Control–Aire Supply Co., Inc. et al. v. Mitchell Rotchefort et al. (2013)

ORDER RE MOTION TO DISMISS

The defendants move to dismiss all but one of the six counts of the complaint in this case on the ground that the court lacks subject matter jurisdiction.   The defendants' motions are based on a reading of the complaint that this is a shareholder derivative action brought by the individual plaintiff and shareholder, J. Allen Lamb, without the authority of the board of directors and without a proper pre-suit written demand, as required under Massachusetts law.   The plaintiffs assert that this is also a direct action against the defendants by the plaintiff corporation, Control–Aire Supply Co., Inc. (CASCO), asserting various claims against the defendants that they were complicit in the embezzlement of corporate funds of CASCO by a deceased owner and stockholder.   The plaintiffs assert that this action was authorized by the president of CASCO and later authorized, approved and ratified by the board of directors.

Reading the complaint liberally in favor of the plaintiffs as the court is required to do on a motion to dismiss;  Conboy v. State, 292 Conn. 642, 651, 974 A.2d 669 (2009);  the court finds that the complaint may be read to allege a direct action by the corporation.   As such, the plaintiffs have the burden to prove that the proper party has initiated this action and that the person or persons who are prosecuting the claim on behalf of the corporation have authority to do so.  Schaghticoke Tribal Nation v. Harrison, 264 Conn. 829, 832, 826 A.2d 1102 (2003).   In ruling on a motion to dismiss, the court may consider affidavits containing undisputed facts.  Conboy v. State, supra, 652.

The plaintiffs have submitted two affidavits of CASCO's president, Gary Corliss, which state that he authorized the filing of this lawsuit as president, and that after the lawsuit was filed in April 2013, he noticed a meeting of the board of directors at which the board “approved, affirmed and ratified” this action.   The affidavit submitted by the defendants asserting that the board had not met to approve this action was prepared prior to the April board meeting that approved and ratified the brining of this action.   No further affidavit has been submitted by the defendants claiming any impropriety as to the April board meeting.   Under Massachusetts law, a majority of the directors of a corporation can ratify an officer's actions.   See Bloomberg v. Greylock Broadcasting Co., 342 Mass. 542, 548, 174 N.E.2d 438 (1961).

The court finds that the action was properly authorized.   Because the court finds that the president's authorization of the litigation was ratified by a majority of the board of directors, the court does not need to reach the issue of whether the president's initial authorization of this suit was sufficient.

Because the court finds that the complaint may be read as a direct action by the corporation, it is also not necessary for the court to address the defendants' primary claim that if the action is a shareholder derivative action, the plaintiffs' failure to make a proper written demand of the corporation under Massachusetts law deprives the court of subject matter jurisdiction.

Accordingly, the court finds that it has subject matter jurisdiction in this matter.   The motions to dismiss are denied.

Cobb, J.

Cobb, Susan Quinn, J.