Walter Whitney v. J.M. Scott Associates, Inc. et al. (2012)

RULING ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT (# 118) AND DEFENDANT'S MOTION TO TERMINATE RESTRAINING ORDER (# 116)

By motion dated August 9, 2011, defendant J.M. Scott Associates, Inc. (“JMSA”) moved to terminate a restraining order and, on August 19, 2011, moved for summary judgment.   JMSA claims that the first, second, third, eighth and ninth counts of the plaintiff's complaint are barred by the applicable statute of limitations.   JMSA asserts that if the motion for summary judgment is granted then the temporary restraining order should be terminated.   JMSA's motion for summary judgment is granted.   JMSA's motion to terminate the restraining order is denied.

I

FACTUAL BACKGROUND

This case arises out of a business relationship between defendant James M. Scott (“Scott”) and the plaintiff, Walter Whitney.   The complaint alleges that Scott is the president and majority stockholder of the remaining two defendants, J.M. Scott Swimming Pools, Inc. (“SSP”) and JMSA. According to the plaintiff, on March 20, 2002, he entered into two contracts with Scott and SSP. One contract was an employment agreement which contemplated the plaintiff working for Scott for five years, after which time Scott would retire and the plaintiff would take ownership of SSP. The second contract was a stock option purchase agreement.   Both agreements were supplemented with a letter agreement, and all agreements were to become effective on March 31, 2002.

In his complaint, the plaintiff alleges that he reviewed SSP's financial statements before entering into the various agreements, and that he relied on the accuracy of those statements in entering into the agreements.   The plaintiff further alleges that Scott and SSP concealed information that should have been in the financial statements or in notes to those financial statements.   The plaintiff also alleges that Scott and SSP concealed deferred compensation liabilities owed to Scott that, by March 2007, exceeded $2.5 million.

The complaint includes allegations that the plaintiff worked for Scott and SSP for more than four years when Scott informed the plaintiff that Scott had decided not to sell SSP to the plaintiff.   On December 16, 2006, Scott gave the plaintiff a five-day notice of intent to terminate the plaintiff's employment.   Scott then allegedly terminated the plaintiff's employment contract on December 22, 2006, three months before the plaintiff would have otherwise fulfilled his contractual obligation to work for Scott and SSP for five years, after which the plaintiff would have been allowed to purchase SSP pursuant to the March 2002 stock purchase agreement.

In January 2007, the plaintiff claimed a right to arbitrate the dispute with Scott and SSP. Arbitration began on September 28, 2007, and continued for some two-years.   On August 14, 2009, Scott claimed that he lacked funds to continue the arbitration.

On November 6, 2009, the plaintiff moved for a temporary restraining order, which was granted.   The parties agreed that the temporary restraining order could remain in place as they moved toward a trial date, predicted to be in late spring 2011.   The trial did not proceed as planned, and the plaintiff served a complaint upon all defendants on April 14, 2011.   Count one of the complaint alleges fraud as to all defendants;  count two alleges a violation of the Connecticut Unfair Trade Practices Act (“CUTPA”), General Statutes § 42–110a et seq. as to all defendants;  count three, as to JMSA, alleges that it aided in the fraud alleged in the first count;  count eight seeks to pierce the corporate veil relative to Scott, SSP and JMSA;  and Count nine, brought against all defendants, alleges a fraudulent conveyance of land.¹

JMSA moved to terminate the temporary restraining order on August 19, 2011.   On that same date, JMSA moved for summary judgment as to the first, second, third, eighth and ninth counts of the plaintiff's complaint on the ground that there is no genuine issue of material fact that the foregoing counts are barred by the applicable statute of limitations which, it argues, is three years.   JMSA also argues that, as to count eight, there are no genuine issues of material fact that would preclude the entry of summary judgment.

According to JMSA, the last action relative to the plaintiff's claims occurred on March 23, 2007, which was more than three years before the complaint was served.   On September 28, 2011, the plaintiff moved to amend his revised complaint ² to allege, for the first time, that the last action relative to his cause of action occurred on July 29, 2008.

This matter came before the court and was argued on October 3, 2011.   At that time, the plaintiff withdrew the eighth count of the complaint.

II

PARTIES' ARGUMENTSAJMSA's Position

Count One. Count one alleges that the plaintiff entered into a stock option purchase agreement with Scott, but did so relying on financial statements produced by Scott that were fraudulent.   The plaintiff claims that the statements did not reflect high levels of deferred compensation owed to Scott by SSP. The first count also alleges that Scott fraudulently undervalued and conveyed real property from SSP to JMSA on March 23, 2007.   The plaintiff claims that the transfer was carried out in order to prevent him from purchasing the property and also to reduce the value of SSP.

JMSA argues that count one does not allege that it was a party to any agreement involving the plaintiff.   JMSA also argues that the property transferred to it was not undervalued.

Count Two. Count two alleges a CUTPA violation.   This count incorporates the allegations of the first count, and specifically alleges, as to JMSA, that the property transfer described in count one was fraudulent and carried out in violation of CUTPA.

JMSA argues that this claim is untimely and, further, that the transfer was not fraudulent.   JMSA essentially incorporates the arguments it made regarding the first count.

Count Three.   Count three is as to JMSA, only.   It alleges that JMSA aided in the fraud perpetrated upon the plaintiff in two respects:  first, by “demanding” that a loan to SSP be repaid, an action that precipitated the property transfer and, second, by accepting the property at a below-market cost.   The plaintiff alleges that the latter action left SSP with a large debt that would not have existed if SSP had received fair market value for the property that it transferred to JMSA.

JMSA, again, claims that the transfer was not fraudulent.   JMSA also argues, again, that the claim is untimely.

Count Eight.   In the course of oral argument on these motions, the plaintiff withdrew this “piercing the corporate veil” count.   Therefore, the court will not address this count further.

Count Nine. This count alleges a fraudulent conveyance as to all defendants, incorporating by reference the allegations on this topic that appear in count three.   In this count, the plaintiff recognizes that JMSA holds title to the property at issue and seeks to void the property transfer.

JMSA argues that the claims in the ninth count are untimely since they involve a property transfer that occurred on March 23, 2007, more than four years before this action was brought.   JMSA argues that the plaintiff's application for a prejudgment remedy will not serve to toll a statute of limitations.   It claims that General Statutes § 52–577 sets the applicable statute of limitations at three years “from the date of the act or omission complained of.”   JMSA also claims that the option to purchase property from SSP fails to meet the requirements of the statute of frauds.   See General Statutes § 52–550.   Further, JMSA asserts that the option agreement was not susceptible of enforcement within eighteen months of execution in violation of General Statutes § 49–33.

JMSA supports its motion for summary judgment with various exhibits and an affidavit by Scott that asserts, inter alia, that Scott is the president of JMSA;  that JMSA had no business dealings with the plaintiff;  that JMSA did not terminate the plaintiff's employment;  that the debt SSP owed to JMSA was disclosed to the plaintiff;  and the plaintiff did not request further financial disclosure regarding the debt.

In a reply memorandum, JMSA focuses on the plaintiff's amended revised complaint, arguing that the allegations contained therein fail to bring the plaintiff's claims against JMSA within the applicable statute of limitations.   According to JMSA, the plaintiff is attempting to invoke the “continuing course of conduct” doctrine to avoid a statute of limitations bar but cannot meet any of the three elements necessary to invoke that doctrine.   JMSA argues that it committed no “initial wrong” to the plaintiff;  it owed no continuing duty to the plaintiff;  and the plaintiff has not shown a “continual breach” of any duty owed to the plaintiff.

B

Plaintiff's Position

The plaintiff objects to the motion for summary judgment, arguing that, although he originally claimed that the last date on which JMSA acted was March 23, 2007, his amended revised complaint alleges conduct by JMSA that occurred on July 29, 2008, thus extending the three-year statute of limitations to July 29, 2011, some three months after the complaint was served.

The plaintiff supports his position with various exhibits and an affidavit by Edward Ronan (“Ronan”), a CPA. Ronan's affidavit asserts that the transfer of property from SSP to JMSA undervalued the assets that were transferred.

The plaintiff also filed his own affidavit with attached exhibits.   The plaintiff's affidavit asserts that he attempted to add JMSA to the arbitration proceeding on July 29, 2008, but that JMSA's counsel declined to consent to arbitration on the basis that JMSA was not a party to the arbitration provisions of the contract.   The plaintiff argues that JMSA's refusal to submit to arbitration gave “substantial assistance” to Scott and SSP because it “effectively removed the buildings [that were transferred] from the reach of the arbitration ․” The plaintiff also claims that a July 18, 2008 pleading filed in the arbitration proceeding made a fraudulent claim that SSP was insolvent.

III

DISCUSSION

Summary judgment is appropriate if the pleadings, affidavits, and other proof submitted show that there are no genuine issues as to material fact and that the moving party is entitled to judgment as a matter of law.  Practice Book § 17–49.  “In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party ․ The party moving for summary judgment has the burden of showing the absence of any genuine issue of material fact and that the party is, therefore, entitled to judgment as a matter of law.”  (Internal quotation marks omitted.)  Boyne v. Glastonbury, 110 Conn.App. 591, 595–96, 955 A.2d 645, cert. denied, 289 Conn. 947, 959 A.2d 1011 (2008).  “[A] party opposing summary judgment must substantiate its adverse claim by showing that there is a genuine issue of material fact together with the evidence disclosing the existence of such an issue.”  (Internal quotation marks omitted.)  Id., 596.

The facts at issue [in the context of summary judgment] are those alleged in the pleadings.”  (Internal quotation marks omitted.)  Arnone v. Connecticut Light & Power Co., 90 Conn.App. 188, 194, 878 A.2d 347 (2005).  “A material fact is a fact which will make a difference in the result of the case ․ [I]ssue-finding, rather than issue-determination, is the key to the procedure ․ [T]he trial court does not sit as the trier of fact when ruling on a motion for summary judgment ․ [Its] function is not to decide issues of material fact, but rather to determine whether any such issues exist.”   (Internal quotation marks omitted.)  Keller v. Beckenstein, 117 Conn.App. 550, 557–58, 979 A.2d 1055, cert. denied, 294 Conn. 913, 983 A.2d 274 (2009).

The allegations of fraud, aiding in the fraud and fraudulent conveyance (counts one, three and nine) are all governed by the three-year statute of limitations set forth in General Statutes § 52–577.  Rosenblatt v. Berman, 143 Conn. 39, 119 A.2d 118 (1955) (fraud and deception);  Valentine v. LaBow, 95 Conn.App. 436, 444–46, 897 A.2d 624, 280 Conn. 933, 909 A.2d 963 (2006) (fraudulent conveyance).   The plaintiff does not disagree.³ . The plaintiff's CUTPA count (count two) is also governed by a three-year statute of limitations.  General Statutes § 42–110g(f).  Again, the plaintiff does not disagree.

The three-year limitation period “begins with the date of the act or omission complained of, not the date when the plaintiff first discovers an injury.”   (Internal quotation marks omitted.)  Farnsworth v. O'Doherty, 85 Conn.App. 145, 150, 856 A.2d 518 (2004).   In the present case, the date of the act complained of, i.e., the transfer of the property, occurred on March 23, 2007, more than three years before the plaintiff initiated his action, which was April 14, 2011.   The remaining question is whether the allegations in the amended revised complaint save the plaintiff's claims.

The plaintiff makes no argument as to why the new allegations, which allege conduct that he attributes to JMSA, extend the time in which he had to file his complaint except to argue that the new allegations “flesh out” his original claims.   JMSA, and the court, interpret the plaintiff's argument to be that the amended revised complaint contains allegations amounting to a continuing course of conduct that tolls the running of the statute of limitations.   See Fichera v. Mine Hill Corp., 207 Conn. 204, 208, 541 A.2d 472 (1988).   In order to invoke the continuing course of conduct doctrine, the plaintiff must establish “evidence of the breach of a duty that remained in existence after commission of the original wrong related thereto.   That duty must not have terminated prior to commencement of the period allowed for bringing an action for such a wrong” (Internal quotation marks omitted.)  Bednarz v. Eye Physicians of Central Connecticut, P.C., 287 Conn. 158, 170, 947 A.2d 291 (2008).   In order to establish that such a duty “continued to exist after the cessation of the act or omission relied upon, there [must be] evidence of either a special relationship between the parties giving rise to such a continuing duty or some later wrongful conduct of a defendant related to the prior act.”  (Internal quotation marks omitted.)  Id.

In the present case, the plaintiff's argument is based on his allegations, contained in the amended revised complaint, of two events that post-dated the transfer of the property.   The first event is the filing of a July 18, 2008 pleading in the arbitration proceeding.   The plaintiff alleges that the pleading included a fraudulent claim that SSP was insolvent.   For purposes of summary judgment, the court must construe this allegation in the light most favorable to the plaintiff, and accept his argument that the claim of SSP's insolvency was “fraudulent.”

The July 18, 2008 pleading is attached as an exhibit to the plaintiff's affidavit.   From a review of the exhibit, it is clear that the pleading was filed in the arbitration proceeding by counsel for the “respondents” in the arbitration proceeding, i.e., Scott and SSP, not JMSA. The court recognizes the plaintiff's claim that Scott controls JMSA, but the court also recognizes and the plaintiff does not disagree that JMSA is an independent corporate entity.⁴  The fact that Scott is the president of JMSA does not mean that the pleading filed by Scott's counsel was filed on behalf of JMSA. The plaintiff fails to cite any authority to support the proposition that a pleading filed on behalf of Scott and/or SSP can form the basis for a breach of a duty that JMSA allegedly owed to the plaintiff.

The other new allegation raised by the plaintiff in his amended revised complaint fares no better.   The fact that, on July 29, 2008, “JMSA's counsel” would not consent to arbitration does not serve to extend the statute of limitations.   First, the statement on which the plaintiff relies was made in the context of the arbitration proceeding;  and, as is clear, the statement was made by counsel for the respondents in that action, i.e., Scott and SSP, not JMSA.⁵ The fact that the counsel for the arbitration respondents now represents JMSA in this action does not mean that he was representing JMSA in the arbitration;  indeed, counsel took the position that JMSA was not a party to the arbitration and could not be forced to be a party.   The latter argument is not disputed by the plaintiff, and it reflects a well-settled proposition.   See State v. Philip Morris, Inc., 289 Conn. 633, 642, 959 A.2d 997 (2008).   Since JMSA had no legal obligation to consent to arbitration, the fact that it declined to do so cannot constitute an act of fraud or an act that “assisted” Scott and/or SSP in their allegedly fraudulent conduct.⁶

The plaintiff has failed to establish that JMSA owed any duty to the plaintiff, let alone a duty that post-dated the transfer of the property on March 23, 2007.   The new allegations contained in the amended revised complaint cannot be construed as “wrongful conduct” by JMSA that relate to any prior act by JMSA. Thus, the continuing course of conduct doctrine will not serve to have tolled the statute of limitations with regard to the allegations against JMSA in counts one, two, three or nine.

For all of the foregoing reasons, JMSA's motion for summary judgment is granted as to JMSA, only, with regard to counts one, two, three and nine of the amended revised complaint.⁷

JMSA's motion to terminate the restraining order is based, essentially, on its claim that the plaintiff has been dilatory in moving this matter forward.   The plaintiff objects, claiming that in August 2011, he was “ready and able to go to trial at the court's convenience.”

The court notes that after the plaintiff moved to amend his revised complaint on September 28, 2011, the defendants did not object to the motion, nor did they promptly answer the amended complaint.   Indeed, on December 8, 2011, all defendants were defaulted for failure to plead.   Prompted by the order of default, the defendants filed their answer with special defenses and counterclaims on December 15, 2011.⁸

In view of the foregoing, the court finds no basis on which to terminate the restraining order.

So ordered.

BY THE COURT,

John A. Danaher III

FOOTNOTES

FN1. Counts four through seven allege causes of action against Scott and/or SSP, not JMSA. Thus, those counts are not relevant to this motion for summary judgment..  FN1. Counts four through seven allege causes of action against Scott and/or SSP, not JMSA. Thus, those counts are not relevant to this motion for summary judgment.

FN2. On October 11, 2011, the court granted the plaintiff's motion to amend the revised complaint..  FN2. On October 11, 2011, the court granted the plaintiff's motion to amend the revised complaint.

FN3. It is not clear whether any of the plaintiff's claims against Scott and/or SSP are allegations of statutory fraudulent conveyance, which is governed by General Statutes § 52–552a et seq.   That statutory scheme provides for a four-year statute of limitations.  General Statutes § 52–552j;  see generally Williams v. Lewis, Superior Court, judicial district of Middlesex, Docket No. 071669 (September 7, 1994, Walsh, J.) (12 Conn. L. Rptr. 434).   If the plaintiff's claims are based on statutory fraudulent conveyance, the Practice Book § 10–3 requires the plaintiff to so specify in his complaint.   In any case, regardless of the plaintiff's allegations against Scott and/or SSP, he does not argue, or even claim, that the four-year statute applies to his allegations against JMSA..  FN3. It is not clear whether any of the plaintiff's claims against Scott and/or SSP are allegations of statutory fraudulent conveyance, which is governed by General Statutes § 52–552a et seq.   That statutory scheme provides for a four-year statute of limitations.  General Statutes § 52–552j;  see generally Williams v. Lewis, Superior Court, judicial district of Middlesex, Docket No. 071669 (September 7, 1994, Walsh, J.) (12 Conn. L. Rptr. 434).   If the plaintiff's claims are based on statutory fraudulent conveyance, the Practice Book § 10–3 requires the plaintiff to so specify in his complaint.   In any case, regardless of the plaintiff's allegations against Scott and/or SSP, he does not argue, or even claim, that the four-year statute applies to his allegations against JMSA.

FN4. It is significant, in this context, that the plaintiff has abandoned his claim that the corporate veil as to SSP and JMSA should be pierced..  FN4. It is significant, in this context, that the plaintiff has abandoned his claim that the corporate veil as to SSP and JMSA should be pierced.

FN5. Exhibit 3, attached to the plaintiff's affidavit, is a transcript that includes a statement by counsel as follows:  “J.M. Scott is not a party to the arbitration, they never agreed to arbitrate, and they cannot be forced into arbitration.   The only way you can arbitrate is by agreement to arbitrate, they are not a party to any agreement to arbitrate.”.  FN5. Exhibit 3, attached to the plaintiff's affidavit, is a transcript that includes a statement by counsel as follows:  “J.M. Scott is not a party to the arbitration, they never agreed to arbitrate, and they cannot be forced into arbitration.   The only way you can arbitrate is by agreement to arbitrate, they are not a party to any agreement to arbitrate.”

FN6. Indeed, and as has been indicated, it is not at all clear that the remark at issue was made on behalf of JMSA. It could as well be characterized, and may well be better characterized, as a remark made by counsel for the parties to the arbitration, Scott and SSP. The plaintiff does not explain why the court should conclude that JMSA should be bound by the remark.   However, since JMSA had no legal obligation to participate in the arbitration, this point need not be further addressed..  FN6. Indeed, and as has been indicated, it is not at all clear that the remark at issue was made on behalf of JMSA. It could as well be characterized, and may well be better characterized, as a remark made by counsel for the parties to the arbitration, Scott and SSP. The plaintiff does not explain why the court should conclude that JMSA should be bound by the remark.   However, since JMSA had no legal obligation to participate in the arbitration, this point need not be further addressed.

FN7. Since this matter is fully resolved on the basis of the applicable statutes of limitations, the court need not, and does not, address JMSA's alternative arguments regarding the value of the property that was transferred or the applicability of General Statutes §§ 49–33 and/or 52–550..  FN7. Since this matter is fully resolved on the basis of the applicable statutes of limitations, the court need not, and does not, address JMSA's alternative arguments regarding the value of the property that was transferred or the applicability of General Statutes §§ 49–33 and/or 52–550.

FN8. The court also notes that on November 7, 2011, the parties moved by agreement for a partial modification of the restraining order.   That motion was granted on November 21, 2011..  FN8. The court also notes that on November 7, 2011, the parties moved by agreement for a partial modification of the restraining order.   That motion was granted on November 21, 2011.

Danaher, John A., J.