Ernest Patterson v. Geo–Graphics Spegram, Inc. (2015)

DECISION

MEMORNNDUM OF

FACTS

The plaintiff, Ernest Patterson, filed a five-count complaint on May 12, 2015 against the defendants, Geo–Graphics Spegram, Inc. (the corporation) and Jens Ljungberg, the sole officer of the corporation.¹  In that complaint the plaintiff alleges the following facts, which for purposes of this motion, must be considered to be true:  The plaintiff is a former member and current shareholder of the corporation.  According to the corporation's books, between the years 1987 and 1989, the plaintiff loaned $36,000 to the corporation with an eight percent annum interest rate.  In November 1989, the plaintiff was promised that he would be paid $240 per month for interest on the shareholder loan.  The corporation has failed to make these payments and is in default of the loan.  At the date of the filing of this action, there was an outstanding balance of $36,720 on the shareholder loan.  The corporation has had the benefit of the loan, has not repaid the plaintiff according to the terms of the shareholder loan, and has been unjustly enriched by the loan and its failure to make the payments.  Ljungberg, as the corporation's sole officer, has halted the monthly payments to the plaintiff in retaliation for plaintiff's demands for payment of the loan.  Independence between the corporation as an entity and Ljungberg no longer exists and Ljungberg has exercised complete control of the corporation in the following ways:  (1) exercising complete control over company business and financial matters;  (2) not having a board of directors;  (3) failing to observe corporate formalities;  (4) taking loans from third parties, later in time to the note and shareholder loan, and paying on such third party loans while failing to honor the terms of the note or to make interest payments to the plaintiff under the shareholder loan;  and (5) discontinuing the payment of monthly interest to the plaintiff under the shareholder loan.  The corporation has, in essence, served and continues to serve as the alter ego of Ljungberg.

THE PENDING MOTION

On August 10, 2015, the defendants filed a motion to strike counts two, four, and five of the plaintiff's complaint on the grounds that the plaintiff is not the proper party to invoke judicial resolution of a dispute among the shareholders of a corporation and that Ljungberg has been misjoined and has no personal liability in this matter.  The motion was accompanied by a memorandum of law.  On September 3, 2015, the plaintiff filed a memorandum in opposition to the motion to strike.  The court heard the matter at short calendar on October 13, 2015.

RULING OF THE COURT

“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 ․ [The court] construe[s] 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 ․ Moreover, [the court notes] that [w]hat is necessarily implied [in an allegation] need not be expressly alleged ․ It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted ․ Indeed, pleadings must be construed broadly and realistically, rather than narrowly and technically.”  (Internal quotation marks omitted.)  Coppola Construction Co. v. Hoffman Enterprises Ltd. Partnership, 309 Conn. 342, 350, 71 A.3d 480 (2013).  “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).  “[T]he exclusive remedy for misjoinder of parties ․ is by motion to strike.”  Bender v. Bender, 292 Conn. 696, 722 n.23, 975 A.2d 636 (2009);  see also Practice Book § 11–3.  “Naming an improper person as a party in a legal action constitutes misjoinder.”  (Internal quotation marks omitted.)  Bloom v. Miklovich, 111 Conn.App. 323, 329, 958 A.2d 1283 (2008).

In their memorandum of law in support of their motion to strike, the defendants argue that the plaintiff is not the proper party to invoke judicial resolution of a dispute among shareholders of a corporation and that Ljungberg has been misjoined and has no personal liability to the plaintiff.  In response the plaintiff contends that this is a collection action, which the plaintiff has standing to bring, and that his fifth count sufficiently alleges personal liability as to Ljungberg.

“[I]f 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.”  (Internal quotation marks omitted).  May v. Coffey, 291 Conn. 106, 114–15, 967 A.2d 495 (2009).  “[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.”  (Internal quotation marks omitted.)  Id., 115.

In the present case, the plaintiff has alleged an injury stemming from a loan that he made, as an individual, to the corporation.  The plaintiff states that no other shareholder was involved in the loan and that the loss is only to the plaintiff and not to any other shareholder.  As pleaded, the only person affected by the loan not being paid back is the plaintiff, not the collective shareholders and not the corporation.  Since the injury alleged by the plaintiff is personal to him and affects him as an individual, the plaintiff has alleged a legally sufficient claim.

“[Courts] have recognized two tests for disregarding a defendant's corporate structure;  the instrumentality rule and the identity rule.  The instrumentality rule requires, in any case but an express agency, proof of three elements:  (1)[c]ontrol, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;  (2) that such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of [the] plaintiff's legal rights;  and (3) that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of ․ The identity rule has been stated as follows:  If [the] plaintiff can show that there was such a unity of interest and ownership that the independence of the corporations had in effect ceased or had never begun, an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability arising out of an operation conducted by one corporation for the benefit of the whole enterprise.”  Patel v. Flexo Converters USA., Inc., 309 Conn. 52, 59 n.7, 68 A.3d 1162 (2013).  “No hard and fast rule ․ as to the conditions under which the entity may be disregarded can be stated as they vary according to the circumstances of each case.”  (Internal quotation marks omitted.)  Emma Rosina, LLC, v. Bilides Building & Excavating, LLC, Superior Court, judicial district of New Haven, Docket No. CV–02–0462976–S (December 10, 2002, Zoarski, J.T.R.).  “The plaintiff must, therefore, allege sufficient facts necessary to plead either the instrumentality rule or the identity rule.”  Id.

In the present case, when all allegations are viewed in the light most favorable to the plaintiff, the complaint alleges a legally sufficient claim to disregard the defendant's corporate structure and hold Ljungberg personally liable for the loans.  The plaintiff alleges that Ljunberg is the sole officer of the corporation, has operated the corporation without a board of directors, and has maintained complete control over the corporation, including its financial matters.  Since Ljunberg had complete control over the financial matters it can be inferred that he is the individual that chose not to make the payments on the plaintiff's shareholder loan which is the injury the plaintiff has complained off.  These allegations state a legally sufficient claim under the instrumentality rule.

CONCLUSION

Accordingly, the motion to strike counts two, four and five is denied.

Bates, J.

FOOTNOTES

FN1. The counts at issue are breach of contract for shareholder loan (count two);  unjust enrichment as to shareholder loan (count four);  and personal liability as to defendant Ljungberg (count five)..  FN1. The counts at issue are breach of contract for shareholder loan (count two);  unjust enrichment as to shareholder loan (count four);  and personal liability as to defendant Ljungberg (count five).

Bates, Timothy, J.