Kenneth Savino v. Arthur Sullivan et al. (2011)

MEMORANDUM OF DECISION ON MOTION TO DISMISS

This is an action against four individual defendants for engaging in a conspiracy to remove the plaintiff from the Savino, Sturrock & Sullivan, LLC and taking over its business.   Three of the defendants were members of the LLC and the fourth, Monroe was an employee.   Monroe claims he was not a member of the LLC and on September 29, 2010 moved to dismiss the action against him on the principal ground that the plaintiff, Kenneth Savino, did not have standing.

I

The elements of a civil action for conspiracy are:  “(1) a combination between two or more persons, (2) to do a criminal or an unlawful act or a lawful act by criminal or unlawful means, (3) an act done by one or more of the conspirators pursuant to the scheme and in furtherance of the object, (4) which act results in damage to the plaintiff.”  Macomber v. Travelers Property & Casualty Corp., 277 Conn. 617, 635-36 (2006).

The plaintiff alleges sufficient facts in count one to establish each element of a claim that the defendants engaged in a conspiracy to remove him from the LLC. Specifically, the plaintiff alleges, in paragraph six, that the four individual defendants “plotted, planned, and schemed to take over the business” of the LLC, including its “clients” and “good will,” without compensating the plaintiff for his “value or interest” in the LLC. In paragraph eight, the plaintiff alleges that the defendants carried out this scheme by manipulating the “assets and procedures to ultimately retain appearance of the old [LLC] at its previous business location utilizing its telephone number [and] contact information.”   The plaintiff further alleges, in paragraph seven, that, as a result of this scheme, the defendants took over the LLC “without compensating the plaintiff for the value of his interest and in derogation of his ownership interest.”   Construing these pleadings broadly and realistically, the plaintiff has alleged the elements necessary to state a claim that the defendants engaged in a civil conspiracy to remove him from the LLC.

II

Whether the plaintiff has standing to bring an individual action for conspiracy to remove him from the LLC is a question of law.   See May v. Coffey, 291 Conn. 106, 113, 967 A.2d 495 (2009).   While the Connecticut appellate courts have not addressed the issue directly, Superior Court decisions have held that the laws that govern a plaintiff's standing for individual and derivative suits, as applied to corporations, extend to LLCs. See Ward v. Gamble, Superior Court, judicial district of Hartford, Docket No. CV 08 5017829, (July 23, 2009, Prescott, J.) (48 Conn. L. Rptr. 286) (court based its holding on analysis of statutory law, public policy justifications and case law from this and other states);  see also Newlands v. NRT Associates, LLC, Superior Court, judicial district of Fairfield, Docket No. CV 08 4027098 (March 25, 2010, Tyma, J.) (49 Conn. L. Rptr. 557) (court decided that traditional corporate law principles should apply to LLCs).  Moreover, in Wasko v. Farley, 108 Conn.App. 156, 170, 947 A.2d 978 (2008), the court stated, “[a] member [of a limited liability company] may not sue in an individual capacity to recover for an injury the basis of which is a wrong to the limited liability company.”

The Connecticut Supreme Court has distinguished between the right of a shareholder to bring suit in an individual capacity as the sole party injured, and his right to sue derivatively on behalf of the corporation alleged to be injured.  Yanow v. Teal Industries., Inc., 178 Conn. 262, 281 (1979).   That decision states:

Generally, individual stockholders cannot sue the officers at law for damages on the theory that they are entitled to damages because mismanagement has rendered their stock of less value, since the injury is generally not to the shareholder individually, but to the corporation-to the shareholders collectively ․ In this regard, it is axiomatic that a claim of injury, the basis of which is a wrong to the corporation, must be brought in a derivative suit, with the plaintiff proceeding secondarily, deriving his rights from the corporation which is alleged to have been wronged ․ It is, however, well settled that if the injury is one to the plaintiff as a stockholder, and to him individually, and not to the corporation, as where an alleged fraud perpetrated by the corporation has affected the plaintiff directly, the cause of action is personal and individual ․ In such a case, the plaintiff-shareholder sustains a loss separate and distinct from that of the corporation, or from that of other shareholders, and thus has the right to seek redress in a personal capacity for a wrong done to him individually ․ Thus, where an injury sustained to a shareholder's stock is peculiar to him alone, and does not fall alike upon other stockholders, the shareholder has an individual cause of action ․

Later, in commenting on Yanow the Supreme Court observed “Subsequently, in Smith v. Snyder, [167 Conn. 456, 461, 839 A.2d 589 (2004) ], we reaffirmed the general rule that [i]n order for a shareholder to bring a direct or personal action against the corporation or other shareholders, that shareholder must show an injury that is separate and distinct from that suffered by any other shareholder or by the corporation ․ [A] shareholder-even the sole shareholder-does not have standing to assert claims alleging wrongs to the corporation.”  May v. Coffey, supra, 291 Conn. 114-15.

However, in Yanow, supra, the Supreme Court noted two scenarios in which a shareholder sustains a distinct and separate loss:  (1) when the shareholder alleges that “alleged fraud perpetrated by the corporation has affected the plaintiff minority stockholder directly and not the corporation”;  (2) when the shareholder alleges that the majority stockholders engaged in “looting the corporation or so wrecking it that the minority stockholder would get nothing of his assets ․” In both scenarios, “the plaintiff-shareholder sustains a loss separate and distinct from that of the corporation, or from that of other shareholders, and thus has the right to seek redress in a personal capacity for a wrong done to him individually.”

The plaintiff in Yanow was a minority shareholder, and, in his complaint he alleged that the defendants conspired without corporate purpose to deprive him the value of his stock for the “purpose of excluding [the plaintiff] as a shareholder of [the corporation] ․” The defendants allegedly did this through a series of undisclosed transactions that deprived the corporation and the plaintiff of income and assets.   The court held that these allegations constituted claims “of looting the corporation and of failure of the directors to disclose important facts concerning corporate transactions [and stated] personal, as opposed to derivative causes of actions.”  Id. p. 282-83.

Relying on Yanow, at least one Superior Court decision has held that a plaintiff had standing to individually sue the former officers and shareholders of a company who “conspire[d] to take control of [the company] and steal its assets, including the [company's technology] ․ and thereby to marginalize the plaintiff ․ to diminish and dilute his share in the company, and to terminate his interest in the technology he had assisted in developing.”   LeBlanc v. Tomoiu, Superior Court, judicial district of Stamford-Norwalk, Docket No. CV 06 5001421 (June 5, 2007, Jennings, J.) (43 Conn. L. Rptr. 599).

In the present case, the plaintiff's allegations are virtually identical to those of the plaintiffs in Yanow and LeBlanc.   This is the type of personal injury that the Connecticut Supreme Court sought to protect in Yanow by allowing a plaintiff to bring a personal, as opposed to derivative, cause of action.   Accordingly, this plaintiff has standing to bring this individual cause of action.

Motion to dismiss denied.

Wagner, J.T.R.

Wagner, Jerry, J.T.R.