LLC v. LLC (2010)

MEMORANDUM OF DECISION

The defendants, Burlington Academy of Learning, LLC and Rosemary McDonnell, have filed a timely motion pursuant to Practice Book § 11–21 seeking an award of attorneys fees from the plaintiff, Covey Meadow Common, LLC. following the dismissal of the plaintiff's summary process action against the defendants.

The defendants' motion seeks “an award of attorneys fees on the basis that the plaintiff has acted in bad faith.”   The defendants' eighteen-page memorandum of law in support of its motion outlines a lengthy history of the dismissed summary process action and three prior summary process actions, dating back to December 19, 2007, which were unsuccessfully brought by the plaintiff against the defendants.¹

LEGAL STANDARD

“The general rule of law known as the American rule is that attorneys fees and ordinary expenses and burdens of litigation are not allowed to the successful party absent a contractual or statutory exception ․ Connecticut adheres to the American rule ․ There are few exceptions.   For example, a specific contractual term may provide for the recovery of attorneys fees and costs ․ or a statute may confer such rights ․ [The Supreme Court] also has recognized a bad faith exception to the American rule, which permits a court to award attorneys fees to the prevailing party on the basis of bad faith conduct of the other party or the other party's attorney.”  (Citations omitted;  internal quotation marks omitted.)  ACMAT Corp. v. Greater New York Mutual Ins. Co., 282 Conn. 576, 582–83, 923 A.2d 697 (2007).

In addition to contractual or statutory authorization, our courts are vested with the inherent authority to award attorneys fees to a prevailing party when the other party or its attorney has engaged in bad faith conduct in either bringing or maintaining the underlying action.  Acmat Corp., supra.   Subject to certain limitations, “the court has the inherent authority to impose sanctions against an attorney and his client for a course of claimed dilatory, bad faith and harassing litigation conduct ․” Fattibene v. Kealey, 18 Conn.App. 344, 359–60, 558 A.2d 677 (1989).   The standard for determining whether a party has acted in bad faith is different from the standard by which an attorney's bad faith conduct is determined.

Subject to certain limitations, “the court has the inherent authority to impose sanctions against an attorney and his client for a course of claimed dilatory, bad faith and harassing litigation conduct ․” Fattibene v. Kealey, 18 Conn.App. 344, 359–60, 558 A.2d 677 (1989).   In the present matter, the defendant has alleged that the “plaintiff has acted in bad faith.”

“Bad faith is defined as the opposite of good faith, generally implying a design to mislead or to deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation not prompted by, an honest mistake as to one's rights or duties ․ Bad faith does not imply bad judgment or negligence, but rather it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity ․ It contemplates a state of mind affirmatively operating with furtive design or ill will.”  (Internal quotation marks omitted.)  Hutchinson v. Farm Family Casualty Insurance Co., 273 Conn. 33, n.4, 867 A.2d 1 (2005), citing Buckman v. People's Express, Inc., 205 Conn. 166, 171, 530 A.2d 596 (1987).

Whether a party has acted in bad faith is a question of fact, subject to the clearly erroneous standard of review.  Renaissance Management Co. v. Connecticut Housing Finance Authority, 281 Conn. 227, 240, 915 A.2d 290 (2007).

BACKGROUND

The plaintiff brought the underlying summary process action against the defendants for nonpayment of rent claimed to be due under a commercial lease and violation of the terms of the lease.   The claim of unpaid rent was generally characterized as a “shortfall” of sums due pursuant to a rent escalation provision in the lease.   The rent adjustment under the terms of the lease was to be established on the basis of a formula calculated by reference to periodic increases in the consumer price index.   Prior to issuance of the notice to quit, the attorneys for the parties exchanged a series of letters which evidence confusion and disagreement over the actual amounts due under the rent escalation provision.   The defendants' motion to dismiss challenged the validity of the notice to quit and the court, having found the notice to quit invalid, dismissed the action.

The defendants' initial motion requested “an award of attorneys fees on the basis that the plaintiff has acted in bad faith.”   After an initial hearing, and receipt of lengthy memoranda of law, the motion was continued while the parties engaged in attempts to settle the issue including mediation with Judge Levine.   The record reflects a total of eight requests for continuances, all of which were granted.

On August 23, 2010, the defendants filed a Supplemental Motion for Attorneys Fees in which the defendants aver that “As plaintiff's Counsel was acting on behalf of and as agent of the plaintiff (principal), plaintiff is liable for the acts of its Counsel.”   The supplemental motion also asserts “Based on the arguments put forth by plaintiff subsequent to the filing of the Motion For Attorneys Fees, even though defendants feel nonetheless that plaintiff is liable for its acts or conduct and that of its Counsel, defendants file this Supplemental Motion with an Order that attorneys fees be awarded based upon the conduct of either plaintiff, its Counsel or both.”   The plaintiff has objected to the defendants' supplemental motion as being untimely.   The court conducted a final hearing on the motion on August 26, 2010 at which the court heard argument and received additional memoranda and case law as authority from the parties.

No oral testimony was presented by either party.   Affidavits were submitted by the defendants, the plaintiff and the plaintiff's attorney.   At the hearing, objections were made to the affidavits on the grounds that they contain hearsay and facts not in evidence in the underlying case.   The court was requested to consider the affidavits and to assign to the affidavits, the weight deemed to be appropriate in accordance with the rules of evidence.  “[T]estimony presented by affidavit is different from testimony orally delivered because the affiant is not subject to cross-examination.   But that leads to greater, not lesser, strictures imposed on the testimony presented by affidavit.”   Rosenblit v. Danaher, 206 Conn. 125, 136 (1988).

DISCUSSION

“It is generally accepted that the court has the inherent authority to assess attorneys fees when the losing party has acted in bad faith, vexatiously, wantonly or for oppressive reasons.”  Maris v. McGrath, 269 Conn. 834, 844, 850 A.2d 133 (2004).   In the present case, the defendants have not claimed that the plaintiff has acted vexatiously, wantonly or for oppressive reasons.  “To determine whether the bad faith exception [to the American Rule] applies, the court must assess whether there has been substantive bad faith as exhibited by, for example, a party's use of oppressive tactics or its wilful violations of court orders;  [t]he appropriate focus for the court ․ is the conduct of the party in instigating or maintaining the litigation.”  Id. 845–46.

Both the procedural and substantive standards for determining bad faith apply to both the attorney and his client.  Id. 846.  “As applied to a party, rather than to his attorney, a “claim is colorable, for purposes of the bad faith exception to the American rule, if a reasonable person, given his or her first hand knowledge of the underlying matter, could have concluded that the facts supporting the claim might have been established.”  Id. 847.

As noted, the defendants claim that the plaintiff is liable for the acts of its attorney.  “The general rule is that the acts of an attorney are imputed to a client when they are performed in the furtherance of the business for which the attorney has been retained.   This general rule may yield, however, to the special circumstances of a case.   When an attorney acts in bad faith ․ the general rule does not apply.”  (Citations omitted.)  Allen v. Nissley, 184 Conn. 539, 424–43 (1981).

The defendants cite Rule 3.1 of the Rules of Professional Conduct.  Rule 3.1 of the Rules of Professional Conduct titled “Meritorious Claims and Contentions” provides in pertinent part:  “A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous, which includes a good faith argument for an extension, modification or reversal of existing law.   The commentary provides that an action is frivolous “if the client desires to have the action taken primarily for the purpose of harassing or maliciously injuring a person or if the lawyer is unable either to make a good faith argument on the merits of the action taken or to support the action taken by the good faith argument for an extension, modification or reversal of existing law.”  Rules of Professional Conduct 3.1, commentary.

“In Texaco, Inc. v. Golart, 206 Conn. 454, 463–64, 538 A.2d 1017 (1988), this court adopted the definition of frivolous action set forth by rule 3.1 of the Rules of Professional Conduct and its comments in determining whether an appeal is frivolous.   This court quoted a comment to the rule and concluded that an action is frivolous ․ if the client desires to have the action taken primarily for the purpose of harassing or maliciously injuring a person or if the lawyer is unable either to make a good faith argument on the merits of the action taken or to support the action taken by a good faith argument for an extension, modification or reversal of existing law.   This court adopted this definition, and further held that the burden of proof lies on the moving party to establish the frivolity of the appeal.   For purposes of awarding attorneys fees to a prevailing party, the Texaco, Inc., standard for determining frivolous appeals applies equally to the trial court's determination of whether a claim brought therein is frivolous ․ [w]hether a claim is colorable ․ is a matter of whether a reasonable attorney could have concluded that facts supporting the claim might be established, not whether such facts had been established.”  (Emphasis added.   Citations omitted.   Internal quotation marks omitted).  Schoonmaker v. Brunoi, 265 Conn. 210, 254–56, 828 A.2d 64 (2003).

“To ensure ․ that fear of an award of attorneys fees against them will not deter persons with colorable claims from pursuing those claims, we have declined to uphold awards under the bad-faith exception absent both clear evidence that the challenged actions are entirely without color and [are taken] for reasons of harassment or delay or for other improper purposes ․ and a high degree of specificity in the factual findings of [the] lower courts.”   Maris v. McGrath, supra, 845.

The defendants rely heavily on their contention that since the Sproviero case was discussed in the attorneys' exchange of correspondence prior to service of the notice to quit, the plaintiff and plaintiff's counsel's decision to file the action in light of the Sproviero decision shows that the plaintiff and the plaintiff's counsel consciously disregarded the law.   In response, the plaintiff's counsel argues that, in addition to his belief that the facts of this case, at least with respect to a portion of the rent shortfall, are distinguishable from Sproviero and that there were additional grounds for the summary process action including breach of a lease provision.

Although the defendants claim that an action brought for the failure to pay attorneys fees due under the terms of the lease is against public policy, the plaintiff asserts that the support for that contention is a trial court decision which involved an oral residential tenancy.

The parties' exchanges, in some small way, serve to illustrate the understandable nature of the controversy that brings them to this stage of the proceeding.   Summary process actions often involve very complex factual circumstances and the body of law surrounding them requires the application of rules considered by some to be complicated or hypertechnical.   Summary process law continues to evolve and be clarified by our appellate courts.   For example, in July 2009, after the underlying action was commenced, our Supreme Court reviewed and considered whether the rule of putting the parties back to “square one” under Housing Authority v. Hird, 13 Conn.App. 157, 535 A.2d 377 (1988) meant the state of affairs as they existed before the filing of the notice to quit or as they existed before the filing of the complaint in the summary process action.  Waterbury Twin v. Renal Treatment Centers–Northeast, 292 Conn. 459 (2009).  Housing Authority v. Hird was extensively discussed and pivotal to the court's ruling in Sproviero.

The defendants cite Falls Church Group, Ltd. v. Tyler, Cooper and Alcorn, LLP, 281 Conn. 84, 912 A.2d 1019 (2007) as authority for the proper standard to be applied to the reasonableness of an attorney's action in instituting litigation for a client.   However, in Falls Church, our Supreme Court articulated the standard of probable cause which is to be applied to vexatious litigation suits, not the standard to determine bad faith for purposes on awarding attorneys fees as an exception to the American Rule. In Falls Church, our Supreme Court made no mention of the term “bad faith” nor any reference to Maris v. McMahon, a decision the Court rendered a mere three years earlier.

Where the sanction sought consists of attorneys fees, the burden is on the proponent of the award to provide the court with the necessary factual predicate for such an award.  Smith v. Snyder, 267 Conn. 456, 479–80 (2004).  “[T]he trial court must make a specific finding as to whether counsel's [or a party's] conduct ․ constituted or was tantamount to bad faith, a finding that would have to preclude any sanction under the court's inherent powers to impose attorneys fees for engaging in bad faith litigation practices.”  (Emphasis added;  citations omitted;  internal quotation marks omitted.)  Id., 360.   See also Briggs v. McWeeny, 260 Conn. 296, 335, 796 A.2d 516 (2002);  Thalheim v. Greenwich, 256 Conn. 628, 653–54, 775 A.2d 947 (2001).   In the present case, the court has no clear evidence required to make such specific finding.

Even if this court were to agree with the defendants that the standard to be applied to determine bad faith in the present case should be an objective standard rather than a subjective one, the defendants have not demonstrated that, under the facts of this case, the plaintiff and its counsel brought the underlying action entirely without color and in bad faith.

With regard to the defendants' claims that the plaintiff mislead the defendants concerning the amount of the monthly rent in 2007 and mislead the defendants by its statement concerning reservation of its right to claim any shortfall in rent, the court finds those claims to be insufficient to constitute oppressive tactics or bad faith conduct on the part of the plaintiff or its attorney.

CONCLUSION

As recognized in Mozzochi v. Beck, 204 Conn. 490, 495, 529 A.2d 171 (1987), “the court must be wary in its consideration of the conduct of attorneys so as not to create a chilling and inhibitory effect on would-be litigants of justiciable issues.”

Although, the defendants' motion to dismiss was granted and the defendants prevailed, there is no clear evidence that the plaintiff or its attorney acted in bad faith so as to merit an award of attorneys fees.   Accordingly, the defendants' motion for an award of attorneys fees is denied.

In view of the denial of the defendants' motion, it is unnecessary for the court to rule on the plaintiff's challenge to the timeliness of the defendants' Supplemental Motion.

So ordered.

Gilligan, J.

FOOTNOTES

FN1. At the hearing on the motion, the parties stipulated that the court is limited to consideration of the facts and challenged actions in this matter only..  FN1. At the hearing on the motion, the parties stipulated that the court is limited to consideration of the facts and challenged actions in this matter only.

Gilligan, Robert G., J.