LLC v. CT LLC (2013)

MEMORANDUM OF DECISION ON MOTION FOR SUMMARY JUDGMENT

In 2009 the plaintiff law firm (Currier) sued Benjamin G. Barton for unpaid legal fees.   Allen A. Currier, LLC v. Barton, Superior Court, judicial district of New Britain, Docket No. CV 09 5012515.   After Mr. Barton was defaulted for failure to plead, a hearing in damages was held, and on April 1, 2010 Currier obtained a judgment against him in the amount of $70,590.95.

The instant action was commenced on December 20, 2012 against Barton Properties Connecticut, LLC (Barton Properties).   The complaint alleges the entry of judgment against Mr. Barton in 2010 and that he has “ignored” the judgment.   It further alleges that Mr. Barton is the sole member and owner of Barton Properties and receives most, if not all of his income in the form of rental payments on four commercial properties titled in the name of Barton Properties.   Currier claims in its complaint that Barton Properties was formed for the sole purpose of holding title to these properties, and that not only the expenses of the properties but also expenses attributable to Mr. Barton's personal residence are paid out of the rental proceeds.

In a cause of action entitled “Prima Facie Tort” the complaint goes on to allege that Barton Properties is the “alter ego” of Mr. Barton and that Barton Properties, acting through Mr. Barton, has intentionally prevented collection of the judgment obtained against him by shielding his personal liquid assets from Currier.   The complaint seeks to apply the doctrine of “reverse veil piercing” to gain access to the assets and income of Barton Properties to satisfy the judgment against Mr. Barton.

I

Barton Properties has filed a motion for summary judgment, making two arguments:  (1) all counts of the complaint are barred by the doctrine of res judicata and (2) Currier is “collaterally estopped of (sic) the concepts of issue preclusion from raising any issues alleged in any count.”   In support of its first argument, Barton Properties asserts that Currier already has a final judgment rendered on the merits by this court against Mr. Barton, which is the basis of the claim against Barton Properties in the present case and is simply attempting to introduce new theories, evidence and forms of relief not sought in the first action.   Regarding the second argument, Barton Properties posits that the issues and allegations against it are identical to the earlier litigated action against Mr. Barton, and Barton Properties is in privity with Mr. Barton because he is its managing member.   Accordingly, Currier is effectively attempting to re-litigate the same issues that have been previously decided, and that the doctrine of collateral estoppel precludes it from doing so.

In response Currier asserts that (1) it does not seek to relitigate the issues previously decided, and instead seeks to collect the judgment against Mr. Barton from Barton Properties in this action because, since the former judgment was entered into, Mr. Barton has demonstrated that Barton Properties is merely his alter ego;  and (2) the issues in the prior case and the present case are different.

A motion for summary judgment is an appropriate vehicle for raising claims of res judicata and collateral estoppel.  Joe's Pizza, Inc. v. Aetna Life & Casualty Co., 236 Conn. 863, 867 n.8 (1996);  Jackson v. R.G. Whipple, Inc., 225 Conn. 705, 712 (1993).

II

The court will first address whether principles of collateral estoppel bar this action.

“Collateral estoppel means simply that when an issue of ultimate fact has once been determined by a valid and final judgment, that issue cannot again be litigated between the same parties in any future lawsuit ․ Issue preclusion arises when an issue is actually litigated and determined by a valid and final judgment, and that determination is essential to the judgment ․ Collateral estoppel express[es] no more than the fundamental principle that once a matter has been fully and fairly litigated, and finally decided, it comes to rest.”   (Internal quotation marks omitted.)  Cumberland Farms, Inc. v. Groton, 262 Conn. 45, 58 (2002).

The issues in this case are plainly different than the issues presented in the earlier collection case against Mr. Barton.   There the question was whether there was a factual and legal basis—breach of contract, promissory estoppel, quantum meruit or “account stated”—to fix liability on Mr. Barton for the fees claimed by Currier.   That question having been answered in the affirmative in that action, here the question is whether there is a basis in fact and law to hold Barton Properties liable for the judgment already levied against Mr. Barton.

“To invoke collateral estoppel the issues sought to be litigated in the new proceeding must be identical to those considered in the prior proceeding.”   (Citations omitted;  emphasis omitted;  internal quotation marks omitted.)   Williams v. Commissioner of Correction, 100 Conn.App. 94, 99, cert. denied, 282 Conn. 914 (2007).   The doctrine of collateral estoppel does not bar litigation of the issues raised by the complaint in this action.

III

Determining the effect of the doctrine of res judicata is a closer call.

“The principles underlying the doctrine of res judicata, or claim preclusion, are well settled.  [A] valid, final judgment rendered on the merits by a court of competent jurisdiction is an absolute bar to a subsequent action between the same parties, or those in privity with them, upon the same claim or demand ․ Furthermore, the doctrine of claim preclusion ․ bars not only subsequent relitigation of a claim previously asserted, but subsequent relitigation of any claims relating to the same cause of action which were actually made or which might have been made.”  (Internal quotation marks omitted.)  Gaynor v. Payne, 261 Conn. 585, 595–96 (2002).

“Because the operative effect of the principle of claim preclusion ․ is to preclude relitigation of the original claim, it is crucial to define the dimensions of that original claim.”  Lighthouse Landings, Inc. v. Conn. Light & Power Co., 300 Conn. 325, 347 (2011).   Connecticut appellate courts have adopted the “transaction test” of the Restatement (Second) of Judgments to define the original claim.   See, e.g., Savvidis v. City of Norwalk, 129 Conn.App. 406, 410–12 (2011).   In brief, that test holds that “the claim [that is] extinguished includes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction ․ out of which the action arose.”  Id., 411.   More to the point here, the transaction test “applies to extinguish a claim by the plaintiff against the defendant even though the plaintiff is prepared in the second action (1)[t]o present evidence or grounds or theories of the case not presented in the first action, or (2) [t]o seek remedies or forms of relief not demanded in the first action.”   Id., 411.

The breadth of this definition of the “original action” presents problems for Currier in this case.   It cannot be denied, at least under Currier's theory that Barton Properties is the “alter ego” of Mr. Barton, that those two parties are in privity with each other.   Thus, the first requirement of the res judicata doctrine is satisfied;  namely, that the original litigation be between the same parties or those in privity with them.

Moreover, it seems indisputable that Currier could have named Barton Properties as a defendant in the collection action against Mr. Barton and sought a judgment against it on the same theory it is asserting in this case;  namely, that as Mr. Barton's “alter ego” and his shield against satisfaction of judgments against him, the corporate veil should be pierced in reverse to make its assets and income available to satisfy any judgment against Mr. Barton.   Looked at that way, Currier seems to be presenting a theory of the case it could have asserted and seeking a form of relief which it could have demanded in the original action and did not.

On the other hand, “the purposes of res judicata of promoting judicial economy, minimizing repetitive litigation, preventing inconsistent judgments and providing repose to parties ․ must be balanced against the competing interest of the plaintiff in the vindication of a just claim ․ Indeed, we have recognized that the application of res judicata can yield harsh results ․ and, as a result, have stated that the doctrine should be flexible and must give way when its mechanical application would frustrate other social policies based on values equally or more important than the convenience afforded by finality in legal controversies.”  (Citations omitted;  internal quotation marks omitted.)  Id., 412.

Here the judgment obtained by Currier against Mr. Barton has remained unsatisfied for over three years.   Currier's allegations as to Mr. Barton's control over Barton Properties and his use of it as a source of income and as a shield against the claims of personal creditors have gone unchallenged by Barton Properties in its motion.   Under these circumstances, using the doctrine of res judicata to frustrate Currier's efforts to reach the assets and income of Barton Properties in satisfaction of the judgment against Mr. Barton would prevent Currier from attempting to enforce its validly obtained judgment.¹

Nor should Currier be penalized for not presenting its reverse veil piercing theory in the original action.  “․ (I)n a reverse piercing action ․ the claimant seeks to reach the assets of a corporation or some other business entity ․ to satisfy claims or a judgment obtained against a corporate insider.”  C.F. Trust, Inc. v. First Flight, L.P., 266 Va. 3, 10, 580 S.E.2d 806 (2003).  “Although some courts have adopted reverse veil piercing with little distinction as a logical corollary of traditional veil piercing, because the two share the same equitable goals, others wisely have recognized important differences between them and have either limited, or disallowed entirely, reverse veil piercing.”  Commissioner of Environmental Protection v. State Five Industrial Park, Inc., 304 Conn. 128, 140 (2012).   Whether reverse veil piercing is “a viable theory in Connecticut”;  id., 142;  has not yet been decided.   In this unsettled state of the law, Currier should not have been expected to assert this untested theory in a simple collection action and should not now be foreclosed from asserting it when conventional methods for satisfying the judgment obtained there have been unavailing.

Allowing Currier to maintain this action is also in keeping with settled law that:

When a valid and final personal judgment is rendered in favor of the plaintiff:  (1)[t]he plaintiff cannot thereafter maintain an action on the original claim or any part thereof, although he may be able to maintain an action upon the judgment ․ As comment (a) to § 18 [of the Restatement] explains, [w]hen the plaintiff recovers a valid and final personal judgment, his original claim is extinguished and rights upon the judgment are substituted for it.   The plaintiff's original claim is said to be merged in the judgment.   Our ․ case law has uniformly approved and applied the principle of claim preclusion or merger ․ (Internal quotation marks omitted.)

Savvidis v. City of Norwalk, supra, 129 Conn.App. 410.

This court holds, therefore, that principles of res judicata do not preclude Currier from prosecuting this action against Barton Properties.

IV

For all the reasons stated, the motion for summary judgment is DENIED.

BY THE COURT

Joseph M. Shortall

Judge Trial Referee

FOOTNOTES

FN1. This court, of course, expresses no opinion on the merits of Currier's attempt to satisfy its judgment from the resources of Barton Properties..  FN1. This court, of course, expresses no opinion on the merits of Currier's attempt to satisfy its judgment from the resources of Barton Properties.

Shortall, Joseph M., J.T.R.