UHY LLP v. Master–Halco, Inc. et al. (2014)

MEMORANDUM OF DECISION RE DEFENDANTS' MOTION FOR SUMMARY JUDGMENT (# 205)

FACTS

The present case comes before the court by way of a revised amended complaint filed by the plaintiffs, UHY LLP (UHY), Joseph Natarelli, Robert Mercado, UHY Advisors, Inc., and UHY Advisors N.E., LLC, against the defendants, Master–Halco, Inc. (Master–Halco), Halloran & Sage, LLP (Halloran & Sage), and George Royster, on January 10, 2011.   In their complaint, the plaintiffs allege the following facts.

In 2006, Master–Halco, the largest fence retailer in North America, brought an action against UHY and two of its accountants, Natarelli, and Mercado, alleging that they had engaged in a scheme to prevent Master–Halco from recovering from one of its debtors, Atlas Fence, Inc. (Atlas), and its owner, Michael Picard, through misrepresentation, asset concealment, and fraud.   In this action, Master–Halco was represented by Royster and his employer, the law firm of Halloran & Sage.

The defendants knew that Master–Halco's claims were without reasonable basis, but nonetheless continued to pursue them to trial in 2010.   Although Master–Halco eventually withdrew its action against UHY, Natarelli, and Mercado after trial began—because it knew it could not prove the truth of its allegations—the plaintiffs sustained substantial losses and expenses in defending against the litigation.

The plaintiffs now bring the following claims.   In counts one and two, they allege statutory and common-law vexatious litigation, respectively, against Master–Halco.   In counts three and four, they allege statutory and common-law vexatious litigation, respectively, against Halloran & Sage and Royster.   In count five, they allege that Halloran & Sage and Royster aided and abetted Master–Halco in pursuing vexatious litigation.   And in count six, they allege that Master–Halco violated the Connecticut Unfair Trade Practices Act, General Statutes § 42–110a et seq.

On November 22, 2013, Halloran & Sage and Royster ¹ moved for summary judgment as to counts three, four, and five of the plaintiffs' revised amended complaint, on the grounds that the plaintiffs' claims are barred by the statute of limitations as set forth in General Statutes § 52–577.²  Alternatively, the defendants argue that there is no genuine issue of material fact as to the facts known to the defendants at the time they commenced and prosecuted their claims against the plaintiffs, and that those facts are sufficient to satisfy the probable cause standard set forth by our Supreme Court in Falls Church Group, Ltd. v. Tyler, Cooper & Alcorn, LLP, 281 Conn. 84, 912 A.2d 1019 (2007).   On December 16, 2013, the defendants filed an amended memorandum of law in support of their motion for summary judgment, and with it, numerous exhibits.³  The plaintiffs filed a memorandum in objection to the defendants' motion for summary judgment on December 20, 2013, and an amended memorandum in objection to the defendants' motion for summary judgment on December 30, 2013.   On December 31, 2013, the defendants filed a reply in further support of their motion for summary judgment.   The matter was argued at the short calendar on January 6, 2014.

DISCUSSION

“Practice Book [§ 17–49] provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law ․ In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party.”  (Internal quotation marks omitted.)  Patel v. Flexo Converters U.S.A., Inc., 309 Conn. 52, 56–57, 68 A.3d 1162 (2013).  “[S]ummary judgment is appropriate only if a fair and reasonable person could conclude only one way ․ [A] summary disposition ․ should be on evidence which a jury would not be at liberty to disbelieve and which would require a directed verdict for the moving party ․ [A] directed verdict may be rendered only where, on the evidence viewed in the light most favorable to the nonmovant, the trier of fact could not reasonably reach any other conclusion than that embodied in the verdict as directed.”  (Citations omitted;  emphasis in original;  internal quotation marks omitted.)  Dugan v. Mobile Medical Testing Services, Inc., 265 Conn. 791, 815, 830 A.2d 752 (2003).

I

The defendants first argue that the plaintiffs' claims are time-barred by the statute of limitations set forth in § 52–577.   They assert that the statute of limitations began to run in June 2006, when the defendants commenced the underlying case that now serves as the basis for the plaintiffs' vexatious litigation claims, and that the plaintiffs did not commence the present case until July 2010—more than three years later.   Consequently, they argue, the plaintiffs' claims are barred by § 52–577.

The plaintiffs respond that it was not the defendants' mere act of commencing the underlying action that serves as the basis of the plaintiffs' claims, but the commencement and continued prosecution of it.   Accordingly, the plaintiffs argue, the statute of limitations could not have begun to run until the defendants ceased pursuing the underlying action.

“Summary judgment may be granted where the claim is barred by the statute of limitations.”  Doty v. Mucci, 238 Conn. 800, 806, 679 A.2d 945 (1996).   “[I]n the context of a motion for summary judgment based on a statute of limitations special defense, a defendant typically meets its initial burden of showing the absence of a genuine issue of material fact by demonstrating that the action had commenced outside of the statutory limitation period.”   Romprey v. Safeco Ins. Co. of America, 310 Conn. 304, 321, 77 A.3d 726 (2013).

“[S]ection 52–577 is a statute of repose in that it sets a fixed limit after which the tortfeasor will not be held liable and in some cases will serve to bar an action before it accrues ․ [Section] 52–577 provides:  No action founded upon a tort shall be brought but within three years from the date of the act or omission complained of.  [Our Appellate Court] has determined that [§ ]52–577 is an occurrence statute, meaning that the time period within which a plaintiff must commence an action begins to run at the moment the act or omission complained of occurs ․ The three year limitation period of § 52–577, therefore, begins with the date of the act or omission complained of, not the date when the plaintiff first discovers an injury.”  (Emphasis omitted;  internal quotation marks omitted.)  Byrne v. Burke, 112 Conn.App. 262, 271–72, 962 A.2d 825, cert. denied, 290 Conn. 923, 966 A.2d 235 (2009).

As set forth in the preceding paragraph, the limitation period set forth in § 52–577 begins to run upon the occurrence of the “act or omission complained of.”   In counts three and four, the plaintiffs complain that “Halloran & Sage and Royster ․ commenced and continued to prosecute the Litigation against [the p]laintiffs for four years, despite the lack of a reasonable basis to do so.”  (Emphasis added.)   In count five, the plaintiffs complain that “Halloran & Sage and Royster knowingly and substantially assisted ․ Master–Halco's wrongful actions of commencing and prosecuting the Litigation, in that they helped plan, prepare, file and continue to prosecute said Litigation.”  (Emphasis added.)

These allegations make clear that the act complained of was not intended to be limited to the singular event of the defendants commencing a baseless action against the plaintiffs, but was also intended to include the defendants' continued prosecution of that baseless action.   Thus, for purposes of determining the applicability of § 52–577, “the act or omission complained of” was not a discrete and isolated event, but an ongoing one that continued until the defendants withdrew their action.   See Karwowski v. Fardy, Superior Court, judicial district of New Britain, Docket No. CV–03–0522489–S (June 27, 2005, Burke, J.) (39 Conn. L. Rptr. 613, 615) (“[t]he act of maintaining a vexatious suit beyond three years from its commencement could be a bad act that itself, is the ‘act or omission complained of’ for purposes of § 52–577 ․” [internal quotation marks omitted] );  accord Heid v. Lyons, Superior Court, judicial district of Fairfield, Docket No. CV–98–0338856–S (November 16, 2000, Melville, J.);   Shea v. Chase Manhattan Bank, N.A., Superior Court, judicial district of Stamford–Norwalk, Docket No. CV–96–0149647–S (July 27, 2000, Tierney, J.) (27 Conn. L. Rptr. 579, 582).   Consequently, because the acts alleged in counts three, four, and five of the plaintiffs' complaint continued into 2010, the court concludes that § 52–577 does not preclude the claims raised therein, and the defendants' motion as to this ground is therefore denied.

II

The defendants next argue that, based on the undisputed facts in the record, they had probable cause to commence and maintain their action against the plaintiffs.   The plaintiffs contend in response that the facts upon which the court must base its probable cause determination are in dispute.   For the reasons set forth subsequently, the court agrees with the plaintiffs.

“A vexatious suit is a type of malicious prosecution action, differing principally in that it is based upon a prior civil action, whereas a malicious prosecution suit ordinarily implies a prior criminal complaint.   To establish either cause of action, it is necessary to prove want of probable cause, malice and a termination of suit in the plaintiff's favor ․ Probable cause is the knowledge of facts sufficient to justify a reasonable person in the belief that there are reasonable grounds for prosecuting an action ․ Malice may be inferred from lack of probable cause ․ The want of probable cause, however, cannot be inferred from the fact that malice was proven ․ A statutory action for vexatious litigation under General Statutes § 52–568 ⁴ ․ differs from a common-law action only in that a finding of malice is not an essential element, but will serve as a basis for higher damages.   In either type of action, however, [t]he existence of probable cause is an absolute protection against an action for malicious prosecution, and what facts, and whether particular facts, constitute probable cause is always a question of law.”   (Citations omitted;  footnote added;  internal quotation marks omitted.)   Falls Church Group, Ltd. v. Tyler, Cooper & Alcorn, LLP, supra, 281 Conn. 94.

“For purposes of a vexatious suit action, [t]he legal idea of probable cause is a bona fide belief in the existence of the facts essential under the law for the action and such as would warrant a man of ordinary caution, prudence and judgment, under the circumstances, in entertaining it ․ Probable cause is the knowledge of facts, actual or apparent, strong enough to justify a reasonable man in the belief that he has lawful grounds for prosecuting the defendant in the manner complained of ․ Thus, in the context of a vexatious suit action, the defendant lacks probable cause if he lacks a reasonable, good faith belief in the facts alleged and the validity of the claim asserted ․ Accordingly, the probable cause standard applied to a vexatious litigation action against a litigant is a purely objective one.”  (Citations omitted;  internal quotation marks omitted.)  Id., 95.

“Our Supreme Court recently had the opportunity to consider whether a higher legal standard of probable cause should be applied to attorneys and law firms sued for vexatious litigation ․ After considering the statute and the competing policy interests, the court concluded that a higher standard should not apply ․ Instead, in assessing probable cause, the court phrased the critical question as whether ‘on the basis of the facts known by the law firm, a reasonable attorney familiar with Connecticut law would believe’ he or she had probable cause to bring the lawsuit ․ As is implied by its phrasing, the standard is an objective one that is necessarily dependent on what the attorney knew when he or she initiated the lawsuit ․ Further, the court warned that ‘[p]robable cause may be present even where a suit lacks merit.   Favorable termination of the suit often establishes lack of merit, yet the plaintiff in [vexatious litigation] must separately show lack of probable cause.’   “ (Citations omitted;  internal quotation marks omitted.)  Embalmers' Supply Co. v. Giannitti, 103 Conn.App. 20, 34–35, 929 A.2d 729 (2007), cert. denied, 284 Conn. 931, 934 A.2d 246 (2007).

The defendants contend that their evidentiary submissions establish that probable cause existed for their claims.⁵  For present purposes, the court assumes this contention to be true.   Nevertheless, the court cannot make a determination of whether probable cause existed based solely upon the evidentiary submissions of only one party to the case.   Here, the plaintiffs have submitted evidence that, if credited by the jury, may serve to temper the evidence offered by the defendants and alter the court's probable cause analysis.   For instance, the plaintiffs have offered evidence that officers of Master–Halco, despite professing ignorance of Atlas Fence's dire financial situation, were well aware of the troubled state of the company.   Additionally, the plaintiffs' evidence raises questions as to whether the defendants purposefully disregarded forensic accounting reports that were unfavorable to their theory of liability, and instead sought the opinion of an accountant whose testimony was more favorable to their position.   Of course, this evidence is by no means exhaustive or conclusive—nor need it be at this juncture—but is, when viewed “in the light most favorable to the nonmoving party”;  (internal quotation marks omitted.)  Patel v. Flexo Converters U.S.A., Inc., supra, 309 Conn. 57;  sufficient to raise questions as to whether the defendants exercised some degree of “ ‘wilful blindness' that exceeds a simple failure to investigate”;  DeLaurentis v. New Haven, 220 Conn. 225, 261, 597 A.2d 807 (1991);  or were aware of information upon which a reasonable attorney would lack a bona fide or good faith belief in the validity of the defendants' claims.

For these reasons, the court concludes that a genuine issue of material fact exists as to the complete set of facts known to the defendants at the time they commenced and prosecuted their action against the plaintiffs, and summary judgment is therefore inappropriate.

CONCLUSION

For the foregoing reasons, the defendants' motion for summary judgment is denied.

It is so Ordered,

Nazzaro, J.

FOOTNOTES

FN1. Because they are the only movants on the motion for summary judgment pending before the court, Halloran & Sage and Royster shall hereafter be referred to collectively as “the defendants.”.  FN1. Because they are the only movants on the motion for summary judgment pending before the court, Halloran & Sage and Royster shall hereafter be referred to collectively as “the defendants.”

FN2. General Statutes § 52–577 provides in relevant part:  “No action founded upon a tort shall be brought but within three years from the date of the act or omission complained of.”.  FN2. General Statutes § 52–577 provides in relevant part:  “No action founded upon a tort shall be brought but within three years from the date of the act or omission complained of.”

FN3. The defendants' first memorandum of law, filed on November 22, 2013, exceeded the 35–page limit imposed by Practice Book § 4–6.   Although the defendants' moved for permission to exceed this limit, the court, Robinson, J., denied their motion on December 9, 2013..  FN3. The defendants' first memorandum of law, filed on November 22, 2013, exceeded the 35–page limit imposed by Practice Book § 4–6.   Although the defendants' moved for permission to exceed this limit, the court, Robinson, J., denied their motion on December 9, 2013.

FN4. General Statutes § 52–568 provides:  “Any person who commences and prosecutes any civil action or complaint against another, in his own name or the name of others, or asserts a defense to any civil action or complaint commenced and prosecuted by another (1) without probable cause, shall pay such other person double damages, or (2) without probable cause, and with a malicious intent unjustly to vex and trouble such other person, shall pay him treble damages.”.  FN4. General Statutes § 52–568 provides:  “Any person who commences and prosecutes any civil action or complaint against another, in his own name or the name of others, or asserts a defense to any civil action or complaint commenced and prosecuted by another (1) without probable cause, shall pay such other person double damages, or (2) without probable cause, and with a malicious intent unjustly to vex and trouble such other person, shall pay him treble damages.”

FN5. The parties in this case have each submitted substantial evidence—cumulatively, over 1500 pages of documentation—in support of their respective positions.   For present purposes, it would serve little purpose for the court to exhaustively catalog each piece of this evidence and attempt to discuss its potential impact on the court's probable cause analysis.   Needless to say, the court cannot conclude on the state of the record before it that there is no genuine issue of material fact as to what the defendants knew when they commenced their action against the plaintiffs..  FN5. The parties in this case have each submitted substantial evidence—cumulatively, over 1500 pages of documentation—in support of their respective positions.   For present purposes, it would serve little purpose for the court to exhaustively catalog each piece of this evidence and attempt to discuss its potential impact on the court's probable cause analysis.   Needless to say, the court cannot conclude on the state of the record before it that there is no genuine issue of material fact as to what the defendants knew when they commenced their action against the plaintiffs.

Nazzaro, John J., J.