Gina Carey v. Webloyalty.com, Inc. et al. (2013)

MEMORANDUM OF DECISION RE MOTION TO STRIKE NO. 110.00

In this action the plaintiff, Gina Carey, claims that her former employer, defendant Webloyalty Holdings, Inc. (“WHI”), acted fraudulently at the time of her termination from the corporation by setting an artificially low value for the corporation's stock and thereby wrongfully precluding her from realizing the value of certain stock purchase options she had acquired during her employment with the corporation.   Count one of the plaintiff's complaint is labeled “Fraud Against WHI.” In her second count, the plaintiff claims that defendant Webloyalty.com, Inc. (“Webloyalty.com”) aided and abetted this alleged fraudulent conduct on the part of the WHI by preparing and communicating the allegedly improper value to the plaintiff, and is also liable to her for monetary damages.   Count two is labeled “Aiding and Abetting Fraud Against Webloyalty [.com.]” The defendants have moved to strike both of these counts on the ground that they fail to state a legally sufficient causes of action upon which relief may be granted to the plaintiff.

FACTS

The plaintiff in this case worked for defendant WHI from 1999 to March of 2010.   The plaintiff initially served as the firm's comptroller before becoming the senior vice president of finance.   The plaintiff alleges that during her employment, she received stock options as part of her compensation.   According to the plaintiff, WHI customarily issued stock options as additional compensation to her and other employees.   On or about January 26, 2010, the plaintiff was informed that her employment had been terminated by the corporation without cause, effective March 12, 2010.   The plaintiff alleges that it was “long-established company practice” for all departing employees who had received stock options to be given a fair market value of WHI stock at the time of their separation from the corporation.   Employees had the choice of whether to exercise their options based on the strike prices of their respective options and the fair market value on the date of their separation.

The plaintiff alleges that on the date of her termination she held 468,000 vested and outstanding WHI stock options.   She alleges that on March 13, 2010 (the day after her termination), she requested that WHI provide her with a fair market value of WHI stock, in accordance with prior customary company policy.   The plaintiff alleges that in addition to this email request, she made several oral requests to persons within the corporation for a fair market valuation.   Despite these repeated requests, however, WHI representatives failed to provide her with a fair market valuation.   The plaintiff further alleges that on April 16, 2010, after she had left the corporation, she requested an extension of the date by which she would have to exercise her options, since she had not yet received a fair market value figure.   This request was later denied, and the corporation ceased communications with her.   On April 27, 2010, she alleges, the plaintiff received an email advising her that the corporation had set a value of $1.81 per share as of December 31, 2009.

The plaintiff alleges that it was customary for WHI to issue twice-yearly estimates of the fair market value of its stock, and that it did so in April of 2008, October of 2008 and April of 2009.   For reasons not relevant to the present matter, WHI did not issue valuations in October of 2009 or April of 2010.   The 2008 and 2009 valuations that were provided to the plaintiff, however, varied sufficiently from the value she was provided in the spring of 2010 to lead her to question it.   The plaintiff then requested current financial data that she, as a former finance official of the company, might use to evaluate the fair market value of $1.81 per share that she had been given.   The defendants refused to provide her with any additional information.   In order to exercise all or part of her options, the plaintiff alleges, she would have had to purchase the shares in reliance on a value that she suspected was intentionally lowered from an accurate fair market value.   She alleges that this was done to dissuade her from making the investment because WHI wished to restrict the number of outstanding shareholders.   According to the plaintiff, then, in reliance on this valuation, she declined to exercise any of her stock options.

The plaintiff alleges that she learned approximately one year later that WHI completed a corporate merger which, again according to the plaintiff, could be read as valuing WHI stock at $3.43 per share.   The plaintiff alleges that WHI and Webloyalty.com acting together “intentionally understated and misrepresented” the fair market value of WHI stock.   She further alleges that had she made the investment and exercised her options based on a correct valuation, she would have made a profit from her options.   The plaintiff further alleges that employees of defendant Webloyalty.com aided and abetted WHI in this fraudulent conduct by preparing and communicating the untrue fair market value, at WHI's direction.

DISCUSSION

The law on motions to strike made pursuant to Practice Book §§ 10–39 et seq. is well-settled.  “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).   “A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court ․ We take the facts to be those alleged in the complaint ․ and we construe the complaint in the manner most favorable to sustaining its legal sufficiency ․ Thus, [i]f facts provable in the complaint would support a cause of action, the motion to strike must be denied.”  (Internal quotation marks omitted.)  Id. “A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged.”  Novametrix Medical Systems, Inc. v. BOC Group, Inc., 224 Conn. 210, 215, 618 A.2d 25 (1992).

“It is fundamental that in determining the sufficiency of a complaint challenged by the defendant's motion to strike, all well-pleaded facts and those necessarily implied from the allegations are taken as admitted.”   (Internal quotation marks omitted.)  Doe v. Board of Education, 76 Conn.App. 296, 299–300, 819 A.2d 289 (2003).  “The role of the trial court [on ruling on a motion to strike] [is] to examine the [complaint], construed in favor of the plaintiff, to determine whether the [pleading party] has stated a legally sufficient cause of action.”  (Internal quotation marks omitted.)  Dodd v. Middlesex Mutual Assurance Co., 242 Conn. 375, 378, 698 A.2d 859 (1997).

In the present case, the first count of the plaintiff's complaint alleges fraud on the part of defendant WHI. Both parties properly set forth in their respective memoranda of law the essential elements of a cause of action for fraud in Connecticut, which include “(1) a false representation was made as a statement of fact;  (2) it was untrue and known to be untrue by the party making it;  (3) it was made to induce the other party to act upon it;  and (4) the other party did so act upon that false representation to his injury ․ All of these ingredients must be found to exist ․ Additionally, [t]he party asserting such a cause of action must prove the existence of the first three of [the] elements by a standard higher than the usual fair preponderance of the evidence, which ․ we have described as clear and satisfactory or clear, precise and unequivocal.”  (Citation omitted;  internal quotation marks omitted.)  Ferris v. Faford, 93 Conn.App. 679, 692, 890 A.2d 602 (2006).

The defendants argue that because the standard of proof is higher for proving actions of fraud, “so too is the standard for pleading a cause of action.   [Emphasis added.]   Thus, [w]here a claim for damages is based upon fraud, the mere allegation that a fraud has been perpetrated is insufficient;  the specific acts relied upon must be set forth in the complaint.”  (Emphasis in original;  internal quotation marks omitted.)   St. Denis v. de Toledo, Superior Court, judicial district of Stamford–Norwalk at Stamford, Docket No. CV–00–0180606–S (April 5, 2002, Downey, J.), quoting Maruca v. Phillips, 139 Conn. 79, 81, 90 A.2d 159 (1952).

According to the defendants, the first count against defendant WHI is legally insufficient because the plaintiff:  (1) fails to allege with specificity that the $1.81 fair market value was false;  (2) does not plead “sufficient particular facts to support an inference that Defendants lied about the $1.81 FMV and/or about the process of determining the valuation;” (3) failed to plead a “factual basis” for the element of intent to induce the plaintiff's reliance since the defendants had other ‘independent business reasons' for their conduct;” and (4) fails to allege sufficient facts to demonstrate her reliance on the statements made by the defendants.”   With respect to the second count against Webloyalty.com for aiding and abetting the fraudulent conduct, the defendants argue that this count is also legally insufficient insofar as it repeats and re-alleges essentially the same facts contained in the first count.

The court acknowledges the existence of a higher standard of pleading required for fraud claims but is unpersuaded that the plaintiff's complaint fails to comply with this higher standard.   In fact, the court finds the complaint's 59 paragraphs to be clear, detailed and specific as to the conduct supporting her claims against each defendant.   This is especially true when the court reads the allegations in the requisite manner on a motion to strike, i.e. as a whole, taken as true and viewed in the light most favorable to the pleader.   First, the court finds that the plaintiff has pleaded sufficient facts to apprise the defendants of her claim that the $1.81 valuation was a false representation of a material fact.   The defendants argue that nowhere in the plaintiff's complaint is there an “allegation that the $1.81 FMV was a false representation.”   While it is true that the plaintiff chose not to include the word “false” in her complaint per se, the law is not so formulaic as to require the use of certain magic words.   The plaintiff, after setting forth in detail and at length the background facts of the case in paragraphs 1 through 48, alleges that “WHI intentionally understated and misrepresented the FMV of WHI stock.”  “Misrepresentation” is defined by Black's Law Dictionary (9th Ed.2009) as “1. The act of making a false or misleading assertion about something, usu. with the intent to deceive.   The word also denotes not just written or spoken words but also any other conduct that amounts to a false assertion. 2. The assertion so made;  an assertion that does not accord with the facts.”   Furthermore, Restatement (Second), Contracts § 159, comment (a) (1979), entitled “Nature of the assertion” provides:  “A misrepresentation, being a false assertion of fact, commonly takes the form of spoken or written words.   Whether a statement is false depends on the meaning of the words in all the circumstances, including what may fairly be inferred from them.   An assertion may also be inferred from conduct other than words.   Concealment or even non-disclosure may have the effect of a misrepresentation under the rules stated in §§ 160 and 161.”

The defendants' reliance on Chestnut v. Kent, Superior Court, judicial district of Fairfield, Docket No., CV–97–0346653–S (April 17, 1998, Skolnick, J.) (22 Conn. L. Rptr. 29), is misplaced.   In that case, Judge Skolnick found that “[a]bsent are any particular facts demonstrating what the representations were or how they were false.   Accordingly, it is submitted that the plaintiff's allegations in count two are insufficient to state a cause of action for intentional misrepresentation, and the defendant's motion to strike count two is granted.”  Id., 31.   Here, by contrast, the plaintiff has set forth in detail the false misrepresentation and the circumstances indicating how, when, and to whom it was made.   Accordingly, this court finds that the plaintiff has adequately set forth her allegation that the $1.81 fair market value was a false assertion on the defendants' part.

Second, when read as a whole, taken as true and viewed in the light most favorable to the plaintiff, the court finds that the plaintiff has pleaded sufficient facts to support her cause of action that the misrepresentation was known to the defendants at the time it was made.   Knowledge of the false statement is implicit not only in the allegation of intentional misrepresentation and understatement, but also in the detailed background facts alleged in paragraphs 1 through 46.   The court disagrees with the defendants' argument that the pleadings do not allege sufficient facts that, if proven, would establish that the defendants knew the falsity of the $1.81 fair market valuation per share.   If taken as true, the complaint can only be read as imputing actual knowledge of intentional understatement and misrepresentation to the defendants in circumstances where they had knowledge that was unavailable to the plaintiff.¹

Third, the court finds that in paragraph 50 the plaintiff has sufficiently stated that the alleged material misrepresentation was made “with the intent of inducing Plaintiff to believe that this valuation was accurate and to rely thereon to her detriment.”   The court agrees with the plaintiff that the only common sense reading of the entire complaint shows the defendants' intent to have the plaintiff rely on the fair market value they provided her.   Thus, the plaintiff has pleaded with legal sufficiency the third element of fraud.

Fourth, the court finds, once again, that when reading the allegations as a whole, taking them as true and viewing them in the light most favorable to the plaintiff, the plaintiff has sufficiently alleged reliance with respect to the $1.81 fair market value in satisfaction of the fourth essential element for fraud.   The plaintiff plainly alleges that she relied on the $1.81 valuation in deciding against exercising her options, and, as a result, sustained monetary damages estimated to be in excess of $1 million.

The court further finds that the aiding and abetting allegations against defendant Webloyalty.com are similarly legally sufficient, in that they incorporate by reference the allegations made against WHI.

The plaintiff has sufficiently pled all four necessary elements against each defendant, and, thus, the complaint states legally sufficient causes of action upon which relief may be granted.

CONCLUSION

For all of the foregoing reasons, the defendants' motion to strike is denied.

By the Court,

Anthony D. Truglia, Jr., J.

FOOTNOTES

FN1. The court finds that the plaintiff has pleaded sufficient facts to establish, if proven, the defendants' actual knowledge of the alleged misrepresentation and, therefore, does not reach the argument as to whether in this particular case pleading actual knowledge is required.   Were the court to reach that argument, however, the court finds no reason that the language cited by plaintiff from Miller v. Appleby, 183 Conn. 51, 56, 438 A.2d 811 (1981), regarding “special means of knowledge” should be limited to real estate transactions and should not apply here..  FN1. The court finds that the plaintiff has pleaded sufficient facts to establish, if proven, the defendants' actual knowledge of the alleged misrepresentation and, therefore, does not reach the argument as to whether in this particular case pleading actual knowledge is required.   Were the court to reach that argument, however, the court finds no reason that the language cited by plaintiff from Miller v. Appleby, 183 Conn. 51, 56, 438 A.2d 811 (1981), regarding “special means of knowledge” should be limited to real estate transactions and should not apply here.

Truglia, Anthony D., J.