Sojitz America Capital Corp. v. Keystone Equipment Finance Corp. (2013)

MEMORANDUM OF DECISION

I

Before the court is a motion for attorneys fees brought by the defendant, Keystone Equipment Finance Corp., against the plaintiff, Sojitz America Capital Corp. The defendant brings the motion now that the action has been resolved in its favor.   The plaintiff, a shareholder of the defendant, brought a derivative action pursuant to General Statutes § 52–572j ¹ against the defendant by filing a one-count complaint on February 3, 2011.   The complaint alleged that Todd Kaufman,² director of the defendant, current president and son of the majority shareholder, had injured the corporation by providing false certifications to financial institutions providing lines of credit to the defendant.   Specifically, these false certifications “exposed Keystone to considerable risks of liability in the form of, at least, allegations of bank fraud, common law fraud and rescission of existing bank lines.”   The complaint further alleged that demand for action had been made on and was subsequently refused by the defendant's board of directors, and that two of the three directors other than Kaufman, one of whom was Kaufman's father, “acted in reckless disregard of the actions taken by Kaufman ․ and are not in a position to dispassionately determine whether the instant litigation is in the best interests of Keystone.”

The defendant filed a motion to dismiss with a memorandum in support on April 5, 2011.   The defendant argued that the proceeding should be dismissed pursuant to General Statutes § 33–724 ³ because:  (1) Kaufman was a qualified director for purposes of a determination made under § 33–724 as there are no particularized facts in the complaint that demonstrate any connection between Kaufman's alleged misconduct and an injury to the defendant, meaning he is not at risk of adverse consequences from the derivative proceedings;  (2) since Kaufman was qualified, the other two directors cannot be disqualified because of their relationship with Kaufman and there were no other additional facts supporting disqualification;  (3) since a majority of the directors were qualified, it is the plaintiff's burden to prove that the requirements of § 33–724(a) were not met;  and (4) the plaintiff failed to demonstrate that the directors did not determine in good faith, after a reasonable inquiry, that the maintenance of the derivative proceeding is not in the best interests of the corporation.   The plaintiff, in its reply memorandum argued:  (1) Kaufman was a disqualified director at the time the determination was made because he was directly implicated in the serious misconduct at issue in the derivative proceeding;  (2) the other directors are disqualified because of their personal relationships to Kaufman;  and (3) the directors did not perform a real investigation before making a determination to not respond to the plaintiff's demand, and instead simply signed off on a report prepared by the plaintiff's counsel.

Judge Robaina issued a memorandum of decision and entered a judgment of dismissal on July 14, 2011.   In his decision, Judge Robaina accepted many of the defendant's positions and concluded that Kaufman was a qualified director for purposes of determining whether the plaintiff's derivative action was in the best interests of the corporation under § 33–724.   Specifically, Judge Robaina reasoned that, under § 33–724, Kaufman “cannot be disqualified merely because of his status as a named defendant,” and that there was a lack “particularized and well-pleaded facts that, if true, would likely give rise to a significant adverse outcome against [Kaufman]” because “there is no specific allegation that the defendant's actions caused any damages to the corporation.”   Consequently, the other two directors were also qualified as there were no other facts alleged beyond their relationship with Kaufman that would require disqualification, and therefore the plaintiff bore the burden of showing that the requirements of § 33–724(a) were not met.   The court, noting its limited scope of review, concluded that the good faith determination by the board of directors had support in the reasonable inquiry they performed.   The plaintiff appealed and the decision was subsequently affirmed by the Court of Appeals on March 26, 2013.   See Sojitz America Capital Corp. v. Kaufman, 141 Conn.App. 486, 61 A.3d 566 (2013).

On April 24, 2013, the defendant filed its motion for attorneys fees pursuant to General Statutes § 33–726(2) and (3).⁴  The defendant argues:  (1) the plaintiff did not have reasonable cause to bring the action;  (2) the plaintiff brought the action for an improper purpose;  and (3) the plaintiff filed a complaint that was not well grounded in fact or warranted by existing law and was motivated by an improper purpose.   The plaintiff argues in response, inter alia, that there is no evidence of an improper purpose and that simply because his complaint was dismissed does not mean it was brought without reasonable cause or was otherwise unwarranted.   The parties presented their arguments orally to this court on May 30, 2013.   The parties agreed to bifurcate the proceeding and first address the issue of the plaintiff's liability for attorneys fees.

II

The plaintiff first argues that the defendant cannot recover attorneys fees under § 33–726 because it is only a “nominal defendant” under § 33–724 and no claims were ever asserted against it.   Rather, the plaintiff was making its claim “on behalf of Keystone, not against it.”   This argument does not take into account the nature of a derivative proceeding.   In a derivative proceeding, while the ultimate issues may be for the benefit of the corporate defendant, the first stage is the plaintiff shareholder forcing the corporate defendant to take action by pursuing whatever claim it may have against a third party.⁵  In that sense, the defendant in this matter in a very real way had a claim asserted against it.   While the plaintiff did not seek any monetary recovery against the defendant, it did seek to override the decision of the board of directors to not pursue a claim against Kaufman.   The fact that the defendant in fact spent considerable amounts in attorneys fees litigating the action only further supports the notion that they were more than a “nominal defendant” and should have the opportunity to recover said fees.   Accordingly, the defendant is properly considered an “opposing party” and defendant for purposes of § 33–726.

As the parties conceded at oral argument, the application of § 33–726 is an issue of first impression for the Connecticut courts.   Therefore, this court must first construe the meaning of the statute, and then it must determine the proper manner of applying it to the facts at hand.

“When construing a statute, [o]ur fundamental objective is to ascertain and give effect to the apparent intent of the legislature ․ In other words, we seek to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of [the] case ․ In seeking to determining that meaning, General Statutes § 1–2z directs us first to consider the text of the statute itself and its relationship to other statutes.   If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extra textual evidence of the meaning of the statute shall not be considered ․ The test to determine ambiguity is whether the statute, when read in context, is susceptible to more than one reasonable interpretation ․ When a statute is not plain and unambiguous, we also look for interpretive guidance to the legislative history and circumstances surrounding its enactment, to the legislative policy it was designed to implement, and to its relationship to existing legislation and common law principles governing the same general subject matter ․” Woodrow Wilson of Middletown, LLC v. Connecticut Housing Finance Authority, 294 Conn. 638, 644–45, 986 A.2d 271 (2010).

Section 33–726 provides, in relevant part:  “On termination of the derivative proceeding the court may:  ․ (2) Order the plaintiff to pay any defendant's expenses incurred in defending the proceeding if it finds that the proceeding was commenced or maintained without reasonable cause or for an improper purpose;  or (3) Order a party to pay an opposing party's expenses incurred because of the filing of a pleading, motion or other paper, if it finds that the pleading, motion or other paper was not well grounded in fact, after a reasonable inquiry, or warranted by existing law and was interposed for an improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation.”

The meanings of “reasonable cause” and “improper purpose” in § 33–726 are ambiguous for purposes of applying them to a specific set of facts.   While “reasonable” generally is used to gauge whether something was objectively acceptable, rational or in accordance with common understanding, such a definition is not helpful for applying § 33–726 to a specific set of facts.   Likewise, “improper purpose” could encompass a variety of misconduct.

For finding the meaning of these terms, it is helpful to turn to the Model Business Corporations Act (“the model act”) § 7.46, which was adopted by the General Assembly, is identical to § 33–726 and whose comments essentially act as a legislative history.   See Sojitz America Capital Corp v. Kaufman, supra, 141 Conn.App. 492 (“The recorded legislative history sheds light on the motivations for deriving our statute from the model act.   In addition to achieving uniformity with other jurisdictions, the legislative history indicates that our jurisdiction's case law on corporate law is sparse, suggesting that courts, attorneys and corporations would benefit from the guidance provided by the model act's official comments as well as the case law of jurisdictions that have similarly codified the model act.”).⁶  The comment to that section provides, in relevant part:  “The phrase ‘for an improper purpose’ has been added to parallel the Federal Rule of Civil Procedure 11 in order to prevent proceedings which may be brought to harass the corporation or its officers.   The test in this section is similar to but not identical with the test utilized in section 13.31, relating to dissenters' rights, where the standard for award of expenses and attorneys fees is that dissenters ‘acted arbitrarily, vexatiously or not in good faith’ in demanding a judicial appraisal of their shares.   The derivative action situation is sufficiently different from the dissenters' rights situation to justify a different and less onerous test for imposing costs on the plaintiff.   The test of section 7.46 that the action was brought without reasonable cause or for an improper purpose is appropriate to deter strike suits, on the one hand, and on the other hand to protect plaintiffs whose suits have a reasonable foundation.”

A federal district court decision explaining the similarities between § 33–726 and Fed.R.Civ.P. 11 gives more meaning to the phrases “reasonable cause”:  “[Section 33–726] was intended to parallel Rule 11 of the Federal Rule of Civil Procedure, which provides that any party or attorney who files a pleading, motion or other paper certifies ‘that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, it is not being presented ‘for any improper purpose,’ it is not frivolous, and it likely has evidentiary support ․ Under Rule 11, the test is objective, and sanctions shall be imposed only when it appears that a competent attorney could not form the requisite reasonable belief as to the validity of what is asserted in the paper ․ With regard to factual contentions, sanctions may not be imposed unless a particular allegation is utterly lacking in support.”  (Citations omitted;  internal quotation marks omitted.)   Frank v. LoVetere, United States District Court, Docket No. 3:03CV10104 (JBA) (D.Conn. December 29, 2005).

Continuing, the district court concluded “that the objective test for Rule 11 appropriately is applied to ․ § 33–726 as well, for the following reasons.   First, the statutory requirements of ‘reasonable cause’ and ‘reasonable inquiry’ track Rule 11's certification requirements based on ‘an inquiry reasonable under the circumstances.’   Second, the purposes are similar—to sanction misuse of civil litigation.  Section 33–726 is designed to discourage baseless suits and filings while encouraging shareholders to bring well-supported suits that will benefit the other shareholders of the corporation ․ The goal of Rule 11 is to deter frivolous suits and pleadings but not ‘chill an attorney's enthusiasm or creativity in pursuing factual or legal theories.’   Fed.R.Civ.P., Official Commentary to 1983 and 1997 Amends.   An objective standard best balances these interests.   If a subjective standard were to be applied, theoretically a party or attorney could avoid the sanction of attorneys fees for an utterly frivolous lawsuit by claiming that he or she believed in good faith that his or her arguments were or would be supported by the facts.”  (Citation omitted;  internal quotation marks omitted.)  Id. “Thus, the Court interprets ‘reasonable cause’ in § 33–726 to refer to a lawsuit or filing that a reasonable attorney or litigant would believe after a reasonable inquiry was likely grounded in the evidence, warranted by existing law or a non-frivolous argument for the extension, modification or reversal of existing law, or the establishment of new law, and not brought for an improper purpose.”  Id. This court agrees with the Frank court's definition of “reasonable cause.”

It is important to emphasize a few aspects of the application of § 33–726 that are apparent from the plain text of the statute.⁷  First, the statute is a permissive, rather than mandatory, statute in that the court “may” order payment of attorneys fees.   See Citizens Against Overhead Power Line Construction v. Connecticut Siting Council, 139 Conn.App. 565, 579, 57 A.3d 765 (2012) (“[T]he word ‘may’ denotes permissive behavior while the term ‘shall’ implies directory or mandatory behavior.”)   Second, § 33–726(2) awards attorneys fees for the entire derivative proceeding, whereas § 33–726(3) only awards fees relating to a specific pleading, motion or other paper.   Finally, § 33–726(2) allows the court to award attorneys fees if it finds that there has been either a lack of reasonable cause for the proceeding or an improper purpose motivating the proceeding.   In contrast, § 33–726(3) requires both an improper purpose and a finding that the paper was not well grounded in fact, after a reasonable inquiry by the filer, or was not warranted by law.

The plain text does not, however, answer the question of what type of finding the court must make to award attorneys fees under § 33–726.   That issue can be resolved by turning to the common law bad faith exception of the American Rule, which provides that a trial court has “the inherent authority ․ to assess attorneys fees when the losing party has acted in bad faith, vexatiously, wantonly or for oppressive reasons.”  Berzins v. Berzins, 306 Conn. 651, 661, 51 A.3d 941 (2012).   The Connecticut Supreme Court has adopted the Second Circuit's application of a clear and convincing evidentiary standard in light of certain policy interests:  “To ensure ․ that fear of an award of attorneys fees against [litigants] will not deter persons with colorable claims from pursuing those claims, we have declined to uphold awards under the bad-faith exception absent both clear evidence that the challenged actions are entirely without color and [are taken] for reasons of harassment or delay or for other improper purposes ․ and a high degree of specificity in the factual findings of [the] lower courts.”  (Internal quotation marks omitted.)  Id. While the substance of the exception is different in that it requires a party to act in bad faith, vexatiously, wantonly or for oppressive reasons, which is a higher level of misconduct than is required by § 33–726, the policy reasons behind the evidentiary burden are the same.   The comment to § 7.46 of the model act makes it clear that while deterring strike suits and other harassing litigation, the provision for attorney fees should be interpreted to “protect plaintiffs whose suits have a reasonable foundation.”   This court believes that requiring a party seeking attorneys fees to clearly show that the requirements of § 33–726 have been met is appropriate for promoting the policy interests behind that exception to the American Rule.

III

Turning to the facts of the present motion, the court finds that the defendant has failed to establish that the requirements of § 33–726 have been met, and therefore the court will not award it attorneys fees.   First, it is not readily apparent nor is there clear evidence that the action was brought either without “reasonable cause” under § 33–726(2), or that the complaint was not “well grounded in fact, after a reasonable inquiry, or warranted by existing law” under § 33–726(3).   As the above discussion indicates, both of these grounds essentially have the same definition.   The defendant must demonstrate that the plaintiff either failed to make a reasonable inquiry into the facts, or that he essentially ignored facts that would make his claim clearly unwarranted by the law.

While the plaintiff's claim was ultimately unsuccessful, it is safe to say that it at least had a colorable basis.   The substantive portion of the derivative action, that Kaufman injured the defendant by falsifying certifications provided to third parties, appears to be supported, at least arguably, by the facts before the court.   While the defendant argues that the lack of alleged damages shows a lack of a reasonable cause, that issue is not so clear cut.   The supposed lack of damages was only considered by Judge Robaina in the context of determining whether Kaufman was a qualified director for purposes of § 33–724.   In the context of the merits of the defendant's possible claim against Kaufman, whether the threat of a third party's potential litigation against the defendant suffices as damages is much more unsettled.   Neither Judge Robaina's decision nor the defendant's memoranda cites any case law for the proposition that potential liability to a third party never qualifies as a harm to a corporation for purposes of a derivative action, which supports the notion that the plaintiff could have reasonably believed it did qualify as harm.   It is also important to emphasize that the plaintiff sought relief beyond monetary damages, namely, the removal of Kaufman as a director and officer as a result of his alleged breach of a fiduciary duty.

Furthermore, the plaintiff's representative on the board of directors submitted a detailed affidavit corroborating many allegations in the complaint.   The affidavit presents the circumstances surrounding the board's decision to not pursue the defendant's claims against Kaufman and the specific facts that reasonably suggested the decision was not made impartially in accordance with § 33–724.⁸  In sum, all of the above considerations lead the court to conclude that the defendant has not clearly shown that the plaintiff lacked reasonable cause in bringing the derivative action.   Even under the less onerous preponderance of the evidence standard, the evidence submitted by the plaintiff does not demonstrate a lack of reasonable cause.

Although a failure to show a lack of reasonable cause forecloses the defendant's recovery of attorneys fees under § 33–726(3), there remains a possibility of recovery under § 33–726(2) if the defendant can show that the derivative proceeding was brought for an improper purpose.   Again, the defendant has failed to demonstrate such an improper purpose.   While both parties have speculated about their opponent's motivations, little has been shown by way of evidence.   It is obvious to the court that there is internal strife between the plaintiff and other directors and shareholders of the defendant, but the same can be said about many derivative proceedings.   The defendant declined to present any witnesses at the hearing on the present motion, and instead has relied solely on the affidavit of Kaufman submitted with its motion to dismiss.   After review, only one sentence of that affidavit is relevant to any alleged improper purpose:  “[I]n the midst of negotiations between the parties, Sojitz demanded that Keystone take punitive actions against the undersigned, including a civil action, removal from the board of directors and employment termination.”   The only way the court could conclude from that sentence that the plaintiff was motivated by an improper purpose would be through speculative inference, which obviously does not satisfy the clear showing required under § 33–726.   In contrast, the affidavit of the plaintiff's representative on the board of directors presents a number of facts that rebut or at least cast doubt upon the assertions of the defendant.   Specifically, the representative attested that no real negotiations were taking place, explained in detail its uncovering of Kaufman's misconduct, described its cause for concern and asserted that its entitlement to dividends was not related to the litigation.   At the least, these dueling affidavits left an issue of fact that has not been resolved by any subsequent presentation of evidence by the defendant.   Accordingly, the court concludes that the defendant has failed to show, either clearly or under a preponderance of the evidence, the existence of an improper purpose behind the plaintiff's commencement or maintenance of the derivative proceeding.

CONCLUSION

For the foregoing reasons, the defendant's motion for attorneys fees is hereby denied.

Stengel, JTR

FOOTNOTES

FN1. General Statutes § 52–572j provides in relevant part:(a) Whenever any corporation ․ fails to enforce a right which may properly be asserted by it, a derivative action may be brought by one or more shareholders or members to enforce the right, provided the shareholder or member was a shareholder or member at the time of the transaction of which he complained ․ The derivative action may not be maintained if it appears that the plaintiff does not fairly and adequately represent the interests of the shareholders or members similarly situated in enforcing the right of the corporation or association ․(b) ․ The costs of the action or part thereof, which shall include but not be limited to ․ reasonable attorneys fees, may be charged by the court, in its discretion, against the corporation..  FN1. General Statutes § 52–572j provides in relevant part:(a) Whenever any corporation ․ fails to enforce a right which may properly be asserted by it, a derivative action may be brought by one or more shareholders or members to enforce the right, provided the shareholder or member was a shareholder or member at the time of the transaction of which he complained ․ The derivative action may not be maintained if it appears that the plaintiff does not fairly and adequately represent the interests of the shareholders or members similarly situated in enforcing the right of the corporation or association ․(b) ․ The costs of the action or part thereof, which shall include but not be limited to ․ reasonable attorneys fees, may be charged by the court, in its discretion, against the corporation.

FN2. Todd Kaufman was also a defendant in the matter, but because only Keystone has motioned for attorneys fees, any mention of “the defendant” is solely in reference to Keystone..  FN2. Todd Kaufman was also a defendant in the matter, but because only Keystone has motioned for attorneys fees, any mention of “the defendant” is solely in reference to Keystone.

FN3. General Statutes § 33–724 provides in relevant part:(a) A derivative proceeding shall be dismissed by the court on motion by the corporation if one of the groups specified in subsection (b) or (e) of this section has determined in good faith, after conducting a reasonable inquiry upon which its conclusions are based, that the maintenance of the derivative proceeding is not in the best interests of the corporation.(b) Unless a panel is appointed pursuant subsection (e) of this section, the determination in subsection (a) of this section shall be made by:  (1) A majority vote of qualified directors present at the meeting of the board of directors if the qualified directors constitute a quorum;  or (2) A majority vote of a committee consisting of two or more qualified directors appointed by majority vote of qualified directors present at a meeting of the board of directors, regardless of whether such qualified directors constitute a quorum.(c) If a derivative proceeding is commenced after a determination has been made rejecting a demand by a shareholder, the complaint shall allege with particularity facts establishing either (1) that a majority of the board of directors did not consist of qualified directors at the time the determination was made, or (2) that the requirements of subsection (a) of this section have not been met.(d) If a majority of the board of directors consisted of qualified directors at the time the determination was made, the plaintiff shall have the burden of proving that the requirements of subsection (a) of this section have not been met.   If a majority of the board of directors did not consist of qualified directors at the time the determination was made, the corporation shall have the burden of proving the requirements of subsection (a) of this section have been met.(e) ․.  FN3. General Statutes § 33–724 provides in relevant part:(a) A derivative proceeding shall be dismissed by the court on motion by the corporation if one of the groups specified in subsection (b) or (e) of this section has determined in good faith, after conducting a reasonable inquiry upon which its conclusions are based, that the maintenance of the derivative proceeding is not in the best interests of the corporation.(b) Unless a panel is appointed pursuant subsection (e) of this section, the determination in subsection (a) of this section shall be made by:  (1) A majority vote of qualified directors present at the meeting of the board of directors if the qualified directors constitute a quorum;  or (2) A majority vote of a committee consisting of two or more qualified directors appointed by majority vote of qualified directors present at a meeting of the board of directors, regardless of whether such qualified directors constitute a quorum.(c) If a derivative proceeding is commenced after a determination has been made rejecting a demand by a shareholder, the complaint shall allege with particularity facts establishing either (1) that a majority of the board of directors did not consist of qualified directors at the time the determination was made, or (2) that the requirements of subsection (a) of this section have not been met.(d) If a majority of the board of directors consisted of qualified directors at the time the determination was made, the plaintiff shall have the burden of proving that the requirements of subsection (a) of this section have not been met.   If a majority of the board of directors did not consist of qualified directors at the time the determination was made, the corporation shall have the burden of proving the requirements of subsection (a) of this section have been met.(e) ․

FN4. General Statutes § 33–726 provides in relevant part:  “On termination of the derivative proceeding the court may:  ․(2) Order the plaintiff to pay any defendant's expenses incurred in defending the proceeding if it finds that the proceeding was commenced or maintained without reasonable cause or for an improper purpose;  or(3) Order a party to pay an opposing party's expenses incurred because of the filing of a pleading, motion or other paper, if it finds that the pleading, motion or other paper was not well grounded in fact, after a reasonable inquiry, or warranted by existing law and was interposed for an improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation..  FN4. General Statutes § 33–726 provides in relevant part:  “On termination of the derivative proceeding the court may:  ․(2) Order the plaintiff to pay any defendant's expenses incurred in defending the proceeding if it finds that the proceeding was commenced or maintained without reasonable cause or for an improper purpose;  or(3) Order a party to pay an opposing party's expenses incurred because of the filing of a pleading, motion or other paper, if it finds that the pleading, motion or other paper was not well grounded in fact, after a reasonable inquiry, or warranted by existing law and was interposed for an improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation.

FN5. A shareholder derivative suit “is designed to facilitate holding wrongdoing directors and majority shareholders to account and also to enforce corporate claims against third persons ․ [A] derivative action ․ [is] an unusual procedural device by reason of its dual nature in that it consists of the basic cause of action, which pertains to the corporation and on which the corporations might have sued, and the derivative cause of action, based upon the fact that the corporation will not or cannot sue for its own protection.”  (Citation omitted.)  Barrett v. Southern Connecticut Gas Co., 172 Conn. 362, 370, 374 A.2d 1051 (1977).  “[T]he corporation is a named defendant, and it also has the right to object to a question the capacity of a minority shareholder to bring suit on its behalf.”  Id., 370–71.Under the common law and § 33–724, the shareholder must overcome the business judgment rule to proceed with a derivative suit because he or she is essentially wresting control of the corporation away from the directors to pursue a claim the corporation may have.  Sojitz America Capital Corp v. Kaufman, supra, 141 Conn.App. 505–06 (“[Section] 33–724 operates as a statutory embodiment of the business judgment rule, which restricts our review of a corporate manager's decision ․ [T]he policy reason for this limited review is that a corporation should be free to determine in its own business judgment whether litigation is in its best interest, free from unnecessary interference”);  see Rosenfield v. Metals Selling Corp., 229 Conn. 771, 787, 643 A.2d 1253 (1994) (“The business judgment rule expresses a sensible policy of judicial noninterference with business decisions made in circumstances free from serious conflicts of interest between management, which makes the decisions, and the corporation's shareholders ․ Shareholders challenging the wisdom of a business decision taken by management must overcome the business judgment rule” (citations omitted;  internal quotation marks omitted”);  see Ma‘Ayergi and Associates, LLC v. Pro Search, Inc., 115 Conn.App. 662, 668–69, 974 A.2d 724 (2009)..  FN5. A shareholder derivative suit “is designed to facilitate holding wrongdoing directors and majority shareholders to account and also to enforce corporate claims against third persons ․ [A] derivative action ․ [is] an unusual procedural device by reason of its dual nature in that it consists of the basic cause of action, which pertains to the corporation and on which the corporations might have sued, and the derivative cause of action, based upon the fact that the corporation will not or cannot sue for its own protection.”  (Citation omitted.)  Barrett v. Southern Connecticut Gas Co., 172 Conn. 362, 370, 374 A.2d 1051 (1977).  “[T]he corporation is a named defendant, and it also has the right to object to a question the capacity of a minority shareholder to bring suit on its behalf.”  Id., 370–71.Under the common law and § 33–724, the shareholder must overcome the business judgment rule to proceed with a derivative suit because he or she is essentially wresting control of the corporation away from the directors to pursue a claim the corporation may have.  Sojitz America Capital Corp v. Kaufman, supra, 141 Conn.App. 505–06 (“[Section] 33–724 operates as a statutory embodiment of the business judgment rule, which restricts our review of a corporate manager's decision ․ [T]he policy reason for this limited review is that a corporation should be free to determine in its own business judgment whether litigation is in its best interest, free from unnecessary interference”);  see Rosenfield v. Metals Selling Corp., 229 Conn. 771, 787, 643 A.2d 1253 (1994) (“The business judgment rule expresses a sensible policy of judicial noninterference with business decisions made in circumstances free from serious conflicts of interest between management, which makes the decisions, and the corporation's shareholders ․ Shareholders challenging the wisdom of a business decision taken by management must overcome the business judgment rule” (citations omitted;  internal quotation marks omitted”);  see Ma‘Ayergi and Associates, LLC v. Pro Search, Inc., 115 Conn.App. 662, 668–69, 974 A.2d 724 (2009).

FN6. “The legislative history of the law in Connecticut demonstrates a desire to consider the Model Business Corporation Act and its commentary as expressive of the intent of the legislature in passage of the act.   In proceedings on the floor of the state House discussing the passage of the Connecticut version of the Model Business Corporation Act ․ Representative Richard D. Tulisano stated:  ‘I also wanted to put on the record that there are in fact commentaries that have been established which help one interpret this act, both at the Connecticut commentary and there is commentary to the model act that people should look to for reference and understanding of the intent of the drafters of the legislation.   I also ought to be very honest that I have not read all of those commentaries nor do I necessarily agree with all those commentaries and for whatever that means for legislative purposes, certainly the proponents of the bill would like that to be looked at.   It is probably the normal way of interpreting the legislation.   In the future, it's the way the [Uniform Commercial Code] was done and it's probably the way it should be done here.’   37 H.R. Proc., Pt. 18, 1994 Sess., p. 6446.”   Stone v. R.E.A.L. Health, P.C., Superior Court, judicial district of New Haven, Docket No. CV98414972 (November 15, 2000) (29 Conn. L. Rptr. 219, 223)..  FN6. “The legislative history of the law in Connecticut demonstrates a desire to consider the Model Business Corporation Act and its commentary as expressive of the intent of the legislature in passage of the act.   In proceedings on the floor of the state House discussing the passage of the Connecticut version of the Model Business Corporation Act ․ Representative Richard D. Tulisano stated:  ‘I also wanted to put on the record that there are in fact commentaries that have been established which help one interpret this act, both at the Connecticut commentary and there is commentary to the model act that people should look to for reference and understanding of the intent of the drafters of the legislation.   I also ought to be very honest that I have not read all of those commentaries nor do I necessarily agree with all those commentaries and for whatever that means for legislative purposes, certainly the proponents of the bill would like that to be looked at.   It is probably the normal way of interpreting the legislation.   In the future, it's the way the [Uniform Commercial Code] was done and it's probably the way it should be done here.’   37 H.R. Proc., Pt. 18, 1994 Sess., p. 6446.”   Stone v. R.E.A.L. Health, P.C., Superior Court, judicial district of New Haven, Docket No. CV98414972 (November 15, 2000) (29 Conn. L. Rptr. 219, 223).

FN7. Here, the court is not construing the meaning of the statute under the principles of statutory construction, rather it is trying to determine its proper application.  Sojitz America Capital Corp v. Kaufman, supra, 141 Conn.App. 492 n.5 (stating that a court need not make a finding of ambiguity to consider legislative history for guidance in the application a statute)..  FN7. Here, the court is not construing the meaning of the statute under the principles of statutory construction, rather it is trying to determine its proper application.  Sojitz America Capital Corp v. Kaufman, supra, 141 Conn.App. 492 n.5 (stating that a court need not make a finding of ambiguity to consider legislative history for guidance in the application a statute).

FN8. The fact that Judge Robaina did not agree that the decision was made impartially under § 33–724 is not the controlling consideration.   Rather, it is whether a reasonable litigant, in light of the facts of the matter, could have believed that was the case..  FN8. The fact that Judge Robaina did not agree that the decision was made impartially under § 33–724 is not the controlling consideration.   Rather, it is whether a reasonable litigant, in light of the facts of the matter, could have believed that was the case.

Stengel, Robert F., J.T.R.