Steven Rocco Individually and Derivatively on Behalf of the Riverhouse at Goodspeed Station, Inc. et al. v. Trevor Furrer et al. (2013)

MEMORANDUM OF DECISION ON DEFENDANTS' MOTION TO DISMISS

The defendants, Trevor Furrer, Mark Poole, and James Bucko, filed a motion to dismiss the plaintiffs' complaint on the ground of lack of subject matter jurisdiction.

Factual and Procedural Background

On April 19, 2013, the plaintiffs, Steven Rocco, The Riverhouse at Goodspeed Station, Inc. (Riverhouse Station), and Riverhouse Properties, LLC (Riverhouse Properties),¹ filed a seven-count amended complaint against the defendants, Trevor Furrer, Mark Poole, and James Bucko.   The plaintiffs bring the following three claims as to Rocco, individually:  breach of fiduciary duty, in count one;  interference with corporate governance, in count two;  and declaratory judgment, in count three.   The plaintiffs also bring the following four claims collectively:  corporate waste, in count four;  breach of fiduciary duty, in count five;  interference with corporate governance, in count six;  and declaratory judgment, in count seven.

All seven counts share the following facts.   Rocco and the defendants are collectively the only shareholders and members of the Entities.   Rocco owns a 20 percent interest in both Riverhouse Station and Riverhouse Properties, Furrer and Poole each own a 32.5 percent interest in both Riverhouse Station and River house Properties, and Bucko owns 15 percent interest in Riverhouse Station and 10 percent interest in Riverhouse Properties.   Riverhouse Station operates a private banquet, conference, and catering business.   Riverhouse Properties owns the land in which Riverhouse Station operates.

The plaintiffs further allege that the defendants had joined forces in an effort to freeze Rocco out of his investment and involvement in the Entities, and that the defendants had engaged in improper self-dealing for their own benefit and to the detriment of Rocco and the Entities.   By September 2010, the defendants had started to exclude Rocco from the regular business e-mails, meetings, and discussions, and began to marginalize Rocco from any future endeavors.   For example, the parties discussed adding Avon Old Farms Inn as an additional venue under the umbrella of the Entities.   However, at some point after lengthy discussions concerning the management of Avon Old Farms Inn, the defendants abruptly ceased almost all communication with Rocco regarding that opportunity.   Moreover, the defendants also formed a new entity, Belle Terrace at Avon Old Farms, Inc., and forced Rocco to accept a smaller percentage of the shares, despite the fact that the assets of Riverhouse Station and Riverhouse Entities were leveraged in order to fund and financially support Belle Terrace at Avon Old Farms, Inc. During this time period, the defendants had also joined forces to form a majority voting bloc to control the Entities, and pursue their self-interest.

The plaintiffs also allege that, in the fall of 2011, the defendants accelerated their efforts to marginalize and freeze out the plaintiff.   Specifically, the Entities were in the process of obtaining financing in order to consolidate their debt.   The lender requested that the shareholders of Riverhouse Station reduce their regular draws until its cash to debt ratios improved.   Instead, the defendants, without the plaintiffs' consent, adopted a resolution temporarily suspending and later reducing the monthly distributions by 50 percent.   The resolution further provided that Bucko would receive a $40,500 salary increase, and that Furrer and Poole would become employees of Riverhouse Station, with annual salaries of $100,000.   Furrer's and Poole's positions were not justified, as neither had previously been an employee, nor have they replaced a prior employee.   The defendants have adopted these resolutions to advance their own self-interest, to divert company assets for their own personal gains, and to deprive Rocco of his rightful share of profits.

The plaintiffs further allege that the defendants have engaged in self-dealing and misuse of corporate funds by using company credit cards for personal expenses, purchasing items with company funds for personal use, and taking loans from Riverhouse Station without any proper meeting to authorize said loans.   Most recently, the defendants have purportedly removed Rocco as an officer and director in violation of the bylaws, and have further proposed to suspend all distributions.

Discussion of the Law and Ruling

“Subject matter jurisdiction involves the authority of the court to adjudicate the type of controversy presented by the action before it ․ [A] courts lacks discretion to consider the merits of a case over which it is without jurisdiction ․ The subject matter jurisdiction requirement may not be waived by any party, and also may be raised by a party, or by the court sua sponte, at any stage of the proceedings ․” (Internal quotation marks omitted.)   Keller v. Beckenstein, 305 Conn. 523, 531–32, 46 A.3d 102 (2012).  “Pursuant to the rules of practice, a motion to dismiss is the appropriate motion for raising a lack of subject matter jurisdiction.”  St. George v. Gordon, 264 Conn. 538, 545, 825 A.2d 90 (2003).  “[B]ecause the issue of standing implicates subject matter jurisdiction it may be a proper basis for granting a motion to dismiss ․ [S]ee Practice Book § 10–31(a)(1).”  (Citation omitted.)  Electrical Contractors, Inc. v. Dept. of Education, 303 Conn. 402, 413, 35 A.3d 188 (2012).  “[T]he plaintiff bears the burden of proving subject matter jurisdiction, whenever and however raised.”  (Internal quotation marks omitted.)  Fort Trumbull Conservancy, LLC v. New London, 265 Conn. 423, 430 n.12, 829 A.2d 801 (2003).  “[I]t is well established that, in determining whether a court has subject matter jurisdiction, every presumption favoring jurisdiction should be indulged.”  (Internal quotation marks omitted.)  Keller v. Beckenstein, supra, 531.

“Trial courts addressing motions to dismiss for lack of subject matter jurisdiction pursuant to § 10–31(a)(1) may encounter different situations, depending on the status of the record in the case ․ [L]ack of subject matter jurisdiction may be found in any one of three instances:  (1) the complaint alone;  (2) the complaint supplemented by undisputed facts evidenced in the record;  or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts ․ Different rules and procedures will apply, depending on the state of the record at the time the motion is filed.”   (Citation omitted;  internal quotation marks omitted.)  Conboy v. State, 292 Conn. 642, 650–51, 974 A.2d 669 (2009).

“When a trial court decides a jurisdictional question raised by a pretrial motion to dismiss on the basis of the complaint alone, it must consider the allegations of the complaint in their most favorable light ․ In this regard, a court must take the facts to be those alleged in the complaint, including those facts necessarily implied from the allegations, construing them in a manner most favorable to the pleader.”  (Internal quotation marks omitted.)   Id., 651.   In this case the defendants have not filed any affidavits which dispute any facts alleged in the complaint.

The defendants filed a motion to dismiss on the ground that the court lacks subject matter jurisdiction.   First, the defendants argue that the court lacks jurisdiction with respect to the purported individual claims in counts one through three of the amended complaint because the plaintiffs failed to allege facts demonstrating that Rocco has standing to bring suit individually and directly.   Specifically, the defendants contend that because the harm that resulted from their alleged actions is not separate and distinct from the harm suffered by other shareholders, Rocco is obligated to seek redress to the corporation by way of a derivative action.   Second, the defendants argue that the court lacks jurisdiction with respect to the derivative claims set forth in counts four through seven of the amended complaint.   In particular, the defendants argue that Rocco failed to name the Entities as defendants and that proper service of process was not effected on the Entities, as required by Connecticut General Statutes § 52–527j.   The defendants further contend that Rocco failed to make a pre-suit demand of the Entities, as required by Connecticut General Statutes § 33–722.   Finally, the defendants argue that Rocco does not fairly and adequately represent the interests of the Entities or the other shareholders, as is required by § 33–721(2) and 52–572j.

Standing on Individual Claims

The Supreme Court has stated that “[t]wo broad yet distinct categories of aggrievement exist, classical and statutory ․ [T]he fundamental test for determining [classical] aggrievement encompasses a well-settled twofold determination:  first, the party claiming aggrievement must successfully demonstrate a specific personal and legal interest in the subject matter of the decision, as distinguished from a general interest, such as is the concern of all the members of the community as a whole.   Second, the party claiming aggrievement must successfully establish that the specific personal and legal interest has been specially and injuriously affected by the decision.”   (Citation omitted;  internal quotation marks omitted.)  New Hartford v. Connecticut Resources Recovery Authority, 291 Conn. 511, 518–19, 970 A.2d 583 (2009).

“A distinction must be made between the right of a shareholder to bring suit in an individual capacity as the sole party injured, and his right to sue derivatively on behalf of the corporation alleged to be injured.”  Yanow v. Teal Industries, Inc., 178 Conn. 262, 281, 422 A.2d 311 (1979).  “[I]n order for a shareholder to bring a direct or personal action against the corporation or other shareholders, that shareholder must show an injury that is separate and distinct from that suffered by any other shareholder or by the corporation ․ It is commonly understood that [a] shareholder—even the sole shareholder—does not have standing to assert claims alleging wrongs to the corporation.”  (Citations omitted;  internal quotation marks omitted.)   Smith v. Synder, 267 Conn. 456, 461, 839 A.2d 589 (2004).  “Generally, individual stockholders cannot sue the officers at law for damages on the theory that they are entitled to damages because mismanagement has rendered their stock of less value, since the injury is generally not to the shareholder individually, but to the corporation—to the shareholders collectively ․ In this regard, it is axiomatic that a claim of injury, the basis of which is a wrong to the corporation, must be brought in a derivative suit, with the plaintiff proceeding ‘secondarily,’ deriving his rights from the corporation which is alleged to have been wronged ․ It is, however, well settled that if the injury is one to the plaintiff as a stockholder, and to him individually, and not to the corporation, as where an alleged fraud perpetrated by the corporation has affected the plaintiff directly, the cause of action is personal and individual ․ In such a case, the plaintiff-shareholder sustains a loss separate and distinct from that of the corporation, or from that of other shareholders, and thus has the right to seek redress in a personal capacity for a wrong done to him individually.”  Yanow v. Teal Industries, Inc., supra, 178 Conn. 281–82.

Unless there is a conflicting statute, Connecticut law relating to corporations has been held applicable to LLCs. Savino v. Sullivan, Superior Court, judicial district of Hartford, Docket Number CV 10–6013378–S (February 14, 2011, Wagner, J.T.R.) (“[w]hile the Connecticut appellate courts have not addressed the issue directly, Superior Court decisions have held that the laws that govern a plaintiff's standing for individual and derivative suits, as applied to corporations, extend to LLCs”).  “The application of these principles to claims brought by a shareholder of a closely held corporation against other shareholders of the corporation is particularly difficult.”   LeBlanc v. Tomoiu, Superior Court, complex litigation docket at Stamford, Docket No. X08–CV–06–5001421 (June 5, 2007, Jennings, J.) (43 Conn. L. Rptr. 599, 601).

The first issue before the court is whether Rocco has demonstrated that his injuries form an individual claim and that they are separate and distinct from the harms to the Entities and other shareholders.   In the present case, the alleged facts that are incorporated in all the counts support the plaintiff's argument that he can bring an individual claim against the defendants for his alleged injuries.   For instance, Rocco alleges that the defendants formed a majority voting block to control the Entities and engage in improper self-dealing.   Specifically, they have made successful efforts to marginalize Rocco's role in the management of the Entities, and to freeze Rocco out of his investments in said Entities.   In addition, Rocco is alleging that the defendants essentially diverted assets from the Entities into a newly created entity, Belle Terrace, and forced Rocco to accept a smaller percentage of the shares of the new entity.   Moreover, the defendants allegedly created new employee positions within the company (Furrer and Poole are working in newly created positions, with annual salaries of $100,000), or significantly increased their own salary ($40,500 increase for Bucko).   Meanwhile, and most recently, the defendants have purportedly removed Rocco as an officer and director in violation of the bylaws.

The key trait that all of these allegations share is that they involve injuries that are affecting only the plaintiff and none of the other defendants or shareholders.   In other words, the injuries are separate and distinct from any other shareholder or corporation.   The factual background is very similar to three cases that have held that the plaintiff may bring a direct action because his injuries are separate and distinct from those suffered by the company or other shareholders.

First, in Yanow v. Teal Industries, Inc., supra, 178 Conn. 262, the “action in the nature of both a shareholder's derivative suit and an individual action was brought by the plaintiff, Bernard N. Yanow, against Teal Industries, Inc. (Teal), a Connecticut corporation, and Martin B. Gentry, Jr., who, at relevant times, was an officer and director of Teal, seeking an accounting, damages and nullification of a merger between Teal and Mallard Manufacturing Company (Mallard), of which Yanow was a 10 percent shareholder.   The complaint ․ alleged in four counts that Teal and Gentry had committed a series of corporate wrongs resulting in damage to Yanow individually and to Mallard.”  Id., 263–64.   One of the issues before the Supreme Court was whether the trial court properly granted the defendants' motion for summary judgment as to certain counts in the complaint, “on the ground that these counts alleged only derivative claims and could only be brought by one who, unlike the plaintiff, was a shareholder of [the company] acting on behalf of [the company] at the time of suit.”  Id., 281.

The Supreme Court disagreed with the trial court's conclusion that the relevant counts were derivative in nature.  Id., 283.   Specifically, the court held:  “Count one, as noted earlier, states nineteen individual transactions which the plaintiff alleged to be unfair and undisclosed to him, which put into issue the looting of Mallard by Gentry.   Such claims—of looting the corporation and of failure of the directors to disclose important facts concerning corporate transactions—state personal, as opposed to derivative, causes of action ․ In count four, the plaintiff alleged that Gentry, in his capacity as officer and director of Mallard and Teal, took advantage of special facts concerning Mallard's financial condition, which he failed to disclose to the plaintiff, and that Gentry caused the merger to deprive the plaintiff of his shares and to avoid paying the plaintiff their full fair market value.   The plaintiff, in effect, via counts one and four, alleged that both defendants dismantled Mallard step-by-step, transaction-by-transaction, depriving Mallard and the plaintiff of income and assets.   These allegations claim a pervasive breach of the fiduciary duty owed by the corporate majority to the sole minority stockholder ․ As pleaded, these causes of action are based upon alleged unlawful acts relating solely to the stock owned by the plaintiff, in violation of the fiduciary duty owed the plaintiff by the defendants, and they thus state individual, and not derivative, claims.”  (Citations omitted.)   Id., 283–84.

Second, in LeBlanc v. Tomoiu, supra, Superior Court, Docket No. X08–CV–065001421–S, a minority shareholder of a closely held Nevada corporation brought an action directly against former officers, directors and shareholders of the company, who took control of the company and transferred all its assets and technology to an affiliate.  Id., 599–600.   The defendants moved to dismiss direct actions against them on the ground that the claims could only be asserted derivatively by the Nevada corporation, and that, therefore, the court lacked subject matter jurisdiction.  Id., 601.   The court held that the claims were individual claims, not derivative, and denied the motion.  Id., 602.   The court emphasized that “[c]entral to this holding are the allegations incorporated into and essential to each of those counts that the defendants have taken over ownership and control of [the company] and have deprived plaintiff of his management positions as a director and chairman of the board to marginalize and dilute his shares, have failed to disclose to plaintiff material facts regarding the acquisition of [the companies] by [two of the defendants], have violated fiduciary responsibilities owed to him as a minority shareholder, and have looted the assets of [the company] to their own benefit and to the detriment of the value of his shares.”  Id. In reaching its decision, the court discussed the factual similarities of the claims to those in Yanow.  Id. Even though the defendants attempted to distinguish Yanow by arguing that Yanow involved a sole minority shareholder, the court essentially held that it is a distinction without a difference.  Id., 603.

Finally, in Newlands v. NRT Associates, LLC, Superior Court, judicial district of Fairfield, Docket No. CV 08–4027098–S (March 25, 2010, Tyma, J.) [49 Conn. L. Rptr. 557], “[t]he issue raised by the defendants' James A. Thompson, Scott R. Rassis and RT Management, LLC, motion to dismiss is whether the plaintiff, Kenneth E. Newlands, has standing to bring direct claims against them involving company malfeasance and nonfeasance, as opposed to derivative claims on behalf of the defendant, NRT Associates, LLC, or its members.”   Id. The plaintiff moved to dismiss the action as a minority member of NRT, a closely held entity, against its two other members, Thompson and Rassis, and their limited liability company, RT Management.  Id. “Thompson and Rassis allegedly controlled NRT in such a way to have caused the plaintiff to suffer separate and distinct harms from those suffered by Thompson and Rassis as members of NRT or by the company itself, including wrongfully diverting business to RT Management, a business in which Thompson and Rassis were members.”  Id.

The court concluded that the claims should be brought as a direct action.   Id. Specifically, the court held:  “The well pleaded allegations in the plaintiff's complaint, deemed admitted for the purpose of deciding this motion, demonstrate that the plaintiff sustained injuries separate and distinct from NRT or its two other members, Thompson and Rassis, or by NRT. Two of the plaintiff's allegations relate to the operating agreement pertaining to NRT;  specifically, that Thompson and Rassis have failed to pay certain amounts due to the plaintiff under the agreement, and that they told the plaintiff that he would not receive the sums due to him under the operating agreement if he failed to assign to them his membership interest in NRT. These claims clearly allege a personal and distinct harm to the plaintiff sufficient to support a direct, as opposed to a derivative, claim.   The plaintiff's allegations that Thompson and Rassis have precluded him for being involved in NRT, and failed to provide him with business and financial information relating to the company, are also in the nature of direct claims.”  Id.

The factual allegations in the three cases described in the previous paragraphs have similar fact patterns to the present case, such as depriving the plaintiff of management position(s), decreasing the plaintiff's involvement with company decisions and transactions, failing to provide the plaintiff with critical corporate information, and looting corporate assets to the plaintiff's detriment.   The injuries in the present case are individual and unique to Rocco, and there are no similarly situated parties or stockholders as Rocco in the present case.   As such, Rocco may bring a direct action as to these claims.

Standing on Derivative Claims

The defendants do not argue that the claims in the present case are not derivative.²  Instead, the defendants present three different arguments in support of the motion to dismiss counts four through seven.   First, the defendants argue that Rocco has failed to name the Entities as the defendants and effect proper service of process on these companies, as is required by General Statutes § 52–527j(b).  Second, the defendants contend that Rocco has failed to make a pre-suit demand of the Entities as is required under General Statutes § 33–722, and that futility is not recognized as an exception to the requirement in Connecticut.   The defendants further contend that, even if futility is an exception, Rocco still has not alleged facts that would warrant the application of that exception.   Third, the defendants argue that Rocco does not fairly and adequately represent the interests of the Entities or other shareholders because Rocco is primarily pursing his own interests.³

“[A] motion to dismiss is not the proper method to raise the issue of the nonjoinder of a party.   Instead, the exclusive remedy for nonjoinder of indispensable parties is by way of a motion to strike.”  Levine v. Police Commission, 28 Conn.App. 344, 351, 612 A.2d 787, cert. denied, 223 Conn. 923, 614 A.2d 823 (1992).  “Ordinarily, an objection predicated on a claim of nonjoinder of a necessary or indispensable party does not go to the jurisdiction of the court ․ Except as provided in [Practice Book §§ ]10–44 and 11–3 no action shall be defeated by the nonjoinder ․ of parties ․ Practice Book § 9–19.   Additionally, [a]s set forth in Section 10–39, the exclusive remedy for nonjoinder of parties is by motion to strike.  Practice Book § 11–3.”  (Citations omitted;  internal quotation marks omitted.)   Yellow Cab Co. of New London & Groton, Inc. v. Dept. of Transportation, 127 Conn.App. 170, 176, 13 A.3d 690, cert. denied, 301 Conn. 908, 19 A.3d 178 (2011);  see also General Statutes § 52–108 (“[a]n action shall not be defeated by the non-joinder or misjoinder of parties”).

Nevertheless, in certain circumstances, a court will consider the issue of nonjoinder even though it was not raised by a motion to strike.  Hilton v. New Haven, 233 Conn. 701, 723, 661 A.2d 973 (1995).  “[W]hen an action cannot be disposed of properly on its merits because of the absence of an indispensable party, the defect is not waivable and can be addressed by [the] court even if not timely raised by the parties.”  Demarest v. Fire Dept., 76 Conn.App. 24, 28, 817 A.2d 1285 (2003).  “The nonjoinder of a party implicates the court's subject matter jurisdiction and therefore requires dismissal if a statute mandates the naming and serving of the party ․ [If the proposed party] is an indispensable party, [but] it is not required by statute to be made a party, the court's subject matter jurisdiction is not implicated and dismissal is not required.”  (Citations omitted;  emphasis in original;  internal quotation marks omitted.)  Sullivan v. Thorndike, 104 Conn.App. 297, 301, 934 A.2d 827 (2007), cert. denied, 285 Conn. 907, 908, 942 A.2d 415, 416 (2008).

The question before this court is whether this motion to dismiss is the proper procedural vehicle for challenging the nonjoinder of an indispensable party under General Statutes § 52–572j(b).  The subsection of the statute states, in relevant part:  “In any action brought pursuant to this section, process shall be served on the corporation or association as in other civil actions, and notice of the service of process after its having been served shall be given to the board of directors and such other interested persons as the court deems proper.”

Even though the corporation is an indispensable party in the present case, § 52–572j is ambiguous as to whether the corporation or association has to be made a defendant.   As such, the corporation is not required by statute to be made a party, and the court's subject matter jurisdiction is not implicated.   See Bakogiannis v. Bailer, Superior Court, judicial district of Ansonia–Milford, Docket No. CV 93–043906–S (December 19, 1995, Comerford, J.) (16 Conn. L. Rptr. 499) (where the court held that even though the corporate entity is an indispensable party in any derivative action brought pursuant to General Statutes § 52–572j, the legislative language was ambiguous as to whether a corporation must be made a defendant, and that indispensability alone “does not implicate the court's subject matter jurisdiction”);  see also Levine v. Levine, Superior Court, judicial district of Fairfield, Docket No. 537984 (December 18, 1996, Hurley, J.) (holding that the “motion [to dismiss] cannot be granted on the basis that the plaintiff failed to name [the corporation] as a defendant to the shareholder's derivative action, because [the] Practice Book ․ provides ․ [that] the exclusive remedy for nonjoinder of parties is by motion to strike” [Internal quotation marks omitted] ).   Thus, the motion to dismiss is not the appropriate procedural vehicle to argue nonjoinder of parties, the motion should be denied as to this ground.

“There is no clear Connecticut case law on the issue of whether a shareholder plaintiff must allege in its complaint for a derivative action that it made demand upon the directors.”   Ward v. Gamble, Superior Court, judicial district of Hartford, Docket No. CV 11–6018954–S (August 19, 2013, Wagner, J.T.R.).  “On the other hand, many Superior Court cases seem to suggest that a plaintiff either needs to prove demand or allege facts that demand was futile.   First Equity Group, Inc. v. Culver, United States District Court, Docket No. 3:08–CV–01893 (VLB) (D.Conn. February 11, 2009);  Chinnicic v. Breakwater Key, Inc., Superior Court, judicial district of Fairfield, Docket No. CV 92–295110–S (14 Conn. L. Rptr. 587);  Noble v. Baum, Superior Court, judicial district of Fairfield, Docket No. CV 89–0265920–S (May 17, 1991, Nigro, J.) (4 Conn. L. Rptr. 126).”  Id. “[F]ederal courts generally excuse demand only when particularized allegations of fraud or self-dealing by a board majority indicate demand would be futile.”  Noble v. Baum, supra, 4 Conn. L. Rptr. 129.  “Those courts which require allegations of fraud or self-dealing before excusing demand usually require that the acts of the board be more than acquiescence in or approval of the alleged wrongdoing.”  Id.

In the present case, Rocco alleges that the defendants diverted assets from the Entities into a newly created entity, and forced Rocco to take a smaller percentage of the shares of the new entity.   Moreover, the defendants either created new and unnecessary employee positions within the company for themselves or significantly increased their own salary.   In addition, Rocco further alleges that the defendants have engaged in self-dealing and misuse of corporate funds by using company credit cards for personal expenses, purchasing items with company funds for personal use, and taking loans without any proper meeting to authorize said loans.   All of these activities are the type of allegations of self-dealing and fraud by a majority voting bloc that would excuse Rocco from having to make a demand under § 33–722, due to futility.

The facts of the present case are also similar to those in Tibball v. Galog, Superior Court, judicial district of Fairfield, Docket No. CV 94–0311149–S (August 26, 1994, Maiocco, J.) (12 Conn. L. Rptr. 343).   In Tibball, the court concluded that the plaintiff's failure to make demand was excusable because the parties were members and owners of a closely held corporation, and the defendant could not be expected to take legal action against himself for breach of fiduciary duty.   Such a demand by Rocco would have been futile.   Rocco and the defendants are also the sole members and owners of a closely held corporation, and the defendants could not be expected to take legal action against themselves.   Therefore, Rocco is excused from making the demand due to futility.

In Fink v. Golenblock, 238 Conn. 183, 205, 680 A.2d 1243 (1996), the Supreme Court held that “[w]hether a plaintiff is an appropriate representative is fact-specific and depends upon any number of factors.”   In Fink, the court adopted the approach outlined in Larson v. Dumke, 900 F.2d 1363, 1367 (9th Cir.), cert. denied, 498 U.S. 1012, 111 S.Ct. 580, 112 L.Ed.2d 585 (1990), where the court held that other “factors the court may consider include:  (1) whether the named plaintiff is the real party in interest;  (2) the plaintiff's familiarity with the litigation and willingness to learn about the suit;  (3) the degree of control exercised by attorneys over the litigation;  (4) the degree of support given to the plaintiff by the other shareholders;  (5) the plaintiff's personal commitment to the action;  (6) the remedies sought by the plaintiff;  (7) the relative magnitude of the plaintiff's personal interests as compared to the plaintiff's interest in the derivative action itself;  and (8) the plaintiff's vindictiveness toward the other shareholders.”  Fink v. Golenblock, supra, 205.   The court noted that “that the above factors are nonexclusive and interrelated, and that it is frequently a combination of factors that guides a court in determining whether a plaintiff meets the requirements of fair and adequate representation.”   Id., 205–06.

In Fink, the court held that “[t]he rule is not that the plaintiff must fairly and adequately represent the interests of all other shareholders;  rather, under § 52–572j, the plaintiff must answer to those shareholders who are similarly situated.   In a case such as this, where there is only one other shareholder in the corporation and it is that shareholder who is allegedly responsible for the harm to the corporation, there is no other similarly situated shareholder and the plaintiff should not be prevented from bringing an otherwise proper derivative action by an objection from the wrongdoing shareholder.”  (Emphasis in original.)  Id. 206–07.   The court concluded that “the derivative action is appropriate, not because the plaintiff is representative of the opposing shareholders, but because the corporation has interests that need to be represented, and the plaintiff shareholder may be the only representative in a position to protect those interests.”  Id., 207.

The facts in the present case are analogous to those in Fink, as the present case involves closely held corporations where the only other shareholders in the corporation are allegedly responsible for harming the corporations.   Thus, there is no other similarly situated shareholder as Rocco.   As in Fink, Rocco may bring the action, not because he represents the interests of the other shareholders, but because he is the only person in a position to protect the company's interests.   See also Kogut v. Chickosky, Superior Court, judicial district of Waterbury, Docket No. X06–CV–03–0183485–S (June 28, 2004, Alander, J.) [37 Conn. L. Rptr. 308].

For the foregoing reasons, the defendants' motion to dismiss is denied as to all counts.

By the Court,

Aurigemma, J.

FOOTNOTES

FN1. Riverhouse Station and Riverhouse Properties will be referred to, collectively, as “the Entities.”.  FN1. Riverhouse Station and Riverhouse Properties will be referred to, collectively, as “the Entities.”

FN2. The defendants do not challenge the fact that their alleged actions also caused injury to the corporation and its shareholders.   Although, as previously discussed, a number of the alleged facts are direct in nature, the plaintiffs have also alleged facts that give rise to a derivative claim.   For example, the defendants have engaged in self-dealing and misuse of corporate funds by using company credit cards for personal expenses, buying items with company funds for personal use, and taking loans without proper authorization.   Such misuse of company assets harms the corporation and all its shareholders, and not Rocco directly and uniquely.   See Smith v. Snyder, supra, 267 Conn. 456;  Fink v. Golenblock, 238 Conn. 183, 201–02, 680 A.2d 1243 (1996);  Ward v. Gamble, Superior Court, judicial district of Hartford, Docket No. CV 08–05017829–S (July 23, 2009, Prescott, J.) (48 Conn. L. Rptr. 286)..  FN2. The defendants do not challenge the fact that their alleged actions also caused injury to the corporation and its shareholders.   Although, as previously discussed, a number of the alleged facts are direct in nature, the plaintiffs have also alleged facts that give rise to a derivative claim.   For example, the defendants have engaged in self-dealing and misuse of corporate funds by using company credit cards for personal expenses, buying items with company funds for personal use, and taking loans without proper authorization.   Such misuse of company assets harms the corporation and all its shareholders, and not Rocco directly and uniquely.   See Smith v. Snyder, supra, 267 Conn. 456;  Fink v. Golenblock, 238 Conn. 183, 201–02, 680 A.2d 1243 (1996);  Ward v. Gamble, Superior Court, judicial district of Hartford, Docket No. CV 08–05017829–S (July 23, 2009, Prescott, J.) (48 Conn. L. Rptr. 286).

FN3. The plaintiff also addressed the separate question of whether Rocco has authorization to sue on behalf of the Entities, pursuant to General Statutes § 34–187.   The defendants never specifically raised this ground, and the court will not discuss this issue..  FN3. The plaintiff also addressed the separate question of whether Rocco has authorization to sue on behalf of the Entities, pursuant to General Statutes § 34–187.   The defendants never specifically raised this ground, and the court will not discuss this issue.

Aurigemma, Julia L., J.