Mark Levy et al. v. LLC (2011)

MEMORANDUM OF DECISION RE MOTION FOR SUMMARY JUDGMENT (# 117)

PROCEDURAL HISTORY

The plaintiffs, Janet Levy and Mark Levy, filed the present case against the defendants, Guilford Village Walk, LLC (Village Walk), Lauren Brooks, Milton Bernblum, Sondra Bernblum and Patricia Gold (the individual defendants) on May 13, 2009.¹  The operative complaint, filed on January 22, 2010, contains the following factual allegations.   Janet Levy, Mark Levy, Lauren Brooks, Milton Bernblum, Sondra Bernblum and Patricia Gold are members of Village Walk. The individual defendants are each “related by blood, marriage or are otherwise closely associated.”   Pursuant to section 4.2 of the operating agreement, Mark Levy was appointed manager of Village Walk after the death of its initial manager, Edward C. Brooks III. During his tenure as manager, Mark Levy pursued the sale of Village Walk's principle asset, a parcel of real estate located in Guilford, Connecticut (the property).   Shortly thereafter, Lauren Brooks, Sondra Bernblum and Patricia Gold removed Mark Levy from the position of manager and appointed Lauren Brooks as his successor.²  The alleged motivation for this action was to prevent the sale of the property in order to ensure that Brooks Properties, LLC (Brooks Properties), a separate company owned by Lauren Brooks, continued to receive a fee for managing the property.

The operative complaint contains four counts.   Count one alleges that the defendants breached their fiduciary duties to the plaintiffs by removing Mark Levy from the position of manager and by refusing to authorize the sale of the property.   Count two alleges that the defendants breached the partnership's operating agreement by removing Mark Levy from the position of manager.   Counts three and four sound in the tort of conversion and are also premised upon the defendants' refusal not to sell the property.³

On April 11, 2011, the defendants filed a motion for summary judgment on all counts.   This motion was accompanied by a supporting memorandum of law as required by Practice Book § 11–10(5).   The plaintiffs filed an objection to this motion on June 3, 2011.   Oral argument on the motion was heard at short calendar on June 6, 2011.

DISCUSSION

“Summary judgment is a method of resolving litigation when pleadings, affidavits, and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.”  Wilson v. New Haven, 213 Conn. 277, 279, 567 A.2d 829 (1989).  “In seeking summary judgment, it is the movant who has the burden of showing the nonexistence of any issue of fact.   The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law.   The courts hold the movant to a strict standard.   To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact ․ As the burden of proof is on the movant, the evidence must be viewed in the light most favorable to the opponent ․ When documents submitted in support of a motion for summary judgment fail to establish that there is no genuine issue of material fact, the nonmoving party has no obligation to submit documents establishing the existence of such an issue ․ Once the moving party has met its burden, however, the opposing party must present evidence that demonstrates the existence of some disputed factual issue.”  (Internal quotation marks omitted.)  Ramirez v. Health Net of the Northeast, Inc., 285 Conn. 1, 10–11, 938 A.2d 576 (2008).

The defendants move for summary judgment on the following grounds:  (1) as to count one of the complaint, the defendants argue (A) that they did not owe a fiduciary duty to the plaintiffs and, (B) even if they did, that duty was not breached;  (2) as to count two of the complaint, the defendants argue that they did not breach the partnership's operating agreement by removing Mark Levy from the position of manager;  (3) as to counts three and four of the complaint, the defendants argue that they did not convert the plaintiff's interest by refusing to sell the property.   These arguments shall each be addressed in turn.

I

AExistence of a Fiduciary Duty

The individual defendants argue that the evidence contained within the record demonstrates that, as a matter of law, they owed no fiduciary duty to the plaintiffs.   This conclusion, according to the defendants, is necessitated by the fact that “Mark Levy is an experienced, sophisticated businessman and real estate investor.”   The court is not persuaded by this reasoning.

General Statutes § 34–141(a) provides, in relevant part:  “A member or manager shall discharge his duties under ․ the operating agreement, in good faith, with the care an ordinary prudent person in a like position would exercise under similar circumstances, and in the manner he reasonably believes to be in the best interests of the limited liability company ․” Thus, “[l]ike a partner in a partnership, a member of a limited liability company has a fiduciary duty to the other members.”  (Internal quotation marks omitted.)   Ruotolo v. Ruotolo, Superior Court, judicial district of New Haven, Docket No CV 09 5026804 (December 29, 2009, Jones, J.);   see also Wilcox v. Schmidt, Superior Court, judicial district of Windham, Docket No. CV 04 4001126 (June 3, 2010, Swords, J.);   The Zanker Group, LLC v. Summerville at Litchfield Hills, LLC, Superior Court, judicial district of New Haven, Docket No. CV 04 4015238 (October 24, 2005, Munro, J.);   Yavarone v. Jim Moroni's Oil Service, LLC, Superior Court, judicial district of Middlesex, Docket No. CV 03 0102318 (February 18, 2005, Aurigemma, J.).

There is ample evidence contained within the record demonstrating that the plaintiffs and the individual defendants are joint members of Village Walk. The existence of this relationship, when considered in light of § 34–141, creates a genuine issue of material fact relating to the presence of a fiduciary duty.   Consequently, summary judgment cannot enter on the first count of the operative complaint due to the absence of a fiduciary duty.

B

Breach of Fiduciary Duty

It is axiomatic to state that one who owes a fiduciary duty may not engage in self-dealing.   Thus, “[t]he fiduciary duty of loyalty is breached when the fiduciary engages in self-dealing by using the fiduciary relationship to benefit [their own] personal interest.”  Mangiante v. Niemiec, 82 Conn.App. 277, 284, 843 A.2d 656 (2004);  see also Sherwood v. Danbury Hospital, 278 Conn. 163, 196, 896 A.2d 777 (2006) (“[A]lthough we have not expressly limited the application of these traditional principles of fiduciary duty to cases involving only fraud, self-dealing or conflict of interest, the cases in which we have invoked them have involved such deviations.”  [Internal quotation marks omitted;  emphasis in original.] ).   Our Appellate Court has recently defined self-dealing as “[p]articipation in a transaction that benefits oneself instead of another who is owed a fiduciary duty.”  (Internal quotation marks omitted.)  Charter Oak Lending Group, LLC v. August, 127 Conn.App. 428, 442 n.9, 14 A.3d 449 (2011).

In order to be entitled to summary judgment on count one of the operative complaint the individual defendants must submit evidence establishing that the transaction was for the benefit of Village Walk. In an attempt to meet this burden, the individual defendants have submitted evidence in the form of affidavits indicating that their actions were motivated by a genuine belief that selling the property would not be economically advantageous in the current economy.   There is, however, other evidence within the record indicating that their actions may have been a result of self-dealing.   Specifically, the deposition transcript of Mark Levy states that:  (1) during the period of time in which he was the manager of Village Walk, Lauren Brooks called him and indicated that if the property were sold, Brooks Properties, a separate company in which she possesses an ownership interest, would no longer be able to “survive financially”;  (2) when he indicated that he was not going to consider Brooks Properties' financial well-being, Lauren Brooks hung up and;  (3) shortly thereafter, he was removed from the position of manager and Lauren Brooks had been appointed by the other members as a replacement.   Given this sequence of events, there appears to be a genuine issue of material fact remaining to be resolved relating to the defendants' motive for removing Mark Levy and preventing the sale of the property.   Thus, summary judgment cannot enter on the first count of the operative complaint due to the absence of a breach.⁴

II

The second count of the operative complaint alleges that the defendants violated Section 4.2 of Village Walk's operating agreement by removing Mark Levy from the position of manager.   Section 4.2 provides:  “[Village Walk] shall initially have one manager.   The initial manager shall be:  Edward C. Brooks, III. In the event Edward C. Brooks III, shall die or become disabled and be unable to serve as the manager, Mark Levy shall succeed to the position of manager with all the powers and duties attached thereto.   In the event that Mark Levy declines to accept the position of successor manager, or is unable due to death or disability to accept said position, a successor manager shall be elected by the affirmative vote or written consent of members holding at least a majority interest.”

The defendants argue that they are entitled to summary judgment because section 4.2 does not govern the removal of managers.   Specifically, the defendants contended that removal of managers is governed by Section 4.9.   That provision states, in relevant part:  “Any manager may be removed at any time, with or without cause, by the affirmative vote or written consent of members holding a majority interest.”   In support of their motion, the defendants have submitted a copy of the operating agreement and a document, signed by members comprising a sixty percent interest in Village Walk, purporting to remove Mark Levy from the position of manager.   The plaintiffs respond by arguing that section 4.9 is inapplicable to the present case.   In support of this argument, the plaintiffs refer to certain pieces of parol evidence indicating that there was an understanding between the parties who drafted the operating agreement that section 4.9 did not apply to Edward C. Brooks III or Mark Levy.

Section 4.2 indicates that Mark Levy assumed the position of “manager” upon the death of his predecessor.   Section 4.9 explicitly states that it governs the removal of “[a]ny manager.”   This language unambiguously indicates that section 4.9 governs the removal of Mark Levy. The parol evidence referenced by the plaintiffs, namely, the deposition testimony of Mark Levy describing the personal and professional relationship between Mark Levy and Edward C. Brooks III, and their respective intents, contravenes this language and is therefore inadmissible.  “[The parol evidence rule] is premised upon the idea that when the parties have deliberately put their engagements into writing, in such terms as import a legal obligation, without any uncertainty as to the object or extent of such engagement, it is conclusively presumed, that the whole engagement of the parties, and the extent and manner of their understanding, was reduced to writing.   After this, to permit oral testimony, or prior or contemporaneous conversation, or circumstances, or usages [etc.], in order to learn what was intended, or to contradict what is written, would be dangerous and unjust in the extreme ․” (Internal quotation marks omitted.)  Palozie v. Palozie, 283 Conn. 538, 548 n.8, 927 A.2d 903 (2007).⁵  The evidence submitted by the defendants demonstrates that members constituting a majority interest in the company acted to remove Mark Levy from the position of manager.   This evidence is sufficient to demonstrate that there is no genuine issue of material fact as to whether the removal comported with the operating agreement.   Therefore, the defendants are entitled to summary judgment on the second count of the operative complaint as a matter of law.

III

The third and fourth counts of the operative complaint allege that the defendants' refusal to sell the property constitutes conversion of the plaintiffs' personal property.  “To establish a prima facie case of conversion, the plaintiff[s] [have] to demonstrate that (1) the material at issue belonged to [them], (2) that the defendants deprived the plaintiff[s] of that material for an indefinite period of time, (3) that the defendants' conduct was unauthorized and (4) that the defendants' conduct harmed the plaintiff[s].”  Stewart v. King, 121 Conn.App. 64, 74 n.4, 994 A.2d 308 (2010).

The defendants are entitled to summary judgment on the third and fourth counts of the operative complaint to the extent that those counts allege the defendants converted the plaintiffs' personal interest in the property.   The undisputed evidence contained within the record indicates that the property, and therefore any proceeds derived therefrom, are owned by Village Walk. “Property transferred to ․ a limited liability company is property of the limited liability company and not of the members individually.   A member has no interest in specified limited liability company property.”   See General Statutes § 34–167(a).   Consequently, the plaintiffs possess no personal interest in the property which may be converted.

The defendants are also entitled to summary judgment on the third and fourth counts of the operative complaint to the extent those counts allege the defendants converted the plaintiffs' membership interest.   Although the plaintiffs' membership interest is undoubtably personal property;  see General Statutes § 34–169 (“A limited liability company membership interest is personal property”);  it is undisputed that the plaintiffs jointly possessed a forty percent interest in Village Walk before, during and after the acts alleged.   Consequently, the plaintiffs have not been deprived of their membership interest.

Accordingly, there are no genuine issues of material fact pertaining to the plaintiffs' allegations of conversion and the defendants are entitled to summary judgment on the third and fourth counts of the operative complaint as a matter of law.

CONCLUSION

For the foregoing reasons, the defendants' motion for summary judgment as to count one is denied and granted as to counts two, three and four.

Wilson, J.

FOOTNOTES

FN1. Milton Bernblum died on January 11, 2011 and Sondra Bernblum is currently acting as the executrix of his estate..  FN1. Milton Bernblum died on January 11, 2011 and Sondra Bernblum is currently acting as the executrix of his estate.

FN2. Sondra Bernblum acted on behalf of herself and Milton Bernblum, who was disabled at the time..  FN2. Sondra Bernblum acted on behalf of herself and Milton Bernblum, who was disabled at the time.

FN3. Count three of the complaint is entitled “constructive trust.”   Count four is entitled “conversion.”   Both counts, however, allege that the actions undertaken by the defendants “has, or shall have the effect of converting the valuable equity of the plaintiffs in [Village Walk's] assets for the sole benefit of the remaining members of [Village Walk].”.  FN3. Count three of the complaint is entitled “constructive trust.”   Count four is entitled “conversion.”   Both counts, however, allege that the actions undertaken by the defendants “has, or shall have the effect of converting the valuable equity of the plaintiffs in [Village Walk's] assets for the sole benefit of the remaining members of [Village Walk].”

FN4. The remaining arguments proffered by the defendants on this count are inapposite.   First, the mere fact that the defendants' actions might have been authorized by the operating agreement;  see section II of this opinion, infra, does not mean that those same actions cannot constitute a breach of a fiduciary duty.   See the discussion of General Statutes § 34–141(a), supra.   Second, evidence that Sondra Bernblum and Patricia Gold do not possess a direct financial interest in Brooks Properties does not, in light of the close familial or business relationships with Lauren Brooks, foreclose the possibility that their motivations were improper.   Third, the letter sent by Lauren Brooks discussing the possibility of selling the property, which was sent to the members of Village Walk after she became manager, does not demonstrate that the motivation underlying her other actions was proper..  FN4. The remaining arguments proffered by the defendants on this count are inapposite.   First, the mere fact that the defendants' actions might have been authorized by the operating agreement;  see section II of this opinion, infra, does not mean that those same actions cannot constitute a breach of a fiduciary duty.   See the discussion of General Statutes § 34–141(a), supra.   Second, evidence that Sondra Bernblum and Patricia Gold do not possess a direct financial interest in Brooks Properties does not, in light of the close familial or business relationships with Lauren Brooks, foreclose the possibility that their motivations were improper.   Third, the letter sent by Lauren Brooks discussing the possibility of selling the property, which was sent to the members of Village Walk after she became manager, does not demonstrate that the motivation underlying her other actions was proper.

FN5. Even if this court was to assume that the operating agreement was ambiguous in this regard, the default rule set forth in General Statutes § 34–140(d) would govern.  Section 34–140(d) provides, in relevant part:  “If the management of a limited liability company is vested in a manager or managers, the operating agreement may set forth the number and qualification of the managers and the manner in which the managers are designated or elected, removed and replaced.   Unless otherwise provided in the operating agreement ․ (3) any or all managers may be removed, with or without cause, by the vote of a majority in interest of the members ․.  FN5. Even if this court was to assume that the operating agreement was ambiguous in this regard, the default rule set forth in General Statutes § 34–140(d) would govern.  Section 34–140(d) provides, in relevant part:  “If the management of a limited liability company is vested in a manager or managers, the operating agreement may set forth the number and qualification of the managers and the manner in which the managers are designated or elected, removed and replaced.   Unless otherwise provided in the operating agreement ․ (3) any or all managers may be removed, with or without cause, by the vote of a majority in interest of the members ․

Wilson, Robin L., J.