Anthony Longo v. Salvatore R. Longo et al. (2012)

MEMORANDUM OF DECISION RE MOTION TO STRIKE # 116

This case comes to the Court by way of the Defendants' Motion to Strike dated March 30, 2012.   The Motion seeks to strike Counts Three and Four of the Amended Complaint dated December 1, 2011.   For the reasons stated herein, the Motion is granted in part and denied in part.

I. FACTS

On February 8, 2010, the plaintiff, Anthony Longo, commenced this action by service of process on the defendants, Salvatore R. Longo and Salvatore Longo & Sons, LLC. In the operative pleading, the plaintiff's amended complaint dated December 1, 2011, the plaintiff alleges the following relevant facts.   On February 27, 2007, the plaintiff and Salvatore R. Longo formed a limited liability company named Salvatore Longo & Sons, LLC. This limited liability company is engaged in the business of excavation, paving and landscaping, and it is located on West Avenue in Stamford.   Pursuant to the parties' operating agreement, the plaintiff and Salvatore R. Longo each owned a 50 percent membership interest in this limited liability company.   Subsequently, on March 8, 2007, the plaintiff and Salvatore R. Longo quitclaimed their interests in eight parcels of land to the defendant limited liability company.   The parties operated their business from this property.

The complaint alleges that since the inception of the business, “Salvatore R. Longo has managed the affairs of Salvatore Longo & Sons, LLC ․ and has unilaterally controlled the books and records of the company.”   The plaintiff alleges, inter alia, that Salvatore R. Longo has:  (1) directed all of the business' mail and account statements to be mailed to his home address and has not allowed the plaintiff to view them;  (2) failed to provide adequate business records to the business' accountants in order to allow the plaintiff to prepare federal tax returns;  (3) failed to pay real estate taxes on the property owned by the defendant limited liability company, which resulted in tax liens being filed against the parcels of property and (4) made all decisions regarding the operation of the business, including the plaintiff's compensation, without consulting the plaintiff.   In counts one and two, the plaintiff seeks a judicial dissolution of the defendant limited liability company, as well as demands an accounting.

In count three, the plaintiff states a cause of action for breach of the common-law duty of good faith and fair dealing.   Count three incorporates all of the factual allegations from the first two counts, but the plaintiff also alleges that Salvatore R. Longo has neglected to pay the appropriate amount of unemployment taxes owed by the business to the state of Connecticut department of labor.   As a result of this lack of payment, liens have been filed against the plaintiff.   The plaintiff alleges that Salvatore R. Longo has “failed, neglected, and/or intentionally refused to explain the nature of these liens and has failed to make payment for same.”   Furthermore, the plaintiff contends that Salvatore R. Longo's actions constitute a threat to the continued existence of the business and that the plaintiff has been damaged by Salvatore R. Longo's acts.

Count four, alleging violations of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42–110a et seq., incorporates all of the factual allegations of count three.   In this count, the plaintiff also alleges that during the summer of 2007, the plaintiff approached Salvatore R. Longo and asked him to allocate money from the business's accounts to pay for personal expenses, including the wedding of the plaintiff's daughters.   Instead of giving the plaintiff company funds, Salvatore R. Longo obtained a personal loan from Morgan Stanley.   In exchange for this loan, the plaintiff gave a certain portion of his membership share in the business to Salvatore R. Longo.   The plaintiff alleges that Salvatore R. Longo knew or should have known that he could not repay the loan, and that Salvatore R. Longo “with the intent of wrestling control of the limited liability company, tricked the [p]laintiff into pledging a share of the business thereby giving the [d]efendant Salvatore R. Longo a controlling interest in the limited liability company.”   According to the plaintiff, the defendant limited liability company is engaged in commerce, trade and business in the state of Connecticut such that Salvatore R. Longo's conduct rises to the level of a CUTPA violation.¹

II. DISCUSSION

“The purpose of a motion to strike is to contest the legal sufficiency of the allegations of any complaint ․ to state a claim upon which relief can be granted.”  (Internal quotation marks omitted.)  Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).   In a motion to strike, “the moving party admits all facts well pleaded.”  RK Constructors, Inc. v. Fusco Corp., 231 Conn. 381, 383 n.2, 650 A.2d 153 (1994).   Therefore, “[i]f facts provable in the complaint would support a cause of action, the motion to strike must be denied.”  (Internal quotation marks omitted.)   Batte–Homgren v. Commissioner of Public Health, 281 Conn. 277, 294, 914 A.2d 996 (2007).   Nevertheless, “[a] motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged.”  (Internal quotation marks omitted.)  Fort Trumbull Conservancy, LLC v. Alves, supra, 498.   When deciding a motion to strike, the court must “construe the complaint in the manner most favorable to sustaining its legal sufficiency.”  (Internal quotation marks omitted.)  Sullivan v. Lake Compounce Theme Park, Inc., 277 Conn. 113, 117, 889 A.2d 810 (2006).

I

BREACH OF THE IMPLIED DUTY OF GOOD FAITH AND FAIR DEALING

The Court will first address the defendants' motion to strike count three, on the ground that the plaintiff has failed to allege any facts that would support a finding of improper motive or sinister purpose.   According to the defendants, the plaintiff's amended complaint is bereft of any allegations indicating that their conduct was intentionally dishonest, sinister, or done with an improper motive or bad faith.   Accordingly, the defendants argue that the plaintiff cannot maintain a legally cognizable cause of action for breach of the duty of good faith and fair dealing, and, as a result that count three must be stricken.

“[I]t is axiomatic that the ․ duty of good faith and fair dealing is a covenant implied into a contract or a contractual relationship ․ In other words, every contract carries an implied duty requiring that neither party do anything that will injure the right of the other to receive the benefits of the agreement ․ The covenant of good faith and fair dealing presupposes that the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party's discretionary application or interpretation of a contract term.”  (Internal quotation marks omitted.)  Rafalko v. University of New Haven, 129 Conn.App. 44, 51, 19 A.3d 215 (2011).  “Absent allegations and evidence of a dishonest purpose or sinister motive, a claim for breach of the implied covenant of good faith and fair dealing is legally insufficient.”   Alexandru v. Strong, 81 Conn.App. 68, 81, 837 A.2d 875, cert. denied, 268 Conn. 906, 845 A.2d 406 (2004).  “In order to prevail on a claim of bad faith, it is necessary for the complaint to allege a specific act that was performed purposefully, with a sinister intent ․ Even if it was found that there was a breach of contract, not all contracts are breached with a sinister intent.”   (Internal quotation marks omitted.)   Perkins v. Hermitage Ins. Co., Superior Court, judicial district of Ansonia–Milford, Docket No. CV 11 6006314 (February 29, 2012, Arnold, J.).  “Bad faith has been defined in our jurisprudence in various ways.   Bad faith in general implies both actual or constructive fraud, or a design to mislead or 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, but by some interested or sinister motive ․ Bad faith means more than mere negligence;  it involves a dishonest purpose ․ [B]ad faith may be overt or may consist of inaction, and it may include evasion of the spirit of the bargain ․” Brennan Associates v. OBGYN–Specialty Group, P.C., 127 Conn.App. 746, 759–60, 15 A.3d 1094, cert. denied, 301 Conn. 917, 21 A.3d 463 (2011) (Internal quotation marks omitted).  “[T]here is a split of authority among Superior Courts as to what factual allegations are sufficient to constitute the element of bad faith ․ The first line of cases requires specific allegations establishing a dishonest purpose or malice.   In alleging a breach of the covenant of good faith and fair dealing, courts have stressed that such a claim must be alleged in terms of wanton and malicious injury [and] evil motive ․ The second line of cases generally holds parties to a less stringent standard requiring that a plaintiff need only allege sufficient facts or allegations from which a reasonable inference of sinister motive can be made ․ Even where courts have used an inference analysis, however, they have looked to allegations that the conduct at issue was engaged in purposefully.”  (Internal quotation marks omitted.)   Romero v. Gewirtz, Superior Court, judicial district of Stamford–Norwalk at Stamford, Docket No. CV 09 5013109 (September 28, 2011, Karazin, J.T.R.) [52 Conn. L. Rptr. 686].

In count one, which is incorporated by reference into count three, the plaintiff alleges, inter alia, that the defendant Salvatore R. Longo has:  (1) “unilaterally controlled the books and records of the company” to the plaintiff's exclusion;  (2) “directed all banks to mail all account statements from the business to his home address ․ thereby depriving the [p]laintiff ․ an ability to review said statements”;  (3) “failed to provide adequate business records to the limited liability company's accountants which would allow federal tax returns to be prepared by the [p]laintiff ․;” (4) failed to pay real estate taxes on the property where the parties ran their business and (5) “unilaterally made all decisions regarding the operation of the business ․ including the [p]laintiff's compensation without consulting with the [p]laintiff.”   Additionally, in count three, the plaintiff alleges that Salvatore R. Longo has failed to pay the unemployment taxes owed by the business to the state department of labor, resulting in liens being filed “against the [p]laintiff,” and that Salvatore R. Longo “intentionally refused to explain the nature of these liens and has failed to make payment for same.”  (Emphasis added.)

Although the defendants are correct that the plaintiff makes very few factual allegations regarding Salvatore R. Longo's state of mind, the plaintiff does allege that Salvatore R. Longo engaged in a pattern of conduct that was designed to preclude the plaintiff from participating in the operations of the parties' business.   If construed in a manner most favorable to the pleader, it can be inferred from these allegations that Salvatore R. Longo intentionally acted in bad faith when he committed these acts.   Moreover, the plaintiff does specifically allege that Salvatore R. Longo intentionally refused to make payments for the liens that were placed against the plaintiff because of his failure to pay unemployment taxes.   When ruling on a motion to strike, the court must accept all well pleaded fact as true, and an intentional refusal to pay money that would remove liens filed facts against the plaintiff could rise to the level of bad faith.   The plaintiff sufficiently alleges facts that could establish that the defendants acted with a improper motive or sinister purpose when they breached the parties' operating agreement.   Therefore, the court denies the defendants' motion to strike count three.

II

CUTPA

Next, the Court will address the defendants' motion to strike count four, in which the plaintiff alleges violations of CUTPA.   The defendants move to strike count four on the grounds that intracorporate disputes are exempt from CUTPA and that none of the plaintiff's claims involve the defendants' primary trade or business.   According to the defendants count four is legally insufficient because the plaintiff merely alleges facts that arise out of an intracorporate conflict between himself and Salvatore R. Longo.   Furthermore, the defendants contend that this case does not implicate the exception to the general rule that intracorporate disputes do not give rise to a CUTPA cause of action.   Additionally, the defendants argue that CUTPA does not apply to the facts of this case because the conduct alleged to implicate CUTPA, Salvatore R. Longo's loan to the plaintiff, did not occur within the primary trade or business of the defendant limited liability company.

“It is well settled that purely intracorporate conflicts do not constitute CUTPA violations.”  Metcoff v. Lebovics, 123 Conn.App. 512, 519, 2 A.3d 942 (2010).   Our Supreme Court “has distinguished, however, such internal corporate actions that also have the effect of usurp[ing] the business and clientele of one corporation in favor of another ․” (Internal quotation marks omitted.)   Russell v. Russell, 91 Conn.App. 619, 647, 882 A.2d 98, cert. denied, 276 Conn. 924, 888 A.2d 92 (2005), citing, Ostrowski v. Avery, 243 Conn. 355, 379, 703 A.2d 117 (1997).   Despite this limited exception to the rule that CUTPA does not apply to intracorporate affairs, “[t]he majority of Superior Court case law holds that CUTPA is inapplicable to the internal workings of partnerships ․ Superior Courts have taken the view that CUTPA does not apply to:  employer/employee relations and to the purchase and sale of securities;  ․ the internal business affairs and workings of partnerships;  ․ intracompany disputes among shareholders;  ․ disputes between officers and shareholders;  ․ or to participants in a joint venture ․ Internal partnership, corporate, or employer-employee disputes are not disputes between competitors or between a business entity and a consumer.”  (Citation omitted;  internal quotation marks omitted.)   Adler v. Snoddy, Superior Court, judicial district of Fairfield, Docket No. CV 02 039908 (October 7, 2003, Doherty, J.).

In the present case, count four incorporates all of the factual allegations from the first three counts, which all involve a dispute between the plaintiff and Salvatore R. Longo concerning the internal governance of the defendant limited liability company.   The only additional allegations found in count four concern a loan that Salvatore R. Longo allegedly gave the plaintiff in exchange for a portion of the plaintiff's membership share in the defendant limited liability company.   The plaintiff does not allege any facts that suggest that the defendants were usurping the business or clients of another corporation.   The plaintiff does not allege any facts to place this case outside the general rule that CUTPA does not apply to intracorporate disputes.

Moreover, it is well-settled law that “a CUTPA violation may not be alleged for activities that are incidental to an entity's primary trade or commerce.”   McCann Real Equities Series XXII, LLC v. David McDermott Chevrolet, Inc., 93 Conn.App. 486, 523, 890 A.2d 140, cert. denied, 277 Conn. 928, 895 A.2d 798 (2006).   For example, in Sovereign Bank v. Licata, 116 Conn.App. 483, 977 A.2d 228 (2009), appeal dismissed, 303 Conn. 721, 36 A.3d 662 (2012), the Appellate Court determined that a CUTPA counterclaim could not stand against an entity that was “engaged in the business of real estate acquisition,” when the lawsuit involved the “acquisition of the defendant's mortgage loan and note from Sovereign Bank, the forbearance agreement that [the substitute plaintiff] entered into with the defendant and conduct between the parties during the period of forbearance.”  Id., 494.   The Appellate Court stated that “[t]he defendant's allegations solely related to an ancillary transaction that was incidental to the [substitute plaintiff's] primary real estate business and thus fell outside the CUTPA penumbra” Id., 494–95.

Finally, in the present case, the plaintiff alleges that the defendant limited liability company “is engaged in the excavation, paving and landscaping business ․” In count four, the plaintiff alleges that his CUTPA cause of action arises out of a personal loan that was given to him by Salvatore R. Longo in exchange for a portion of the plaintiff's share in the business.   Loaning money is certainly not within the primary trade or commerce of a business that is engaged in excavation, paving and landscaping.   For all these reasons the Motion to strike count four is granted.

III. CONCLUSION

For all of the reasons stated above, the court denies the defendants' motion to strike count three of the plaintiff's amended complaint;  the court grants the motion to strike count four.

GENUARIO, J.

FOOTNOTES

FN1. In counts five and six, the plaintiff also alleges causes of action for breach of fiduciary duty and breach of contract..  FN1. In counts five and six, the plaintiff also alleges causes of action for breach of fiduciary duty and breach of contract.

Genuario, Robert L., J.