Business Litigation: 2018 in Review
| Publication year | 2021 |
| Pages | 199 |
William J. O'Sullivan [*]
In 2018, Connecticut's appellate courts decided numerous cases of interest to business litigators. Following is a summary of the year's most noteworthy decisions.
I. Remedies and Defenses
A. For Purposes of Fraudulent Concealment, Knowledge of Agent Not Imputed to Principal
In Carson v. Allianz Life Insurance Company of North America,[1] the plaintiff sued the defendant insurance company for misconduct, including fraud and conversion, by one of the defendant's agents. In response to the insurer's motion for summary judgment based on the running of the statute of limitations, the plaintiff contended that the agent had fraudulently concealed his wrongdoing.
The trial court granted the defendant's motion, finding a lack of evidence that the insurance company knew about the agent's wrongdoing, and holding as a matter of law that for purposes of the fraudulent concealment doctrine, the knowledge of the agent could not be imputed to the principal. The Appellate Court affirmed the judgment below, noting "in order to toll the statutes of limitation on the basis of fraudulent concealment, the plaintiff bore the burden of demonstrating that the defendant was actually aware of the facts necessary to establish the plaintiffs cause of action. Imputed knowledge is not enough."[2] The court also noted that the elements of fraudulent concealment, including the defendant's actual knowledge and intentional concealment of the facts necessary to establish the plaintiffs cause of action, must be proven by "the more exacting standard of clear, precise and unequivocal evidence."[3]
B. Claim for Equitable Accounting Is Deemed Waived Where Plaintiff's Evidence Is Adequate to Ascertain Damages
In Chioffi v. Martin,[4] a suit between law partners following the dissolution of their firm, the Appellate Court found that the trial court had properly denied the plaintiffs equitable claim for an accounting.
The plaintiffs complaint included a count seeking an accounting but also claims at law, including breaches of the firm's partnership agreement and breach of fiduciary duty. At trial, "[rather] than merely establish the relationship between the plaintiff, the defendant, and the partnership, as well as a demand for an accounting ... the plaintiff, consistent with [his] breach of contract count, elected to introduce the detailed evidence [that he] claimed substantiated his position and damages for breach of contract..."[5] The plaintiff "never asserted that [he] had insufficient evidence to pursue [his] breach of contract claims to the fullest."[6]Nor did he discuss his accounting claim in his post-trial brief.
On these facts, the trial court found that the plaintiff had waived his accounting claim. The Appellate Court agreed, and further found that even absent a finding of waiver, the trial court would have been justified in denying this remedy. The Appellate Court noted that "the trial court considered detailed evidence of the partnership assets and accounts such that it was able to ascertain damages."[7] Given the adequacy of remedies at law, there was no need for the equitable remedy of an accounting.
Separately, the Appellate Court noted, in finding that the defendant had breached his fiduciary duty to the plaintiff, that an award of attorneys' fees would be at the discretion of the court, not automatic.[8]
C. Statutory Fee-Shifting May Apply If Lawsuit Is Withdrawn
In Connecticut Housing Finance Authority v. Alfaro,[9] the Supreme Court ruled that if a commercial party withdraws a suit against a consumer who has raised a defense, the defendant may be entitled to an award of attorneys' fees under General Statutes Section 42-150bb (consumer fee-shifting statute).
The consumer fee-shifting statute provides that, if a commercial party sues a consumer under a contract that contains an attorney fees' clause in favor of the commercial party, and if the consumer "successfully ... defends" a complaint or counterclaim based on that contract, then an attorneys' fee "shall be awarded as a matter of law to the consumer."
In Alfaro, a residential mortgage foreclosure case, the plaintiff moved for summary judgment, to which the defendant objected on the grounds that there was a genuine question as to whether or not the plaintiff owned the note. The plaintiff countered by withdrawing the summary judgment motion, and then the case itself.[10] The defendant in turn moved for an award of attorneys' fees pursuant to the consumer fee-shifting statute.
The plaintiff argued, and both the trial court and Appellate Court agreed,[11] that given the plaintiffs withdrawal of the suit as a matter of right, which could have been for a variety of reasons, the defendant had failed to establish that he had "successfully defended" the suit. The defendant's motion for attorneys' fees was denied.
The Supreme Court reversed. The court found that, for purposes of the consumer fee-shifting statute, a "successful" defense includes "any resolution of the matter in which the party obtained the desired result of warding off an attack made by the action, regardless of whether there was a resolution on the merits."[12]
Indeed, the court held that when a commercial party withdraws a suit in the face of a defense, "the burden of proof then shifts to the commercial party to demonstrate that the withdrawal was unrelated to the defense mounted by the consumer."[13] The court must make this factual determination by a preponderance of the evidence,[14] and may do so by affidavits or, if it wishes, following an evidentiary hearing.[15]
Justices Espinosa and D'Auria dissented.
D. Forfeiture of Deferred Compensation for Violating Non-Compete Held Subject to Reasonableness Analysis
The Appellate Court's decision in DeLeo v. Equale & Cirone, LLP[16] involved a combined covenant-not-to-com-pete/forfeiture clause in an accounting firm's partnership agreement, which applied to partners who left the firm and took clients with them. Under the partnership agreement, departing partners would ordinarily receive deferred compensation payments, but under the clause at issue, a competing partner would forfeit those payments. The competing partner would also be required to pay the firm for the lost book of business, calculated at 150% of the firm's recent annual billings to the departing clients.
The plaintiff argued that the provision was an unreasonable and unenforceable restraint of trade. The trial court rejected that argument, finding the provision enforceable as a liquidated damages provision.
The Appellate Court reversed this part of the trial court's judgment. The Court agreed with the plaintiff that the non-compete/forfeiture clause was "an indirect restraint on competition" and "accomplishes the same result as a covenant not to compete: a restraint of trade."[17] Accordingly, the clause "must be judged by the same standard used for covenants not to compete."[18] The Appellate Court remanded the case to the trial court to evaluate the provision at issue under the well-established "reasonableness" analysis that applies to covenants not to compete.
E. Court Could Not Order Substantive Relief against Nominal Defendant in Declaratory Judgment Action
In Lynn v. Bosco,[19] a company named as a nominal defendant in a declaratory judgment action, for notice purposes only, successfully complained on appeal that the trial court overreached by ordering substantive relief against it.
The plaintiffs, shareholders in a closely held company called Aerospace Techniques, Inc., brought suit against other shareholders of the company. Their claims arose from a series of transactions by which the company purchased the shares of yet another, nonparty shareholder, and in turn reissued and sold them to the defendants. The plaintiffs claimed that the defendants had acquired those shares in violation of the plaintiffs' preemptive rights as shareholders.
The defendants moved to strike the complaint, claiming that the company was "a necessary party to any declaratory judgment regarding the preemptive rights held by its shareholders."[20] The plaintiffs mooted the motion by successfully moving to cite the company into the case as a party defendant.
The amended complaint did not contain any allegations against the company or seek any relief against it. In a later pleading, the plaintiffs affirmed that the amended complaint "merely identifies [the company] as an additional defendant in its count one in recognition of the fact that [the company] is, in essence, a mere stakeholder upon the plaintiffs claims, including for declaratory relief, to validate its preemptive rights in [the company's] stock."[21]
Following trial, the trial court ordered the defendants to restore the shares at issue to the company's treasury. The court further ordered the company to reimburse the defendants for those shares.[22]
The company argued on appeal that the trial court "acted beyond the scope of its authority by entering an order that imposed a remedy on the company despite the fact that none of the pleadings contained any allegations against or sought relief from the company."[23] The defendants countered that this remedy was within the general demand for equitable relief contained within the claim for a declaratory judgment.
The Appellate Court agreed with the company that "the pleadings were not framed in a way that apprised the company that the court might order a remedy that would require it to pay the individual defendants."[24] The court reversed the judgment below.
F. Award of Post-Judgment Interest that Did Not Specify Rate Held a Nullity
In U.S. Equities Corp. v. Ceraldi,[25] a collection action on a credit card debt, the court's judgment in favor of the plaintiff included an award of post-judgment interest...
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