Appellate Notes: Week of March 25

by Pullman & Comley, LLC

Welcome to our Supreme and Appellate Court summaries webpage.  On this page, I provide abbreviated summaries of decisions from the Connecticut appellate courts which highlight important issues and developments in Connecticut law, and provide practical practice pointers to litigants.  I have been summarizing these court decisions internally for our firm for more than 10 years, and providing relevant highlights to my municipal and insurance practice clients for almost as long.  It was suggested that a wider audience might appreciate brief summaries of recent rulings that condense often long and confusing decisions down to their basic elements.  These summaries are limited to the civil litigation decisions based on my own particular field of practice, so you will not find distillations of the many criminal and matrimonial law decisions on this page.  I may from time to time add commentary, and may even criticize a decision’s reasoning. Such commentary is solely my opinion . . . and when mistakes of trial counsel are highlighted because they triggered a particular outcome, I will try to be mindful of the adage . . . “There but for the grace of God . . ..”  I hope the reader finds these summaries helpful. – Edward P. McCreery

Posted March 25, 2013

  • SC18915- Misiti, LLC v. Travelers Property Casualty Co. of America

This is a classic duty to defend case with a twist.  A patron in a bar fell off a railing behind the building and sued the landlord, but made no mention of the bar in the complaint.  The bar only leased a portion of the premises.  The landlord was named as an additional insured on the bar’s policy, but only for that portion of the premises that was leased by the bar.  The landlord also maintained its own insurance.  When the bar owner’s insurance refused to defend the landlord, the landlord’s insurer provided a defense and later sued to recover the costs from the bar owner's carrier.  In this decision, the Supreme Court agreed with the Appellate Court that nothing in the underlying complaint established that the patron’s injuries arose out of the portion of the premises leased by the bar, and therefore, the bar’s policy covering the landlord as an additional insured for only a portion of the leased premises was not triggered.  The Court reviewed the age-old law on the interpretation of insurance policies, as well as Connecticut’s interpretation of an insurer’s duty to defend, which is triggered by reference to the allegations in the underlying complaint to look for facts that could potentially fall within the scope of coverage, provided one is not torturing the words of the complaint.  Under the “who is an insured” clause, it only applied to those sued for claims arising out of the use of the leased premises.  This, in turn, was interpreted to refer to liability that could arise from a person’s legal and proper enjoyment of the bar . . . meaning on the bar premises.  The landlord’s insurer argued for a more expansive definition that would include arising out of the use of the bar, such as if a drunk patron left the premises and then fell over the railing.  Reviewing a litany of cases, interpreting the term “arising out of," the CT Supreme Court held nothing in the complaint implicated the patron’s use of the bar.  The plaintiff then pointed to extrinsic evidence and Court noted that it is only appropriate to rely upon extrinsic evidence outside the four corners of the complaint, if they support the duty to defend.  Here, while the parties had stipulated to facts that would suggest there was no duty to defend, the decision found no need to even consider such extrinsic facts.  In deciding whether an injury was connected with, had its origin in, grew out of, flowed from, or was incident . . . to the insured risk, you cannot rely on conjecture or assume facts that have not been pled.  The complaint made no allegation that the injuries occurred on the portion of the premises the bar leased, or had any connection to the tavern use.  An insurer is not required to extend coverage on the basis of any conceivable, tortured, or unreasonable interpretation of an underlying complaint. 

  • SC18915 Dissent- Misiti, LLC v. Travelers Property Casualty Co. of America

The dissent argued that the majority should have considered the stipulated extrinsic evidence, which showed the injured party had been drinking at the bar before proceeding down a path and falling over the collapsing railing, and further suggested that so long as there was a minimal causal connection, the duty to defend should be triggered.  The majority argued back in a footnote that even those facts do not establish a causal connection between the injuries and the use of the bar, and further suggested that the cases cited by the Dissent from other jurisdictions, should not be adopted by Connecticut, as it would result in duplicate insurance coverage, which would be contrary to the public policy against economic waste.  Tenants should not have to insure portions of buildings that they do not utilize.

  • SC18840- New England Road, Inc. v. Planning & Zoning Commission

This was a rather straightforward zoning case, showing the pitfalls of making a mistake in the service of process.  The underlying zoning appeal was dismissed because the return did not comply with C.G.S. § 8-8(f)(2) in that it failed to include a citation or summons.  This decision agreed with the Trial Court that C.G.S. § 52-72 could not be utilized to remedy the defect by letting the plaintiff re-serve the paperwork.  Failure to comply with the statutory requirements for service of legal process on a zoning board will deprive the court of subject matter jurisdiction.  Compliance with C.G.S. § 8-8 must be strictly followed, which requires service of the appeal within fifteen days of notice of the decision.  While C.G.S. § 52-72 can remedy many defects of service, even in administrative appeals, the failure to attach a citation or summons cannot be cured.  Things that can be cured include fixing the return date, fixing the return to court, and similar technical defects.  Failure to attach a summons is not a technical defect, but rather a substantive defect that deprives the Court of subject matter jurisdiction.

  • SC18804- Cordero v. University of Connecticut Health Center

When a resident of the State receives public assistance, the State may recover up to 50% of the proceeds when that resident later acquires property of any kind, such as through a lawsuit claiming injuries, an inheritance, etc., pursuant to C.G.S. § 17b-93(a).  This decision, however, held that when the later lawsuit is against the State of Connecticut or one of its subsidiaries, the State can claim an offset against an award for the full amount of any public assistance benefit paid to the plaintiff.  Thus, $70,000 in public aid could be set off against a damage award of $230,000.  Keep in mind that C.G.S. §§17b-93 through 94, grants the State a lien over a broad range of recoveries against any recipient of State aid, subject to certain carve-out priorities.

  • AC33735- Sojitz America Capital Corp. v. Kaufman

This case involved the rare dismissal of a shareholder’s derivative complaint under C.G.S. § 33-724, when a majority of the board of directors determined in good faith that the maintenance of the plaintiff’s action was not in the best interests of the corporation.  The plaintiff was a minority shareholder, who claimed the company president had made false representations to the company’s lenders to the effect that the board of directors had met and authorized his actions.  The plaintiff further claimed that the board of directors were in cahoots with the company president, and therefore, could not objectively determine whether the suit was appropriate.

The decision notes that this is the first time that this statute has come before the Connecticut Appellate Courts.  The first issue to address was what was to be the standard of review.  On this issue, the Court concluded that the underlying decision presented a mixed question of law and fact, and thus the normal standard applicable to reviewing Trial Court’s decisions on motions to dismiss would not apply.  Normally, the trial court is to take the facts alleged in the complaint as true.  You can only supplement them with facts when due process requires.  This standard, however, does not apply to the unique circumstances of a dismissal of a shareholder’s action pursuant to C.G.S. § 33-724.  The Court agreed with other jurisdictions that this statute imposes upon the plaintiff, a heightened pleading standard in order to avoid a dismissal.  To assist in resolving whether the board of directors acted reasonably, the Trial Court can even issue discovery orders.

When reviewing a mixed question of fact and law, the standard of review is plenary.  Here, the plaintiff did not plead nor establish facts to show that any of the directors of the corporation had such a familiar, financial, professional or employment relationship that would impair their objectivity (even though one of them was the father of the company president).  It is not enough for a plaintiff to simply allege the board members were not qualified due to a material interest.  Specific facts must be pled.  Alleging that the board members had knowledge of the president’s actions and did not stop him, were merely conclusory allegations insufficient to establish they were not qualified.  Similarly, the plaintiff failed to particularly plead what corporate risks the president’s actions had subjected the company to.  Also, the plaintiff failed to establish that the board did not reach its decision in good faith.  The report from the board of directors concluded the company had sustained no damage, that any defects in the representations to the lenders were cured when the board ratified the officer’s actions, and the lawsuit was detrimental, as it would cost the company money in legal fees.  The board then concluded that the changing leadership of the company could jeopardize the company’s financial health.  Finally, the plaintiff, as a preferred shareholder, had a greater interest in the outcome than the company itself, and therefore, did not help the company to facilitate its lawsuit.  The Trial Court properly found that these were reasonable conclusions for the board to reach.

Under the Business Judgment Rule, the Trial Court was entitled to defer to the board’s decision.  The board’s inquiry was also reasonable, even though it delegated most of the inquiry to an attorney (who happened to also be the president’s personal attorney) because they reviewed his report and applied their own knowledge of the circumstances.  It is not required that the Board interview witnesses or review bank documents when the board accepted the allegations of the plaintiff as true.  Further, a board is only required to conduct a reasonable inquiry, and does not have to hire an independent investigator.  Similarly, the Court will not review the elements or considerations that the board of directors examined.  Those are properly left within the board’s discretion. 

[So all in all, it looks like this is an important new decision on corporate law, where the Trial Courts are being directed to defer whenever possible to the board of directors when they conclude a shareholder derivative suit is not in the best interests of the company.  They are also imposing a high burden upon a plaintiff to not only plead, but prove that a majority of the board of directors were neither independent not conducted a reasonable inquiry.]

Plaintiff agreed to sell his fifty percent interest in commercial premises in Trumbull, Connecticut to the other half owner, the defendant, for $1.7 million with a provision that if the defendant resold any portion of the property to a non-family member within one year, the plaintiff would get a kicker on the purchase price based upon a formula.  Later, the defendant did transfer the property to a new entity within one year, but it was comprised entirely of family members. The family company, in turn, entered into a contract to sell the entire property for $5.5 million, within the same one-year timeframe, but with a closing to take place after one year.  The plaintiff sued and won $1 million damages, $100,000 attorney’s fees and $250,000 offer of judgment interest.  On appeal, it was held the clause providing for the contingency kicker was not ambiguous.  Further, entering into a contract to sell the property within one year transferred equitable ownership interest to the buyer, even though the closing of title was to be accomplished after the one-year time frame.  This triggered the kicker.   The contract provided that the kicker would apply upon the transfer of “any ownership interest."  Under Connecticut law, the purchaser of land under an executory contract is regarded as the owner, subject to the seller’s lien for the unpaid purchase price, and its holding of title in trust for the purchaser.  The award of post-judgment interest at 8% was deemed discretionary with the Trial Court.  Merely denying pre-judgment interest does not preclude the Trial Court from awarding post-judgment interest.  The Trial Court can also award 8%, even though it greatly exceeds real world interest rates because the statute (C.G.S. § 37-3(a)) allows up to 10%.  [The moral of this story is watch the timing of your contracts.  Had the defendant here merely waited a few more months to enter into the contract to resell the entire property, they could have saved themselves over one million dollars. ]

Judge Borden dissented.  He would have held the kickback clause to be ambiguous and debatable whether the kicker clause was triggered by the transfer of any ownership interest ……to include the doctrine of equitable conversion….or was just meant to apply to a traditional closing where title is transferred by the physical handing over of a deed.

  • AC32318- Deutsche Bank National Trust Co. v. Gabriele

This was an appeal of a judgment of strict foreclosure in a residential case.  The complaint made reference to the now common practice under P.B. § 10-29 that exhibits were not attached to the complaint, but would be forwarded to the appearing attorney.  The defendants appeared and filed a motion for extension of time for thirty days, after the plaintiff gets around to forwarding those exhibits to counsel.  Thereafter, the trial court granted a motion to default within the thirty days of the exhibits being filed, despite having previously granted the plaintiff’s motion for extension of time, and over the defendant’s objection.  The Court then granted a motion for judgment of strict foreclosure.  On appeal this was deemed an abuse of the Trial Court’s discretion, and the judgment was reopened.

  • AC33999- G Power Investments, LLC v. GTherm, Inc.

Here, the plaintiff creditor sued the defendants seeking to foreclose a security interest in stocks and other equipment  The plaintiff sought a pre-judgment remedy attachment of the defendants’ assets, along with an injunction request to prevent their disbursement.  This triggered another creditor of the defendants to seek to intervene into the case, claiming that its rights in the same collateral had to be protected.  The Trial Court denied the motion to intervene, and thereafter granted a stipulated judgment between the original plaintiff and the defendants, whereby the defendants would agree to the judgment and one defendant would turn over their assets to the plaintiff.  The intervenor appealed both the denial of the motion to intervene and the judgment upon stipulation.  But while their appeal was pending, the defendant complied with the judgment and turned over their assets to the plaintiff.  The plaintiff thereupon recorded a notice of satisfaction.  Thereupon, the Appellate Court deemed the appeal of the proposed intervenors to be moot.  The decision held that, even though the stipulated judgment provided for the defendants to turn over assets more than what was encumbered by the plaintiff’s security interest, because the judgment was satisfied as to all defendants by the transfer of property of only one, and the proposed intervenors only claimed an interest in the assets of the other defendant who was not required to turn over any assets, the proposed intervenors can no longer have any claimed interest in the litigation.  It did not matter that prior to the satisfaction of the judgment, all defendants agreed to the stipulated judgment.  The exposure of the defendant they were interested in no longer existed with the filing of the satisfaction of judgment.  The Court distinguished this from cases that have held that the satisfaction of judgment does not render an appeal moot when there is a possibility of future restitution reimbursement.  There is no such possibility here.

The facts and holdings of any case may be redacted, paraphrased or condensed for ease of reading.  No summary can be an exact rendering of any decision, however, so interested readers are referred to the full decisions.  The docket number of each case is a hyperlink to the Connecticut Judicial Department online slip opinion.  ©2013 Pullman & Comley, LLC. All Rights Reserved.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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