Gayle Chapman v. David Chapman et al. (2012)

MEMORANDUM OF DECISION

The defendants, Stuart Chapman, David Chapman, Chapman Lumber, Inc. and Route 6 Realty, LLC, have moved to strike (# 115) counts one, two, three, four and ten of the plaintiff's revised complaint.   The plaintiff, Gayle Chapman, objected.   The court heard oral argument on February 14, 2012.   For the reasons given, the motion to strike must be denied as to counts one, two, three and ten.   The motion to strike must be granted as to count four.

Facts

There are certain factual allegations which are common to all ten counts of the revised complaint.  “It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted.”  (Internal quotation marks omitted.)  Violano v. Fernandez, 280 Conn. 310, 318 (2006).

The plaintiff, Gayle W. Chapman, and the defendants, Stuart W. Chapman and David W. Chapman, are members of Route 6 Realty, LLC (“Route 6”).   Stuart W. Chapman and David W. Chapman are also managers of Route 6. The plaintiff owns 25% of the company and the defendants own a total of 75%.   Route 6 is a single purpose limited liability company owning property and buildings known as 224 Watertown Road, Thomaston, Connecticut (“the property”).   Route 6 leases the property to a single tenant:  Chapman Lumber, Inc. (“Chapman Lumber”), a Connecticut stock corporation all of whose stock is owned by the defendants, Stuart Chapman and David Chapman.

The plaintiff further alleges that during 2005, Route 6 charged Chapman Lumber $15,000 per month for an annual rental of $180,000.   Subsequent to 2007, the defendants reduced the rent to Chapman Lumber to $11,500 per month for an annual rental of $138,000.¹  This decrease in rental was made by the defendants in order to reduce the income of Route 6 and to increase the income of Chapman Lumber, thereby benefitting the defendants, Stuart Chapman and David Chapman at the expense of the plaintiff, in violation of their duties under C.G.S. § 34–141 as members and managers of Route 6.

Finally, the plaintiff alleges the actions of the defendant, Stuart Chapman,² are in violation of § 34–141 in that:

a. He failed to discharge his duties in a manner which is in good faith, to the detriment of the plaintiff;

b. He failed to discharge his duties in a manner reasonably believed to be in the best interests of Route 6;

c. He violated his duties to act in good faith reliance on the provisions of the Operating Agreement of Route 6 to the detriment of the plaintiff;

d. The defendants, Stuart Chapman and David Chapman conspired to transfer funds from Route 6 and the plaintiff to Chapman Lumber for their exclusive benefit.

In her brief in opposition to the motion to strike, the plaintiff claims that the plaintiff acquired her interest in Route 6 in a divorce settlement with David Chapman in 2007.   The plaintiff also claims that the operating agreement of Route 6 required the consent of 80% of the ownership interest in order to reduce the rent on the property, and that the plaintiff with 25% ownership did not give her consent and was unaware of the rent reduction.   These claims are not contained in the revised complaint for some reason, and must be disregarded for purposes of the motion to strike.  “It is well established that a motion to strike must be considered within the confines of the pleadings and not external documents ․ We are limited ․ to a consideration of the facts alleged in the complaint.   A ‘speaking’ motion to strike (one imparting facts outside the pleadings) will not be granted.”  (Internal quotation marks omitted.)   Zirinsky v. Zirinsky, 87 Conn.App. 257, 268 n.9, cert. denied, 272 Conn. 916 (2005).

Count One

The defendants move to strike the first count because they claim that C.G.S. § 34–141 ³ bars an action by one member against another member on the ground of mismanagement unless management duties were expressly assigned by the operating agreement.   As support for this claim the defendants cite Schulze v. Rocky Fella's, Superior Court, judicial district of New London at New London, Docket No. 094009822 (August 18, 2010).   In that case, Judge Martin granted a motion to strike counts based upon § 34–141.   The plaintiff, a member of a limited partnership, alleged that another member of the partnership mishandled the accounts of the partnership after being entrusted with the books and records by agreement of all of the members.   The court found that the plaintiff had failed to allege that the defendant was assigned specific management duties under the operating agreement with respect to the company's books and accounts.  “Absent such an allegation, the management duties of New Age Rock's books and accounts are charged to all members of the limited liability company.   The defendants cannot bring a claim seeking to hold Schulze liable for mismanagement of the books, which allegedly included neglecting to deposit revenues, failing to account for all expenditures and receivables, and making errors that led to $100,000 in tax liability, without first alleging that Schulze was assigned such duties under the operating agreement.”  Id. The defendants argue that the Schulze case provides the basis to grant this motion to strike.

My own reading of § 34–141 does not lead me to conclude that the plaintiff in this case is precluded from pursuing a claim under the facts of this case even though she has not alleged that the operating agreement designated the defendants as being responsible for establishing rents.   Here, we are not dealing with claims of mishandling of the books and records.   Essentially, the plaintiff has alleged that the two majority members cut her out of the decision making process and reduced the rent to another company which they own.   She alleges that they did this in bad faith and with the intent of benefitting themselves at her expense.   Construing the complaint in the manner most favorable to sustaining its legal sufficiency, the court will deny the motion to strike the first count.  Sullivan v. Lake Compounce Theme Park, Inc., 277 Conn. 113, 117 (2006).

Count Two

This count is directed against the defendant, Route 6. The plaintiff restates the allegations of the first count and adds an allegation that Route 6 is indebted to the plaintiff for her portion of the funds transferred pursuant to its conspiracy with other defendants.   The reasons for the motion to strike are the same reasons given to strike the first count.   They are rejected for the reasons already given.   The motion to strike the second count is denied.

Count Three

The third count is against the defendant, Chapman Lumber, based upon the claim that it wrongfully benefitted from the alleged conspiracy with the defendant, Stuart Chapman, to deprive the plaintiff of her share of the normal rental income received by Route 6. Chapman Lumber argues that this count must fail because it fails to state a valid cause of action for conspiracy.   Specifically, Chapman Lumber argues that the plaintiff has failed to plead the second element of the following statement of civil conspiracy:  “Under civil conspiracy theory, the requisite elements are:  (1) a combination between two or more persons, (2) to do a criminal or unlawful act or unlawful 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.”  Charter Oak Lending Group, LLC v. August, 127 Conn.App. 428 (2011).  “[T]o state a cause of action, a claim of civil conspiracy must be joined with an allegation of a substantial tort.”   Larobina v. McDonald, 274 Conn. 394, 408 (2005).  “Consequently, for a plaintiff to recover on a conspiracy claim, the court must find the facts necessary to satisfy the elements of an independent underlying cause of action.”  Litchfield Asset Management Corp. v. Howell, 70 Conn.App. 133, 140 (2002).

The defendant, Chapman Lumber, claims that the plaintiff has not alleged an independent cause of action to underlying the conspiracy.   But, the court has already found that the first and second counts set forth viable causes of action under § 34–141.   It is this violation which supports the conspiracy claim in count three.   For this reason, the motion to strike count three must be denied.

Count Four

Count four is directed at the defendant, Route 6, only.   The plaintiff simply repeats all of the allegations of the first count and adds:  “Defendant Route 6 is indebted to the plaintiff for her portion of the funds transferred pursuant to the conspiracy with Defendants Stuart Chapman, David Chapman and Chapman Lumber as alleged in Paragraph 15 above.”   Route 6 argues that it cannot be held civilly liable for conspiracy founded on a violation of § 34–141 because that statute does not create a cause of action against the LLC itself for the alleged wrongful actions of its members or managers.   I agree. § 34–141 obligates a member or manager to manage the operations of an LLC in good faith and pursuant to the operating agreement.   It cannot be read to make the LLC itself liable if members or managers act in bad faith.   Therefore, there is no independent tort upon which the plaintiff can base a conspiracy theory against the LLC itself.   The motion to strike the fourth count must be granted.

Count Ten

Count ten is a claim that all of the defendants have violated the Connecticut Unfair Trade Practices Act (“CUTPA”), § 42–110(a) et seq.   The plaintiff incorporates nearly all of the allegations of the first count and adds allegations that the actions of the defendants were unfair and deceptive acts or practices of trade or commerce, in violation of CUTPA, as a result of which the plaintiff suffered an ascertainable loss of money.   The defendants move to strike this count on the ground that the plaintiff has not alleged a violation of public policy causing substantial injury to consumers, competitors or other business-people.   The plaintiff responds that she has alleged a violation of § 34–141 and that numerous cases have held that violations of statutes are per se violations of CUTPA.   Further, the plaintiff argues that whether the injury she alleged affects other consumers or competitors is a question of fact for the trier.

“It is well settled that in determining whether a practice violates CUTPA we have adopted the criteria set out in the cigarette rule by the [F]ederal [T]rade [C]ommission for determining when a practice is unfair:  (1)[W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise—in other words, it is within at least the penumbra of some common law statutory or other established concept of unfairness;  (2) whether it is immoral, unethical, oppressive, or unscrupulous;  whether it causes substantial injury to consumers ․ All three criteria do not need to be satisfied to support a finding of unfairness.   A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three.”  (Internal quotation marks omitted.)  Edmands v. CUNO, Inc., 277 Conn. 425, 451 n.16, 892 A.2d 938 (2006).

The court agrees with the plaintiff that, for purposes of this motion to strike, the plaintiff has pled sufficient facts in the tenth count to state a claim for violation of CUTPA.   The plaintiff has alleged that the defendants violated a statute, § 34–141.   This is sufficient to make a claim that the defendants' actions offend public policy.   The plaintiff also alleged an ascertainable loss.   Whether the plaintiff can prove this loss will have to await the trial.   The motion to strike count ten is denied.

BY THE COURT,

John W. Pickard

FOOTNOTES

FN1. There is no allegation as to the rent during 2006 and 2007..  FN1. There is no allegation as to the rent during 2006 and 2007.

FN2. The original complaint makes these allegations against both David and Stuart Chapman.   In the revised complaint, these allegations are against Stuart only except that subparagraph “d” is addressed to both..  FN2. The original complaint makes these allegations against both David and Stuart Chapman.   In the revised complaint, these allegations are against Stuart only except that subparagraph “d” is addressed to both.

FN3. The relevant portion of Section 34–141(a) is:  “A member or manager shall discharge his duties under section 34–140 and 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, and shall not be liable for any action taken as a member or manager, or any failure to take such action, if he performs such duties in compliance with the provisions of this section.”   The relevant portion of Section 34–141(d) is:  “In discharging his duties under section 34–140 and the operating agreement, a member or manager shall not be liable to the limited liability company or to any other member for actions or failures to act based on his good faith reliance on the provisions of the operating agreement.”.  FN3. The relevant portion of Section 34–141(a) is:  “A member or manager shall discharge his duties under section 34–140 and 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, and shall not be liable for any action taken as a member or manager, or any failure to take such action, if he performs such duties in compliance with the provisions of this section.”   The relevant portion of Section 34–141(d) is:  “In discharging his duties under section 34–140 and the operating agreement, a member or manager shall not be liable to the limited liability company or to any other member for actions or failures to act based on his good faith reliance on the provisions of the operating agreement.”

Pickard, John W., J.