John B. Clinton v. Michael E. Aspinwall et al. (2014)

MEMORANDUM OF DECISION RE MOTION TO STRIKE

On June 18, 2013, the plaintiff, John B. Clinton, filed a three-count complaint against the defendants, Michael E. Aspinwall, Steven F. Piaker, and David W. Young.   In support of his complaint the plaintiff alleges the following facts.   CCP Equity Partners, LLC (CCP) is a limited liability company organized in accordance with the Delaware Limited Liability Company Act. CCP provides management services to, and serves as general partner of, certain private equity funds.   CCP is registered to do business in the State of Connecticut and has its principal place of business in Hartford, Connecticut.   The defendants are members, and the plaintiff is a former member, of CCP. From the formation of CCP in 2003 until on or about March 11, 2008, Clinton was the Managing Partner of CCP.

On or about December 29, 2003, the members of CCP entered into the Amended and Restated Limited Liability Company Agreement of CCP Fund Managers, LLC (the LLC Agreement).   At the time the LLC Agreement was entered into, the members of CCP were Clinton, Aspinwall, Piaker, Young, Preston Kavanagh, and Gerard Vecchio.¹  The LLC Agreement provided that there would be established on the books of CCP a capital account for each member that would consist of such member's initial capital contribution to CCP, subject to certain identified increases and decreases.   The LLC Agreement provided for the possible creation of “a capital reserve for future expenses of the Company.”   On or about August 11, 2005, the Executive Committee of CCP created a capital reserve of $3,000,000.   In 2006, the members of CCP decided not to raise investor capital to create another private equity fund, and they expected substantially all the operations of CCP to close and substantially all the portfolio companies to be liquidated by the end of 2012.

On or about September 1, 2006, the members of CCP unanimously amended the LLC agreement (2006 amendments).²  On or around September 1, 2006, the defendants represented to the plaintiff that the 2006 amendments would lock in all of the members' economics, such that no member's distributions, allocations, or Percentage Interest could be changed without the unanimous agreement of all members.   On or about March 2, 2008, the plaintiff and Kavanagh proposed to the defendants that a capital reserve was not needed and should be eliminated immediately On or about March 11, 2008, notwithstanding their representation to the plaintiff that the 2006 amendments would lock in the members' economics, the defendants, collectively controlling 61 percent of the Percentage Interests in CCP, voted (over the objections of the plaintiff and Kavanagh) to amend the LLC Agreement (2008 amendments).³  The 2008 amendments were made effective retroactively to January 1, 2007, materially changing the individual members' economics for more than fourteen months prior and forever thereafter The 2008 amendments reduced the plaintiff's and Kavanagh's Percentage Interests and the balances of their capital accounts, while increasing the Percentage Interests of the defendants and the balances of their capital accounts.

On or about September 8, 2008, Kavanagh filed a complaint in the Connecticut Superior Court, against CCP, Aspinwall, Piaker, and Young (the Kavanagh Lawsuit).   On or about October 31, 2008, at a meeting of the members of CCP, CCP passed a resolution by a three-to-two vote removing Kavanagh as a member.   At this same meeting, the plaintiff challenged the necessity of a $3,000,000 capital reserve in the event that Kavanagh's lawsuit were to be settled Furthermore, the plaintiff stated that a $3,000,000 capital reserve was inappropriate at that time because CCP was not incurring any significant ongoing expenses, and CCP's only outstanding litigation was Kavanagh's lawsuit.   The defendants took the position that a $3,000,000 capital reserve was necessitated at that time by the course that Kavanagh's lawsuit might take, and the possibility of legal action by the plaintiff.

On or about February 26, 2013, the defendants voted to remove the plaintiff as a member of CCP. The LLC Agreement provides that the removal of a member of CCP is a “Repurchase Event” and states that “upon a Repurchase Event with respect to any Member, CCP shall be obligated to repurchase, and such Member shall be obligated to sell, as promptly as reasonably practicable following the date of such Repurchase Event, all of the Interests held by such member as of the date of the Repurchase Event.”   The LLC Agreement further provides that when a member's interests are repurchased pursuant to this provision, the member “shall receive, as consideration for the Interests, an amount equal to the aggregate amount in the Capital Account of such ․ Member with respect to such Interests as of the date of the Repurchase Event, less such ․ Member's pro rata share (based on his Percentage Interest) of the then current capital reserve for future expenses established by the Board of Managers.”   On or about February 28, 2013, the balance of the plaintiff's capital account was $939,918.33.   At that time, CCP was in active liquidation and wind down and none of the members of CCP were working full time on the operations of CCP.

On or about March 15, 2013, CCP's attorney sent the plaintiff a “Reconcilement of the John Clinton Capital Account,” which stated that the total consideration that the plaintiff would receive for the repurchase of his interests in CCP was a cash payment of $16,447.21 and a five-year promissory note in the amount of $151,934.66.   This reconcilement indicated that the total consideration the plaintiff would receive for the repurchase of his interests in CCP had been reduced by $750,000 to account for one-fourth of CCP's $3,000,000 capital reserve.   On or about March 28, 2013, the plaintiff's attorney asked CCP's attorney to explain the basis for a $3,000,000 capital reserve in light of CCP's current operating status, but CCP's attorney did not provide this explanation.   Furthermore, on or about March 28, 2013, the plaintiff's attorney informed CCP's attorney that the plaintiff was prepared to accept $600,000 in full satisfaction of his interest in CCP. On or about May 6, 2013, CCP's attorney sent the plaintiff a check in the amount of $16,447.21 and a promissory note in the amount of $151,934.66.⁴

In the second amended complaint (the operative complaint), the plaintiff alleges that the defendants breached their fiduciary duties under Connecticut law, breached the implied covenant of good faith and fair dealing arising under Delaware law, and violated the Connecticut Unfair Trade Practices Act, General Statutes § 42–110b(a) (CUTPA).   In his prayer for relief, the plaintiff seeks compensatory damages, consequential damages, punitive damages, and attorneys fees and costs.

MOTION TO STRIKE

The defendants move to strike the first count, the claim for breach of fiduciary duty, on the grounds that the plaintiff's allegations are conclusory, contradicted by the facts actually alleged in the complaint, and incorrect as a matter of law.   Next, the defendants move to strike the second count, the claim for breach of the implied covenant of good faith and fair dealing, because it seeks to impose obligations on the defendants that contradict the express terms of the LLC Agreement.   Further, the defendants move to strike the third count, the CUTPA claim, on the grounds that the plaintiff fails to specify the alleged deceptive conduct, improperly seeks to apply CUTPA to an intracorporate dispute, and fails to plead facts to justify the tolling of CUTPA's limitations period.   Finally, the defendants move to strike the plaintiff's claims for attorneys fees and punitive damages in counts one and two because the statutes cited in these counts do not authorize the award of such damages or fees.   The matter has been fully briefed and was argued at the short calendar on October 28, 2013.

“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).  “The role of the trial court in 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.)  Coe v. Board of Education, 301 Conn 112, 117, 19 A.3d 640 (2011).  “In ruling on a motion to strike, the court is limited to the facts alleged in the complaint.”  (Internal quotation marks omitted.)  Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997).  “If any facts provable under the express and implied allegations in the plaintiff's complaint support a cause of action ․ the complaint is not vulnerable to a motion to strike.”  Bouchard v. People's Bank, 219 Conn. 465, 471, 594 A.2d 1 (1991);  see also Sturm v. Harb Development, LLC, 298 Conn. 124, 130, 2 A.3d 859 (2010) (motion must be denied where provable facts support a cause of action).  “A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged.”  (Internal quotation marks omitted.)  Santorso v. Bristol Hospital, 308 Conn 338, 349, 63 A.3d 940 (2013).

I

BREACH OF FIDUCIARY DUTY

The defendants argue in their memorandum of law that CCP is organized under Delaware law and, therefore, the alleged fiduciary duties of the defendants must be governed by Delaware law rather than Connecticut statutory or common law.   The defendants maintain that CCP is organized under Delaware law and that the Connecticut Limited Liability Act, specifically General Statutes § 34–141, cannot establish the defendants' alleged fiduciary duty.   Further, the defendants contend that Connecticut common law does not govern their alleged fiduciary duties because “Connecticut courts have long relied on an entity's state of incorporation to determine rights among the entity's members.”   The plaintiff counters that it does not matter which state's law applies because the plaintiff has alleged sufficient facts to state a claim for breach of fiduciary duty under either Connecticut or Delaware law.   The plaintiff maintains that under either Connecticut or Delaware law, the members of a limited liability company owe “default fiduciary duties” to one another and, therefore, the court need not conduct any choice-of-law analysis in adjudicating this motion.   Further, the plaintiff contends that the defendants have not met their burden for a motion to strike, as they have merely argued for the applicability of Delaware law without arguing that the plaintiff could not state a claim under that law.   The defendants respond that the plaintiff's reliance on Delaware law contradicts his express reference to Connecticut law as to the first count of the second amended complaint, that the court should not consider the plaintiff's argument concerning Delaware law as the complaint does not allege it, and, that the plaintiff has failed to state a claim for breach of fiduciary duty under Connecticut law because the defendants have no fiduciary duty to the plaintiff under Connecticut law.⁵

“[A]s a general rule, Connecticut courts have refused to address choice of law issues in a motion to strike because it is premature to conduct the requisite searching case-by-case inquiry into the significance of the interests that the law of competing jurisdictions may assert in [the] particular controversy ․ Where a choice of law issue is present on a motion to strike it is unusual to determine the issue at this procedural stage.”   Doe No. 2 v. Norwich Roman Catholic Diocesan Corp., Superior Court, judicial district of Hartford, Complex Litigation Docket, Docket No X01–CV–12–5036425–S (December 2, 2013, Dubay, J.) [57 Conn. L. Rptr. 342].

Although this court acknowledges the foregoing principle, in the interest of facilitating a resolution of the pending motion to strike and subsequent pleading issues that may arise in this case, it is worthwhile to consider the applicable rules for the limited purpose of determining whether a choice of law analysis will be necessary.  “In determining the governing law, a forum applies its own conflict-of-law rules ․” Gibson v. Fullin, 172 Conn. 407, 411–12, 374 A.2d 1061 (1977).   In applying those rules, “[t]he threshold choice of law issue in Connecticut, as it is elsewhere, is whether there is an outcome determinative conflict between applicable laws of the states with a potential interest in the case.   If not, there is no need to perform a choice of law analysis, and the law common to the jurisdiction should be applied.”  (Internal quotation marks omitted.)  Cohen v. Roll–A–Cover, LLC, 131 Conn.App. 443, 465–66, 27 A.3d 1, cert. denied, 303 Conn 915, 33 A.3d 739 (2011).  “It is only after a determination is made that there is indeed an actual conflict between the laws of the particular jurisdictions that the interests of the respective jurisdictions are analyzed.”  (Internal quotation marks omitted.)   Haymond v. Statewide Grievance Committee, 45 Conn.Sup. 481, 489, 723 A.2d 821 (1997) (21 Conn. L. Rptr. 123, 125–26), aff'd, 247 Conn. 436, 723 A.2d 808 (1999).

In Connecticut, “[i]t is axiomatic that a party cannot breach a fiduciary duty to another party unless a fiduciary relationship exists between them.”   (Internal quotation marks omitted.)  Sherwood v. Danbury Hospital, 278 Conn. 163, 195, 896 A.2d 777 (2006).  “[A] fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other ․ The superior position of the fiduciary or dominant party affords him great opportunity for abuse of the confidence reposed in him ․ [The Supreme Court has] not, however, defined that relationship in precise detail and in such a manner as to exclude new situations, choosing instead to leave the bars down for situations in which there is a justifiable trust confided on one side and a resulting superiority and influence on the other.”  (Citation omitted, internal quotation marks omitted.)  Falls Church Group, Ltd. v. Tyler, Cooper, & Alcorn, LLP, 281 Conn. 84, 108, 912 A.2d 1019 (2007).   Connecticut courts have interpreted General Statutes § 34–141 and concluded that “[m]embers and managers of a limited liability company generally owe a fiduciary duty to other members.”   Zanker Group, LLC v. Summerville at Litchfield Hills, LLC, Superior Court, judicial district of New Haven, Docket No. CV–04–4015238–S (October 24, 2005, Munro, J.).  “[L]ike a partner in a partnership, a member of a limited liability company has a fiduciary duty to the other members.”  (Citation omitted.)   Yavarone v. Jim Moroni's Oil Service, LLC, Superior Court, judicial district of Middlesex, Docket No. CV–03–0102318–S (February 18, 2005, Aurigemma, J.).

Under Delaware law, “[t]he elements of breach of fiduciary duty ․ are (i) that a fiduciary duty exists, and (ii) that a fiduciary breached that duty.”   (Emphasis added.)  Heller v. Kiernan, 2002 WL 385545, at *3 (Del.Ch. February 27, 2002), aff'd, 806 A.2d 164 (Del.2002).  “Numerous Court of Chancery decisions hold that the managers of an LLC owe fiduciary duties.”   Feeley v. NHAOCG, LLC, 62 A.3d 649, 660 (Del.Ch.2012).   These cases have interpreted Delaware's Limited Liability Company Act (LLC Act) ⁶ and held that:  “Section 18–1101(c) does not specify a statutory default provision as do other sections of the LLC Act, ․ rather, it implies that some default fiduciary duties may exist at law or in equity, inviting Delaware courts to make an important policy decision and determine the default level of those duties.”  (Footnote omitted, internal quotation marks omitted.)  Kelly v. Blum, 2010 WL 629850, at *10 (Del.Ch. February 24, 2010).  “Accepting that invitation, Delaware cases interpreting Section 18–1101(c) have concluded that, despite the wide latitude of freedom of contract afforded to contracting parties in the LLC context, in the absence of a contrary provision in the LLC agreement, LLC managers and members owe traditional fiduciary duties of loyalty and care to each other and to the company ․ Thus, unless the LLC agreement in a manager-managed LLC explicitly expands, restricts, or eliminates traditional fiduciary duties, managers owe those duties to the LLC and its members and controlling members owe those duties to minority members.”  (Footnote omitted;  internal quotation marks omitted.)  Id.⁷ “Until the Delaware Supreme Court speaks, the long line of Court of Chancery precedents ․ provide persuasive reasons to apply fiduciary duties by default to the manager of a Delaware LLC.” Feeley v. NHAOCG, LLC, supra, 62 A.3d 663.

In the present case, the plaintiff alleges that the defendants owed fiduciary duties to the plaintiff under General Statutes § 34–141 and Connecticut common law, and that they breached these fiduciary duties by maintaining a $3,000,000 capital reserve as of the date of the plaintiff's Repurchase Event, when they knew that such a reserve was unreasonably large and unnecessary The defendants argue in the present motion that CCP is organized under Delaware law and, therefore, the alleged existence of the defendants' fiduciary duties must be governed by Delaware law rather than Connecticut statutory or common law.   Although the defendants argue that the analysis of the plaintiff's claim must be limited to Connecticut law, the court cannot ignore Delaware law entirely because, as noted by the defendants, “CCP's Delaware Operating Agreement” is appended to the complaint as Exhibit A, and specifically requires that it be interpreted according to Delaware law.⁸  In ruling on a motion to strike, the role of the trial court is to view the complaint, construed in a light most favorable to the plaintiff, to determine whether it states a legally sufficient cause of action.   See Coe v. Board of Education, supra, 301 Conn. 117.  “A complaint includes all exhibits attached thereto.”  (Internal quotation marks omitted.)  Tracy v. New Milford Public Schools, 101 Conn.App. 560, 566, 922 A.2d 280, cert. denied, 284 Conn. 910, 931 A.2d 935 (2007).   As stated above, both Connecticut and Delaware recognize a fiduciary duty between members and managers of a limited liability company.   The plaintiff alleges in his complaint that the defendants are members of the limited liability company and also served as managers pursuant to the LLC Agreement.   The plaintiff further alleges that the defendants breached the fiduciary duties they owed to the plaintiff and that this breach caused the plaintiff to suffer damages.   Under either Connecticut or Delaware law, the plaintiff has alleged sufficient facts to state a cause of action for breach of fiduciary duty.   Therefore, the defendants' motion to strike count one of the second amended complaint must be denied.

II

IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

In support of their motion to strike the second count of the complaint, the defendants argue that the plaintiff's claim for breach of the implied covenant of good faith and fair dealing must fail because it seeks to impose obligations on the defendants that contradict the express terms of the LLC agreement.   The defendants maintain that due to the freedom of contract that lies at the heart of the Delaware LLC, a court cannot make “value judgments about whether a contractual provision in an LLC Operating Agreement is reasonable, wise, or just.”   The plaintiff counters that, notwithstanding freedom of contract, Delaware law makes it clear that the implied covenant of good faith and fair dealing cannot be eliminated in an LLC's operating agreement.   Furthermore, the plaintiff argues that its claim for breach of the implied covenant is a means of filling a gap in the LLC Agreement rather than an express contradiction.   In their reply, the defendants assert that the plaintiff's claim for breach of the implied covenant of good faith and fair dealing must fail because it does not plead facts required under Delaware law;  specifically, that no party to the contract anticipated the development or contractual gap that the implied covenant seeks to fill.

Unlike the choice of law issue in the claim for breach of fiduciary duty, there is no dispute that the plaintiff's claim of breach of the implied covenant of good faith and fair dealing is brought under Delaware Law. Under Delaware law, “[t]he implied covenant [of good faith and fair dealing] attaches to every contract by operation of law, ․ and it cannot be eliminated from an LLC agreement” ⁹ (Footnote omitted.)  Dawson v. Pittco Capital Partners, L.P., 2012 WL 1564805, at *24 (Del.Ch. April 30, 2012).  “[T]he implied covenant requires a party in a contractual relationship to refrain from arbitrary or unreasonable conduct which has the effect of preventing the other party to the contract from receiving the fruits of the bargain.”  (Internal quotation marks omitted.)  Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 442 (Del.2005) “Even where a contract creates completely discretionary rights, such rights must still be exercised in good faith.”  Dawson v. Pittco Capital Partners, L.P., supra, 2012 WL 1564805, *24.  “The implied covenant of good faith and fair dealing involves a cautious enterprise, inferring contractual terms to handle developments or contractual gaps that the asserting party pleads neither party anticipated ․ [O]ne generally cannot base a claim for breach of the implied covenant on conduct authorized by the agreement ․ We will only imply contract terms when the party asserting the implied covenant proves that the other party has acted arbitrarily or unreasonably, thereby frustrating the fruits of the bargain that the asserting party reasonably expected ․ When conducting this analysis, we must assess the parties' reasonable expectations at the time of contracting ․ and not rewrite the contract to appease a party who later wishes to rewrite a contract he now believes to have been a bad deal.   Parties have a right to enter into good and bad contracts, the law enforces both.”  (Footnotes omitted, internal quotation marks omitted.)  Nemec v. Shrader, 991 A.2d 1120, 1125–26 (Del.2010).  “In order to plead successfully a breach of an implied covenant of good faith and fair dealing, the plaintiff must allege a specific implied contractual obligation, a breach of that obligation by the defendant, and resulting damage to the plaintiff ․ Since a court can only imply a contractual obligation when the express terms of the contract indicate that the parties would have agreed to the obligation had they negotiated the issue, ․ the plaintiff must advance provisions of the agreement that support this finding in order to allege sufficiently a specific implied contractual obligation.”  (Footnotes omitted.)  Fitzgerald v. Cantor, 1998 WL 842316, at *1 (Del.Ch. November 10, 1998).   Furthermore, “[b]ecause one is holding someone responsible for an implied duty, it is critical that the standard [for breach of the implied covenant of good faith and fair dealing] be rigorous, that the obligation breached be clearly implied, and that the party act with an improper state of mind, that is, bad faith.”  (Emphasis in original ) Liberty Property L.P. v. 25 Massachusetts Ave. Property, LLC, 2009 WL 224904, at *5 (Del.Ch January 22, 2009), aff'd, 970 A.2d 258 (Del.2009) “A party does not act in bad faith by relying on contract provisions for which that party bargained where doing so simply limits advantages to another party.”  Nemec v. Shrader, supra, 991 A.2d 1128.

In the present case, the plaintiff argues that “Section 10.3(b) of the LLC agreement includes an implied contractual obligation on the part of each member of CCP not to maintain an unreasonably large company capital reserve at the time of a member's Repurchase Event.”   The plaintiff alleges that the defendants breached this obligation by maintaining a $3,000,000 capital reserve at the time of the plaintiff's Repurchase Event and that as a result, the plaintiff suffered damages.   As stated above, it is critical that the contractual obligation that was allegedly breached be clearly implied.   Liberty Property L.P. v. 25 Massachusetts Ave. Property LLC, supra, 2009 WL 224904, *5. In his complaint, the plaintiff has not alleged sufficient facts to demonstrate that the obligation “not to maintain an unreasonably large company capital reserve” was clearly implied in Section 10.3(b) of the LLC Agreement.   The previous section, Section 10.3(a), explains that “upon a Repurchase Event with respect to any Member, the Company shall be obligated to repurchase ․ all of the Interests held by the Repurchase Member as of the date of the Repurchase Event.”   The section at issue, Section 10.3(b), contains the necessary details regarding calculating the specific amount that such Repurchase Member will receive when CCP repurchases his or her interests.   The capital reserve is mentioned in this section as part of such calculation and is referred to as “the then-current capital reserve for future expenses established by the Board of Managers.”   This specific language comes from Section 3.2(a)(xiii) of the LLC Agreement, which establishes the powers of CCP's managers.   Because Section 10.3(b) is quoting from the powers established in Section 3.2(a)(xiii) and makes a mere reference to the capital reserve, it cannot be clearly implied from this language that there was a contractual obligation not to maintain an unreasonably large capital reserve at the time of a Repurchase Event.   Accordingly, the defendants' motion to strike count two of the second amended complaint must be granted.

III

CUTPA

General Statutes § 42–110b(a) provides:  “No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”  “The purpose of CUTPA is to protect the public from unfair practices in the conduct of any trade or commerce.”  (Internal quotation marks omitted.)  Sovereign Bank v. Licata, 116 Conn.App. 483, 493, 977 A.2d 228, cert. granted, 293 Conn. 935, 981 A.2d 1080 (2009).  “In determining whether certain acts constitute a violation of this act, [the Supreme Court has] adopted the criteria set out in the cigarette rule by the federal trade commission ․ (1)[W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise—whether, in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness, (2) whether it is immoral, unethical, oppressive, or unscrupulous;  (3) whether it causes substantial injury to consumers [ (competitors or other businessmen) ].”  (Internal quotation marks omitted.)  Williams Ford, Inc. v. Hartford Courant Co., 232 Conn. 559, 591, 657 A 2d 212 (1995).  “[A]ll three criteria do not need to be satisfied to support a finding of unfairness.   A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three ․ Thus a violation of CUTPA may be established by showing either an actual deceptive practice ․ or a practice amounting to a violation of public policy ․ Furthermore, a party need not prove an intent to deceive to prevail under CUTPA.”  (Internal quotation marks omitted.)  Associated Investment Co. Ltd. Partnership v. Williams Associates IV, 230 Conn. 148, 156, 645 A.2d 505 (1994).

The plaintiff alleges in the third count of his complaint that the defendants are persons who engaged in trade and commerce in Connecticut and that their conduct was unfair within the meaning of CUTPA.   The plaintiff argues that the defendants' conduct was unfair because it (a) offends public policy, (b) was immoral, unethical, oppressive, and unscrupulous, and (c) caused substantial injury.   Furthermore, the plaintiff alleges that he suffered damages as a result of the defendants' violations of CUTPA.   As stated above, “[a] motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged.”  (Internal quotation marks omitted.)  Santorso v. Bristol Hospital, supra, 308 Conn. 349.   In the third count, the plaintiff has alleged the elements of a CUTPA claim without providing a factual basis to support these contentions.   Because the plaintiff has alleged mere conclusions of law, the motion to strike the CUTPA claim must be granted.

IV

ATTORNEYS FEES AND PUNITIVE DAMAGES

Finally, the defendants move to strike the plaintiff's demand for punitive damages and attorneys fees as to counts one and two.¹⁰  “[T]he common law rule in Connecticut, also known as the American Rule, is that attorneys fees and ordinary expenses and burdens of litigation are not allowed to the successful party absent a contractual or statutory exception.”  (Internal quotation marks omitted.)  Berzins v. Berzins, 306 Conn. 651, 657, 51 A.3d 941 (2012).  “Where a contract provides for the payment of attorneys fees by a defaulting party, those fees are recoverable solely as a contract right.”   (Internal quotation marks omitted.)  N.E. Leasing, LLC v. Paoletta, 89 Conn.App. 766, 778, 877 A.2d 840, cert. denied, 275 Conn. 921, 883 A.2d 1245 (2005).  “Under the American Rule and Delaware law, litigants are normally responsible for paying their own litigation costs ․ An exception to this rule is found in contract litigation that invokes a fee shifting provision.”   (Footnote omitted.)  Mahani v. Edix Media Group, Inc., 935 A.2d 242, 245 (Del.2007).

Section 15.7 of the LLC Agreement provides:  “In the event of a breach by any party to this Agreement of its obligations under this Agreement, any party injured by such breach, in addition to being entitled to exercise all rights granted by law, including recovery of damages and costs (including reasonable attorneys fees) .. .” (Emphasis added.)   In count one of his complaint, the plaintiff alleges that the fiduciary duty breached by the defendants is explicitly in the LLC by referring to Section 3.4, entitled “Duty of Care.” Because the plaintiff alleges a violation of Section 3.4 and, therefore, an entitlement to attorneys fees under Section 15.7, he has sufficiently alleged facts to establish a contractual exception to the American Rule under either Connecticut or Delaware law.

In Connecticut, “in order to award punitive damages, evidence must reveal a reckless indifference to the rights of others or an intentional and wanton violation of those rights.”  Franc v. Bethel Holding Co., 73 Conn.App. 114, 137, 807 A.2d 519, cert. granted, 262 Conn. 923, 812 A.3d 864 (2002) “Under Delaware law, [p]unitive damages are recoverable where the defendant's conduct exhibits a wanton or wilful disregard for the rights of [the] plaintiff.”   (Internal quotation marks omitted.)  Porter v. Turner, 954 A.2d 308, 312 (Del.2008).   The plaintiff has not sufficiently alleged that the defendants had a reckless indifference to his rights or that they engaged in wanton or wilful misconduct.   Therefore, the motion to strike the plaintiff's claim for an award of punitive damages as to the first count must be granted.

CONCLUSION

Accordingly, for all the foregoing reasons, the motion to strike the first count of the second amended complaint and the claim for an award of attorneys fees in connection with that count is hereby denied and the motion to strike the second and third counts and the claim of punitive damages is hereby granted.

Peck, J.

FOOTNOTES

FN1. On or about June 30, 2004, Vecchio ceased to be a member of CCP..  FN1. On or about June 30, 2004, Vecchio ceased to be a member of CCP.

FN2. The substance of this amendment is not relevant to the present motion.   The 2006 amendments altered how distributions would be made to each member..  FN2. The substance of this amendment is not relevant to the present motion.   The 2006 amendments altered how distributions would be made to each member.

FN3. The substance of these amendments is also not relevant to the present motion..  FN3. The substance of these amendments is also not relevant to the present motion.

FN4. The plaintiff contends, upon information and belief, that the Kavanagh Lawsuit was settled for an undisclosed sum in or around late April 2013 or early May 2013, but before May 6, 2013.   On or about May 8, 2013, the Kavanagh Lawsuit was withdrawn..  FN4. The plaintiff contends, upon information and belief, that the Kavanagh Lawsuit was settled for an undisclosed sum in or around late April 2013 or early May 2013, but before May 6, 2013.   On or about May 8, 2013, the Kavanagh Lawsuit was withdrawn.

FN5. In both their memorandum in support of the motion to strike and in their reply to the plaintiff's opposition memorandum, the defendants seek to reserve their right to challenge the sufficiency of any prospective claim of breach of fiduciary duty that the plaintiff seeks to make under Delaware law.   As noted, in the body of this memorandum, although arguably not necessary for the resolution of the pending motion to strike, the court finds that the allegations made by the plaintiff as to the first count would also sufficiently state a claim of breach of fiduciary duty against the defendants under Delaware law..  FN5. In both their memorandum in support of the motion to strike and in their reply to the plaintiff's opposition memorandum, the defendants seek to reserve their right to challenge the sufficiency of any prospective claim of breach of fiduciary duty that the plaintiff seeks to make under Delaware law.   As noted, in the body of this memorandum, although arguably not necessary for the resolution of the pending motion to strike, the court finds that the allegations made by the plaintiff as to the first count would also sufficiently state a claim of breach of fiduciary duty against the defendants under Delaware law.

FN6. Delaware's LLC Act includes DEL. CODE ANN. tit. 6, § 18–101 through § 18–1109..  FN6. Delaware's LLC Act includes DEL. CODE ANN. tit. 6, § 18–101 through § 18–1109.

FN7. A Second Circuit District Court case distinguished Kelly v. Blum and specifically held that “minority members of an LLC do not owe fiduciary duties to other members.”  Marino v. Grupo Mundial Tenedora, S.A., 810 F.Sup.2d 601, 608 (S.D.N.Y 2011).   This distinction has no hearing on the present motion, as the defendants served on the “Board of Managers” pursuant to Article III of the LLC Agreement and were, therefore, managers of the LLC rather than minority members..  FN7. A Second Circuit District Court case distinguished Kelly v. Blum and specifically held that “minority members of an LLC do not owe fiduciary duties to other members.”  Marino v. Grupo Mundial Tenedora, S.A., 810 F.Sup.2d 601, 608 (S.D.N.Y 2011).   This distinction has no hearing on the present motion, as the defendants served on the “Board of Managers” pursuant to Article III of the LLC Agreement and were, therefore, managers of the LLC rather than minority members.

FN8. See docket entry # 101:  “15.5 Governing Law. This Agreement shall be construed in accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof that would cause the application of the laws of any jurisdiction other than the State of Delaware.”.  FN8. See docket entry # 101:  “15.5 Governing Law. This Agreement shall be construed in accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof that would cause the application of the laws of any jurisdiction other than the State of Delaware.”

FN9. DEL CODE ANN tit 6, § 18–1101(c) (2013) provides:  “To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement, the member's or manager's or other person's duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement, provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing.”  (Emphasis added.).  FN9. DEL CODE ANN tit 6, § 18–1101(c) (2013) provides:  “To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member or manager or to another person that is a party to or is otherwise bound by a limited liability company agreement, the member's or manager's or other person's duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement, provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing.”  (Emphasis added.)

FN10. Because the motion to strike the second count has been granted, the plaintiff's claim for attorneys fees and punitive damages as to that count is also necessarily granted..  FN10. Because the motion to strike the second count has been granted, the plaintiff's claim for attorneys fees and punitive damages as to that count is also necessarily granted.

Peck, A. Susan, J.