52-409 provides: "If any action for legal or equitable relief or other proceeding is brought by any party to a written agreement to arbitrate, the court in which the action or proceeding is pending, upon being satisfied that any issue involved in the action or proceeding is referable to arbitration under the agreement, shall, on the motion of any party to the arbitration agreement, stay the action or proceeding until an arbitration has been had in compliance with the agreement, provided the person making application for the stay shall be ready and willing to proceed with the arbitration."
Under this section, the court "must stay any action as to which the applicant for a stay can establish the following facts: (1) that both the applicant and the plaintiff are parties to a written arbitration agreement; (2) that one or more issues referable to arbitration under that agreement are involved in the action sought to be stayed; and (3) that the applicant is ready and willing to proceed to arbitration on such arbitrable issues." Sordoni Skanska Construction Co., Inc. v. Charles Beckman Swanson Architects, Superior Court, complex litigation docket at Waterbury, Docket No. CVX02 00161286 (May 11, 2001, Sheldon, J.) ( 30 Conn. L. Rptr. 189). Each of these facts has been discussed and supported by the defendants in their memorandum, exhibits and case law.
There are strong policies underlying arbitration agreements. "The law in this state takes a strongly affirmative view of consensual arbitration . . . Early in our judicial history we expressed the view that, since arbitration is designed to prevent litigation, it commands much favor from the law . . . We have recognized the public policy favoring arbitration which is intended to avoid the formalities, delay, expense and vexation of ordinary litigation." (Citations omitted; internal quotation marks omitted.) Board of Education v. East Haven Education Assn., 66 Conn.App. 202, 207, 784 A.2d 958 (2001).
The general rule in regard to an ambiguity regarding arbitration is that "a motion to compel arbitration should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." United Steelworkers of America v. Warrior Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347 (1960).
The plaintiff argued that even if the court finds there is a contract with an arbitration provision that the multitude of claims in this case should not be stayed pending an arbitration. The plaintiff contends that to do so would be prejudicial to his civil action and thus the court should proceed with the civil action. In Kutcher v. Connecticut Vascular and Thoracic Surgical Associates, Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 095026130, 2010 Conn.SuperLexis 23 (January 7, 2010, Gilardi, J.) [ 49 Conn. L. Rptr. 137], the court examined the findings of a number of courts to determine what is the appropriate extent of a stay if arbitration is ordered in conjunction with the filing of a civil action. The Kutcher court outlined findings of a number of courts, each with different results. In the case of Beaumont v. Swiderski, Superior Court, judicial district of Waterbury, Docket No. 94 119276, 1994 Conn.Super.LEXIS 1033 (April 26, 1994, Sullivan, J.) the court ruled that the nonarbitrable issues would not be stayed. Other courts have determined that it is discretionary with the court as to whether it will stay the entire action. Northeast Utilities v. Century Indemnity Co., Superior Court, complex litigation docket at New Britain, Docket No. X03 CV 99 0495495 (June 21, 1999, Aurigemma, J.) ( 25 Conn. L. Rptr. 81, 1999). The only clear direction from the courts confronted with this issue is that each court must rule based upon its' review of the particular facts before it. In acting upon the arbitration request in the instant action, this court has looked specifically to the amended complaint and the broad nature of the arbitration clause in the payout provision which provides: "In the event a Partner disputes the pay out from the Partnership, the Partner and the Partnership agree to arbitrate such disputes with the losing party bearing all arbitration costs." The payout provision refers to the payout of net profits and holdback provisions which are also a part of the plaintiff's claim in the instant action. While the court is cognizant of the plaintiff's concerns about delaying the action, it is not a wise use of the court's resources to continue a portion of the litigation especially because the language of the issues subject to arbitration is very broad.
CONCLUSION
Therefore, the motion to stay the action in its entirety until the completion of arbitration in this matter is granted.