Opinion
No. UWY-CV-04-4010223 S
July 18, 2006
MEMORANDUM OF DECISION
Before the court is the defendants' Motion to Strike the Fourteenth, Fifteenth, Seventeenth, Eighteenth and Nineteenth counts of the plaintiff's Revised Amended Complaint. For the reasons set forth herein, the Motion to Strike is denied as to all of the challenged counts.
This matter has a rather complex factual background involving a series of transactions for the development and operation of assisted living health care facilities in the State of Connecticut. For the sake of brevity, the court will recite the plaintiff's allegations only as necessary to address the challenged counts. In April 1998, the plaintiff entered into an operating agreement with the defendant Summerville Senior Living, Inc. ("SSL") that resulted in the formation of the defendant Summerville at South Windsor, LLC ("South Windsor"), with the plaintiff holding a 25% membership interest in SSL and a 75% membership interest in SSW. At or about the same time, the plaintiff and SSW entered into an agreement for the development of certain real property known as 1715 Ellington Road, South Windsor (the "property"). In connection therewith, the defendant Health Care Reit, LLC ("HCR") leased the property to South Windsor contemporaneously with the aforementioned agreements. The lease contained an option for South Windsor to purchase the property.
The plaintiff's 25% ownership interest in SSL was established in previous litigation between these parties.
The genesis of the plaintiff's claims is a series of transactions that allegedly occurred in May 2000. According to the plaintiff, some or all of the principals of SSL formed an entity known as South Windsor Senior Living Properties, Inc. (SWSLP), which thereafter acquired the property from HCR pursuant to a quit claim deed. HCR also assigned its interest in the lease to SWSLP.
In the Fourteenth and Fifteenth Counts of its Revised Amended Complaint, the plaintiff have alleged causes of action for tortious interference with beneficial interest against the defendants SSL and SWSLP, respectively. The. Seventeenth, Eighteenth and Nineteenth Counts, sound in conversion against the defendants SWSLP, SSL, and South Windsor, respectively. The defendants have moved to strike each of these counts.
The law governing the court's consideration of a motion to strike is well-established. "A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2063). It tests whether the complaint states a claim on which relief can be granted. Vacco v. Microsoft Corp., 260 Conn. 59, 65, 793 A.2d 1048 (2002); Practice Book § 10-39. The trial court's role is to examine the complaint and construe it in favor of the pleader. Suffield Development Associates, Ltd. Partnership v. National Loan Investors. L.P., 260 Conn. 766, 772, 802 A.2d 44 (2002). Specifically, the court must "assume the truth of both the specific factual allegations and any facts fairly provable thereunder" and "read the allegations broadly, rather than narrowly." Craig v. Driscoll, 262 Conn. 312, 321, 813 A.2d 1003 (2003). The requirement of favorable construction does not extend, however, to legal opinions or conclusions stated in the complaint, but only to factual allegations and the facts "necessarily implied and fairly provable under the allegations." (Internal quotation marks omitted.) Forbes v. Ballaro, 31 Conn.App. 235, 239, 624 A.2d 389 (1993). The motion is to be tested by the allegations of the pleading, which allegations cannot be enlarged by the assumption of any facts not therein alleged. Alarm Applications Co. v. Simsbury Volunteer Fire Co., 179 Conn. 541, 549-50, 427 A.2d 822 (1980). The motion is properly granted if the complaint alleges mere conclusions of law unsupported by the facts alleged. Fidelity Bank v. Krenisky, 72 Conn.App. 700, 720, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002); Donar v. King Associates, Inc., 67 Conn.App. 346, 349, 786 A.2d 1256 (2001). "If any facts provable under the express and implied allegations in the plaintiff's complaint support a cause of action . . . the complaint is not vulnerable to a motion to strike." Bouchard v. People's Bank, 219 Conn. 465, 471, 594 A.2d 1 (1991). In the Fourteenth Count, the plaintiff alleges that SSL tortiously interfered with South Windsor's beneficial interest by acquiring the property from HCR through SWSLP, thereby rendering South Windsor's option to purchase the property worthless, and tortiously interfered with South Windsor's contractual relationship with HCR. The defendants have moved to strike this count, arguing that because SSL was "at least indirectly" a party to the lease containing the option, it could not interfere therewith. The court disagrees.
The parties have cited what appear to be conflicting Superior Court decisions in support of their respective arguments on this issue. The defendants point to Baum v. United Cable Television Corp. of Eastern Conn., 1992 WL 175119 (July 20, 1992) (Dunn, J.) in support of their motion to strike. In that case, the plaintiff had contracted to purchase 18 shares of a subsidiary corporation of the defendant. Thereafter, it was discovered that the shares had been oversubscribed and thus were unavailable for sale to the plaintiff. The plaintiff thereafter brought an action claiming, inter alia, that United had tortiously interfered with the agreement between the plaintiff and the Eastern. Following trial, the court rendered judgment in favor of the defendants on the plaintiff's tortious interference claim:
The plaintiff has proven that there was a contractual relationship between himself and Eastern and that United knew of the relationship. However, the plaintiff has failed to prove that United intended in anyway to interfere with that relationship. Furthermore, United, as a majority shareholder in Eastern, is at least an indirect party to the contract and therefore no cause of action can be sustained against it for tortious interference of contract when the contract in question is between Eastern and the plaintiff.
Baum v. United Cable Television Corp, of Eastern Connecticut, supra, 1992 WL 175119, at *4. Relying upon this holding, the defendants contend that SSL, as a 75% owner of South Windsor is "at least an indirect party" to the contract between HCR and South Windsor and therefore cannot be liable for tortious interference therewith.
The plaintiff, in resisting this argument, relies upon Brandt v. Walker Digital, LLC, 2004 WL 2757440 (Conn.Super. Nov. 1, 2004) (Adams, J.) ( 38 Conn. L. Rptr. 182), the facts of which are somewhat similar to those of the present case. The plaintiff in that case was an employee of the defendant Walker Digital Corp. (WDC) who received as part of his compensation certain options to purchase shares of WDC. The plaintiff alleged that, after his options had become vested, the owners of WDC engaged in a series of refinancing and reorganization transactions wherein a new entity, Walker Digital, LLC, was created and WDC was ultimately dissolved, thereby rendering the plaintiff's options worthless.
The plaintiff claimed, inter alia, that Walker Digital, LLC and its principal member tortiously interfered with the plaintiff's contractual relationship with Walker Digital Corp. The defendants moved to strike this count, contending that Walker Digital, LLC was at least an indirect party to the subject agreement and thus could not be liable for tortious interference. The court, after reviewing the decision of the United States Court of Appeals for the Second Circuit in Boulevard Associates v. Sovereign Hotels, Inc., 72 F.3d 1029 (2d. Cir. 1995), rejected this argument:
The key concept in the Boulevard Associates decision is the concept of the existence or nonexistence of a unity of interest between the contracting party (here, WDC) and the alleged tortious interferer (WDLLC, Walker). Boulevard Associates, supra, at 1036. This court does not equate control with unity of interest, and in this case the defendants, as the facts are alleged, had no unity of interest with WDC, indeed, WDC was being pushed out of its dominant ownership position in WDLLC through various third-party financings, even though WDC had contributed all its assets to WDLLC. Therefore, the court determines that the reasoning and holding of Boulevard Associates does not apply and the motion to strike the Fourth Count is denied.
For at least two reasons, the court finds Brandt, rather than Baum, to be apposite on the present facts. First, the opinion in Baum failed to discuss the concept of unity of interest, which, as Brandt and Boulevard Associates teach, is the key element in determining whether a tortious interference claim will lie against an entity related to a contracting party. Second, the allegations of tortious interference made in of Brandt are more closely analogous to those of the present case than the facts of CT Page 13012 Baum.
In the present case, the plaintiff has alleged that SSL formed a single purpose, wholly-owned entity (SWSLP) to effectuate the acquisition of the subject property from HCR, thereby rendering South Windsor's option to purchase the property (pursuant to South Windsor's lease agreement with HCR) worthless. These allegations plainly demonstrate a lack of unity of interest between South Windsor and SSL. Indeed, as in Brandt, the inference may appropriately be drawn from these averments that SSL acted in a manner that was antagonistic to the interest of South Windsor (by depriving it of the value of an option to purchase valuable real estate) while maximizing SSL's financial gain. Under these circumstances, the plaintiff has pleaded a lack of unity of interest sufficient to survive the motion to strike. See Brandt v. Walker Digital, LLC, supra, at *3.
The court next considers the defendants' motion to strike the Fifteenth Count of the plaintiff's complaint. The plaintiff alleges therein that SWSLP tortiously interfered with the above-referenced agreement between HCR and South Windsor. According to the plaintiff, SWSLP breached its fiduciary duty to the plaintiff by engaging in the aforementioned conduct with the regard to the real property. The defendants have moved to strike this count, alleging that the plaintiff has pleaded no basis for establishing a fiduciary duty between SWSLP and the plaintiff.
The parties apparently agree that SSL, as a majority member of South Windsor, owed a fiduciary duty to the plaintiff as a minority member. The defendants contend, however, that SWSLP was not a member of South Windsor and that the relationship between SWSLP and the plaintiff therefore is too attenuated to give rise to a fiduciary relationship.
It is undisputed that SWSLP was not a member of South Windsor. The plaintiff has alleged, however, that SWSLP was a "wholly owned, single-purpose" entity formed by SSL, and that SWSLP acquired from HCR the real property that was the subject of South Windsor's option to purchase. These allegations, when construed in the light most favorable to the plaintiff, give rise to a reasonable inference that SWSLP was acting as an alter ego of SSL such that any fiduciary duty running from SSL to the plaintiff would attach to SWSLP as well. See Pratt v. Aetna Life Ins. Co., 1999 WL 229214 (Conn.Super. March 26, 1999) (Teller, J.) at *7 (holding that breach of fiduciary duty claim can extend to corporations related to a partner in a general partnership where corporate veil is pierced). Accordingly, the motion to strike the Fifteenth Count is denied.
Finally, the defendants have moved to strike the Seventeenth, Eighteenth and Nineteenth Counts of the complaint, which allege conversion against SWSLP, SSL and South Windsor, respectively. The subject of the conversion claim is the option to purchase real property, as discussed hereinabove. In their motion to strike, the defendants contend that these counts are legally untenable because the plaintiff has not sufficiently alleged that the lease (within which the option was embodied) was misappropriated. The defendants further argue that a leasehold interest is not a type of property that can properly be the subject of a conversion claim. Finally, with respect to the Eighteenth Count only (directed to South Windsor) the defendants submit that, because South Windsor was the holder of the leasehold interest, it cannot be liable for the conversion of its own property. The court discusses these arguments in turn.
The defendants first contend that "nothing had been converted" because the plaintiff has alleged only that the lease was assigned from HCR to SWSLP. According to the defendants, because South Windsor continued to be tenant under the lease, no misappropriation of the lease occurred absent some allegation that the lease was not assignable or that the assignment itself constituted an act of conversion. The court disagrees:
"The tort of [c]onversion occurs when one, without authorization, assumes and exercises ownership over property belonging to another, to the exclusion of the owner's rights." (Internal citations and quotation marks omitted.) Hi-Ho Tower, Inc. v. Com-Tronics, Inc., 255 Conn. 20, 43, 761 A.2d 1268 (2000). In each of the challenged conversion counts, the plaintiff alleges that the defendants, in engaging in the wrongful acts giving rise to the conversion, exercised "control and dominion" over the lease in a manner that has rendered South Windsor's option "worthless." Inasmuch as these allegations closely track the elements of conversion as set forth above, they sufficiently allege a misappropriation of the lease to survive the motion to strike.
Next, the defendants argue that the lease is not the kind of property that can be the subject of a conversion claim. Specifically, the defendants contend that the lease constitutes intangible property and as such cannot be converted under the present state of Connecticut law. The Connecticut Supreme Court (in 2000), in a case involving the alleged conversion of the use of the plaintiff's radio tower and attendant services, described the status of the law of conversion with regard to intangible property as follows:
In Connecticut, intangible property interests have not traditionally been subject to the tort of conversion, except for those intangible property rights evidenced in a document. See, e.g., Aetna Life Casualty Co. v. Union Trust Co., 230 Conn. 779, 790 n. 6, 646 A.2d 799 (1994) (conversion of trust account); Devitt v. Manulik, 176 Conn. 657, 662-63, 410 A.2d 465 (1979) (conversion applicable to account passbook). Comment (f) to § 242 of the Restatement (Second) of Torts, however, provides that in a proper case liability for intentional interference with some . . . kind of intangible rights may . . . be found.
Hi-Ho Tower, Inc. v. Com-tronics, Inc., 255 Conn. 20, 44, 761 A.2d 1268 (2000). The court went on to hold that it need not decide the issue of whether intangible property may be converted (and whether to adopt Restatement (Second) of Torts § 242) because the plaintiff had failed to prove that the defendant's use of the tower was unauthorized.
The defendants urge that the lease (and thus the option) is an intangible property right and thus cannot be converted. However, this argument fails to apprehend that in the present case — and unlike Hi-Ho Tower — the property averredly converted is evidenced by a document. As noted above, the plaintiff has alleged that the defendants exercised control and dominion over the lease in a manner that rendered the option worthless. Construing these allegations in the light most favorable to the plaintiff, the inference may reasonably be drawn that the acts of conversion pled involved conduct with respect to the physical lease document that resulted in the option being rendered worthless. The court in Hi-Ho Tower specifically recognized that intangible property rights evidenced in a document can be the subject of a conversion claim, see id. at 43. Even if the plaintiff did not adequately plead a physical manipulation of the document sufficient to support a conversion claim, its conversion counts would nevertheless be viable pursuant to Restatement (Second) of Torts, § 242(2), which provides:
See Hi-Ho Tower, Inc. v. Comtronics, Inc., supra, 255 Conn. 23, n. 4.
The Connecticut Supreme Court has frequently looked to the Restatement (Second) of Torts for guidance on issues of tort law. See, e.g. Vitanza v. Upjohn Corp., 257 Conn. 365, 376-77, 778 A.2d 829 (2001) (Noting adoption of Restatement (Second) of Torts § 402A, and adopting comment k thereto); Gazo v. City of Stamford, 255 Conn. 245, 252-53, 765 A.2d 505 (2001) (Adopting Restatement (Second) of Torts § 324A); Zamstein v. Marvasti, 240 Conn. 549, 566, 692 A.2d 781 (1997) (Finding "persuasive" Restatement (Second) of Torts § 699).
One who effectively prevents the exercise of intangible rights of the kind customarily merged in a document is subject to a liability similar to that for conversion, even though the document is not itself converted.
The defendants attempt to avoid the applicability of this section by arguing (without citation to authority) that the lease is "not the kind of intangible property right in which ownership of the document relates to ownership of the right." The court, however, does not perceive the relationship between a property right, and the document evidencing that right, to be demarcated by a bright line as to what categories of intangible rights are defined wholly by reference to a document. Instead, there appears to be a continuum, with those property rights that depend upon the document for their enjoyment (i.e., stock certificates, rights to payment evidenced by a check) on one end, and rights whose relationship to a document is wholly fortuitous (i.e., business goodwill, customer names) on the other. The court must therefore examine the relationship between the lease/option and the document evidencing the lease to determine the extent to which the property rights represented by the lease are intertwined with the memorialization thereof.
At the outset, the court notes that leases of real property and options to purchase property both are commonly set forth in writing for enforceability reasons. Absent a writing, the statute of frauds likely would bar enforcement of the option to purchase real property presently at issue. See, e.g., Pellegrino v. Raymond, 2003 WL 22480980 (Conn.Super. Oct. 16, 2003) (Holzberg, J.) ( 35 Conn. L. Rptr. 663) (Holding option to purchase real estate to be unenforceable under General Statutes § 52-550 due to a lack of a sufficiently definite writing.). Although not dispositive, the enforceability of the option certainly is an important "stick" within the "bundle" of property rights attendant to the ownership of the option. See Gaynor v. Payne, 261 Conn. 585, 592, 804 A.2d 170 (2002) (Noting that enforceability is a key factor is distinguishing a vested property right from a mere expectancy.)
The court recognizes the conceptual distinction between the enforceability of a contract and the enforceability of a property right. In the present case, contract doctrine (namely, the statute of frauds) serves not to determine whether the option constitutes property but rather to highlight the importance of a writing to the rights of the owner of the option.
Another crucial element of property ownership is alienability. See id. While the option could, in theory, be alienated absent a writing, it cannot be questioned that the presence of the document greatly enhances the ability of the owner of the option to alienate it. In addition to providing proof that the option indeed exists, the writing would permit the transferee of the option to enforce it, for the reasons stated above.
The court recognizes that the option's status as property is not dependent upon its memorialization. However, the existence of a writing is a key to the protection and enjoyment of the property rights of the owner, such that the character of the option is closer to a stock certificate or a check than it is to a pure intangible such as business goodwill or the right to use the services of a radio tower (as in Hi-Ho Tower, supra). Therefore, the court concludes that the lease, and the option therein, is an intangible of a kind "customarily merged within a document" pursuant to Restatement (Second) of Torts § 242(2).
Finally, the defendants contend that the nineteenth count, alleging conversion of the lease/option against South Windsor, should be stricken because the plaintiff has alleged that South Windsor has converted its own interest in the lease. According to the defendants, South Windsor "cannot be found to have converted its own lease." The plaintiff has specifically pleaded, however (in paragraph 133 of the Nineteenth Count) that it possessed property rights in the lease and the option, and that these rights were prejudiced by the actions of South Windsor. Even under traditional common-law rules, a joint owner of personal property could maintain an action in conversion against another owner where the actions of an owner render future use of the property impossible or destroy the property. See Smith v. Southern, 236 S.W. 413, 414 (Mo.App. 1922); Gates v. Bowers, 169 N.Y. 14, 17 (Ct.App. 1901). In the present procedural posture, the plaintiff has sufficiently alleged that it was at least a partial owner of the lease such that South Windsor could have engaged in conduct constituting the conversion thereof.
The Motion to Strike the Fourteenth, Fifteenth, Seventeenth, Eighteenth and Nineteenth Counts is denied.