Business Litigation: 2012 in Review
| Publication year | 2021 |
| Pages | 95 |
William J. O'Sullivan [*]
For Connecticut business litigators, a dominant theme of 2012's appellate case law was, "Who else can I sue?" In the course of the year, the Connecticut Supreme Court and Appellate Court examined numerous theories involving "other" defendants, such as successor liability, guarantor liability, vicarious liability, and assignee liability, as well as the reach of remedies under such doctrines as reverse veil-piercing and fraudulent transfer.
That said, perhaps the most noteworthy business-law decision of the year focused not on "Who can I sue?" but rather "When can the State sue you?" This article will discuss these cases, as well as other noteworthy decisions in the realm of business law.
I. State v. Lombardo Brothers
In State v. Lombardo Brothers Mason Contractors, Inc., [1] the Connecticut Supreme Court confirmed the continued vitality of the ancient doctrine, known as nullum tempus occurrit regi (no times runs against the king), by which statutes of limitation do not apply to actions commenced by the state.[2] The state brought suit against the named defendant and twenty-seven others[3] in 2008 for alleged design and construction problems with a new library at the University of Connecticut School of Law, which had been completed in 1996.[4] The defendants countered that the state's claims were barred by applicable statutes of limitation:[5] General Statutes Sections 52-577, [6] 52-577a, [7] 52-584, [8] 52-584a, [9] and/or 52-576.[10] The trial court agreed with the defendants, and entered judgment for them upon the granting of various motions to strike and motions for summary judgment.[11]
On appeal, the Supreme Court observed that, while the term "nullum tempus" had not been previously used in any reported Connecticut case, [12] the underlying principle had been cited in an 1888 decision of the court, in which the court had declared it "elementary law that a statute of limitations does not run against the state, the sovereign power."[13]
The court went on to note that the doctrine of nullum tempus has much in common with sovereign immunity, to the point that they can be characterized as "opposite sides of the same coin."[14] "'The... distinction between [the] two doctrines lies in the manner in which they are employed in litigation. Sovereign immunity is invoked as a shield by the sovereign defendant against suits from parties allegedly injured by its wrongful conduct or that of its agents... Conversely, nullum tempus is invoked by the sovereign plaintiff... as a sword to strike down the statute of limitation defense raised by the defendant whose conduct is alleged to have injured the sovereign in some manner.'"[15] Both doctrines are rooted in the public policy of protecting the fiscal well-being of the state.[16]
The court found that the principle of nullum tempus had been consistently applied in Connecticut over the years, [17] and declined the defendants' invitation to abolish it, deeming such a change to be a matter for the legislature, not the courts, to decide.[18] The court reversed the judgment below, and remanded the case for further proceedings.[19]
Significantly, the court also held that nullum tempus applies even if the state has agreed contractually to be bound by statutes of limitation. In its contract with one of the defendants, Gilbane, Inc., the state, through its chief deputy commissioner of public works (commissioner), had agreed to be bound by the seven year period of repose prescribed by General Statutes Section 52-584a.[20] Gilbane argued, and the trial court agreed, that the state had contractually waived the protection of nullum tempus.[21]
The Supreme Court disagreed. "[0]nly the legislature, and not the attorney representing the state in a particular dispute, may waive the state's sovereign immunity. ... A party who seeks to contract with the government bears the burden of making sure that the person who purportedly represents the government actually has that authority."[22] Here, the statute that at the relevant time authorized the commissioner to enter into contracts, General Statutes Section 4b-99, "does not expressly or by force of necessary implication authorize him to waive the state's immunity from the operation of § 52-584a."[23] The Supreme Court therefore deemed the contractual provision in question a "nullity, " and rejected Gilbane's waiver argument.[24]
II. Liability
In Robbins v. Physicians for Women's Health, LLC, [25] a divided Appellate Court closely examined the issue of successor liability. The plaintiff brought suit for the death of her newborn son against Lawrence and Memorial Hospital; a physician and midwife; their employer, Shoreline Obstetrics and Gynecology, P.C. (Shoreline); and two companies that acquired Shoreline after the operative events, Physicians for Women's Health, LLC and Women's Health USA, Inc. (successors).[26]
The plaintiff settled with the two individual defendants and Shoreline for the $1 million policy limits of the malpractice policies covering the individuals.[27] As part of the agreement, the plaintiff executed covenants not to sue, which barred further recourse against the settling defendants but expressly reserved all rights against the successors.[28] The successors nevertheless argued that, as a matter of law, the settlement with Shoreline had the effect of discharging them, as their liability derived exclusively from that of Shoreline.[29] The trial court agreed, and entered summary judgment for the successors.[30]
By a 2-1 vote, the Appellate Court reversed. The court noted that ordinarily, the mere transfer of assets from one c orporation to another does not have the effect of transferring liabilities.[31] An exception to that rule may arise under the "mere continuation theory, " when the transfer results in "a single corporation after the transfer of assets, with an identity of stock, stockholder, and directors between the successor and predecessor corporations" or the "continuity of enterprise theory, " when the successor "maintains the same business, with the same employees doing the same jobs, under the same supervisors, working conditions, and production processes, and produces the same products for the same customers."[32]
Under either theory, there is no need for successor liability if the predecessor company remains a "viable source of relief."[33] In the Robbins case, although the plaintiff had received $2 million in settlement funds from the predecessor company, the plaintiffs total damage had not been established, so it was unclear if Shoreline had had the resources to provide the plaintiff with complete relief.[34] Accordingly, the Appellate Court ruled that summary judgment should not enter for the successors on the grounds that their predecessor, Shoreline, represented a viable source of relief; there remained an issue of fact in this regard.[35]
The court then examined the effect of the covenant not to sue. The court noted that a covenant not to sue differs from a release in that a covenant "is not a present abandonment or relinquishment of a right or claim but is merely an agreement not to sue on an existing claim or it is an election not to proceed against a particular party."[36] In the typical context of joint tortfeasors, a covenant not to sue one tortfeasor will not bar recourse against others, particularly when the document contains an express reservation of rights against the latter.[37]
The court recognized that the situation in Robbins involved directly and vicariously liable parties, not joint tortfeasors, and presented an issue of first impression in Connecticut.[38] Relying in large part on authority from other jurisdictions, the court concluded, as a matter of law, that the plaintiffs covenant not to sue Shoreline did not bar her from imposing liability upon the successors.[39] The court therefore reversed the summary judgment rendered by the trial court, and remanded the case for further proceedings.[40]
Judge Bear dissented, asserting that the majority opinion would "allow the plaintiff the opportunity for an unjustified windfall recovery from the [successors], i.e. recovery in excess of what she could have recovered from the corporate predecessor on the date of the alleged negligence."[41] In his view, Shoreline, through its settlement with the plaintiff, discharged and extinguished its liability, and thus that of the successors whose potential liability was wholly vicarious through Shoreline.[42]
The Appellate Court's decision in Atelier Constantin Popescu, LLC v. JC Corporation[43] contains some valuable lessons about the reach of liability. An independent building contractor accidentally caused a commercial property to burn down - ultimately burning the landlord and its insiders as well, as they were held liable to the tenant, under a variety of theories.
The plaintiff, a music studio, negotiated a lease with JC Corporation, the owner of a property that it had sought unsuccessfully to develop as a tea house.[44] The parties reached an understanding on monthly rent, as well as a lump-sum payment of $110, 000 in "key money" to compensate the landlord for improvements it had made to the property.[45] When JC Corporation tendered an initial draft of documents, the plaintiff was surprised to see not only a lease but also a separate "key money agreement" in favor of a different entity, Tea House on the Riverside, Inc. (Tea House).[46] The plaintiff eventually executed both documents, and remitted the $110, 000 key money payment to Tea House.[47]
A few weeks later, the building was destroyed by fire.[48] The plaintiff sent JC Corporation a valid and timely notice of termination of the lease, but JC Corporation refused to return the key money.[49] At about that time, Hsiao-Wen Chen, a principal of both JC Corporation and Tea House...
To continue reading
Request your trial