2008 Developments in Connecticut Business Entity Law

• Publication year: 2021
• Pages: 95

Connecticut Bar Journal Volume 83.

83 CBJ 95. 2008 DEVELOPMENTS IN CONNECTICUT BUSINESS ENTITY LAW

Connecticut Bar Journal
Volume 83, No. 2, Pg. 95
JUNE 2009

2008 DEVELOPMENTS IN CONNECTICUT BUSINESS ENTITY LAW

By Ernest M. Lorimer (fn*)

This article will discuss developments in 2008 relating to Connecticut business entities: corporations, limited liability companies, limited partnerships, limited liability partnerships, general partnerships and statutory trusts. A down economy can be expected to produce litigation testing limitations on liability and conflicting directions, and while it is probably too soon to expect to have seen any effect in the 2008 case law, the number of interesting cases is significantly reduced from last year.

I. Secretary Of The State's Office

As in prior years, the bulk of new entities created in Connecticut in 2008 were limited liability companies. The following table sets out these statistics:(fn1)

ENTITY		Entities Created In 2008	Entities Withdrawing in 2008(fn2)
Corporation	Domestic	1,652	1,893
	Foreign	2,145	1,419
LLC	Domestic	19,978	8,444
	Foreign	2,062	727
Lp	Domestic	60	148
	Foreign	222	127
LLP	Domestic	64	52
	Foreign	20	9
Statutory Trust	Domestic	24	38
	Foreign	3	0

These figures represent a significant decline in the number of new entities formed, and a significant increase in the number of entities withdrawing, in 2008 as compared to 2007. Part of this may be due to the economic climate and the slowing of transactional matters (particularly insofar as statutory trusts are involved). As has been the case for several years, the overwhelming preference for the limited liability company form of entity continues.

II. Case Law Developments Involving Corporations

As explored in last year's survey article, the early stages of litigation often test a court's subject matter jurisdiction, often requiring the court to explore the nature of business entities at an interesting theoretical level. An example is Anderson Sunnyside Farm Assoc. v. Frank Verderame Constr., Inc.(fn3 )The second paragraph of the opinion foreshadows this: "In the tenth count, the plaintiff, Anderson Sunnyside Farm Associates, alleges that it is a Connecticut partnership, which became a co-venturer with defendant Frank Verderame Construction, Inc., in a joint venture operating as East Haven Elderly Site, Inc." The purpose of the joint venture was to build residential housing on land owned by the principal of the construction company and, apparently, also East Haven Elderly Site, Inc. The land was leased to the joint venture but the lease was terminated and sold to third parties, no doubt making the joint venture impracticable. The plaintiff brought a claim against the new owners on behalf of the joint venture to quiet title. The defendants moved to dismiss on the grounds that the plaintiff did not have standing. One can see that the phrase "joint venture operating as a" corporation is going to lead to trouble: was the joint venture the corporation, a partnership among the parties, or something else, and who had been the lessee? The court did not feel the need to distinguish between the corporation and the joint venture, although one senses the corporation was the lessee. It held that the plaintiff had not alleged that it was a shareholder of the corporation or taken the steps necessary under the Connecticut Business Corporation Act to bring a derivative action on behalf of the corporation, so the plaintiff did not have standing on that theory. Then it viewed the joint venture among the parties as a general partnership, and, since under the Uniform Partnership Act the partners did not have an interest in the partnership's property, the plaintiff could not bring a direct action against the third parties on behalf of the partnership. Unexplored was a derivative action on the part of the partnership.

Last year's survey article took note of trustees of Conn. Pipe trades local 777 Health Fund v. Nettleton Mech. Contractors, Inc., (fn4)which found that a corporate officer who paid some corporate bills but not a contribution to an ERISA plan was personally liable for the unpaid contribution. The court found the obligation to pay was a plan asset, based on language in the plan, and the exercise of discretion not to pay over the plan asset was a breach of fiduciary duty. Other courts appear to be going in the direction of limiting this view, if they subscribe to it at all, to plans that have specific language that would support the finding that unpaid contributions were a plan asset.(fn5) The lesson here is for a contributor to focus carefully on the plan's definition of plan assets. In circumstances involving multi-employer plans this will not be easy, because the contributor will not necessarily have access...