Opinion
No. 566895
June 15, 2004
MEMORANDUM OF DECISION
FACTS
On August 29, 2003, the plaintiff, John Allanach filed a three-count complaint against defendants, Integrated Technologies, Inc., Frederick Klorczyk, Shozo Narita, Richard McGhghy, David Orlosky, and Thomas Gray. The defendants move to strike counts one, two and three of the complaint filed by the plaintiff. For the reasons discussed below, the motion to strike count one is denied, count two is granted and count three is denied.
The following facts are alleged in the complaint. The first count of the complaint is a claim of failure to pay wages upon termination of employment under General Statutes §§ 31-71c(b) and 31-72. The defendant, Integrated Technologies, Inc. (Integrated) is a closely held corporation organized under the laws of this state with a principal office in Waterford, Connecticut. At all times relevant to the complaint, the plaintiff and the five individual defendants were the directors and shareholders of Integrated. Each shareholder held and continues to hold an equal number of shares of stock in Integrated. From its formation as a corporation on April 17, 1996 until June 13, 2003, the plaintiff was a shareholder, officer and director of Integrated. The plaintiff also served as the vice president, secretary and treasurer of Integrated.
On June 13, 2003, an "impromptu special joint Integrated board of directors and shareholders meeting" was held over lunch. All shareholders/directors were present. At this meeting, the plaintiff was removed from the board of directors and terminated from his employment as vice president, secretary and treasurer of Integrated. The reason given for the removal and termination was "lack of credibility." The plaintiff alleges that this statement is false.
At the same meeting, before the removal of the plaintiff as a director and termination of his employment, defendant Frederick Klorezyk, the president of Integrated presented the shareholders/directors with general and certain specifics pertaining to an anonymous and time-is-of-the-essence acquisition. At that time, a unanimous affirmative vote to sign the agreement and pursue the acquisition was gained. The plaintiff alleges that on the date of discharge, Integrated owed him $28,250.23 in back pay and despite his demand, this has not been paid.
On May 7, 2003, at a special meeting of the shareholders and directors of Integrated, a resolution was presented by Klorczyk that was unanimously adopted amending the bylaws of Integrated to restrict the transfer of Integrated stock.
The second count of the complaint is a claim of breach of directors' and shareholders' fiduciary duty. The plaintiff alleges that the defendants collectively and individually breached their fiduciary duty owed to the plaintiff and to the corporation in that they removed the plaintiff from the board of directors of Integrated and terminated his employment based on a false premise. The plaintiff further alleges that the defendants solicited the plaintiff's approval of a resolution amending the bylaws of Integrated so as to restrict the transfer of Integrated stock at a special meeting of the shareholders and directors a short time before plaintiff's removal as a member of the board of directors and his termination as an officer and employee of the company. The defendants solicited the plaintiff's approval of Integrated entering into an agreement relating to the pursuit of an acquisition immediately proceeding the plaintiff's removal and termination.
The third count of the complaint is an action to dissolve the corporation. The plaintiff is the holder of shares having at least one-tenth of the voting power for the election of directors. The corporation wilfully exceeded its powers in removing and terminating the plaintiff. The plaintiff alleges that the individual defendants engaged in fraud, collusion or gross mismanagement in the conduct or control of the corporation by removing and terminating the plaintiff for a false reason and that the individual defendants solicited and obtained the plaintiff's approval for significant corporate resolutions at a time when either they had made the decision to remove and terminate him or were considering doing so without disclosing these facts to the plaintiff. The plaintiff asserts that it is necessary to wind up the corporation for the protection of the rights or interest of the plaintiff shareholder. The plaintiff further alleges that the plaintiff is a creditor of the corporation and is owed back pay in the sum of $28,250.33. The defendants have refused to pay despite demands for back pay.
On January 23, 2004, the defendants filed a motion to strike from the plaintiff's complaint count one as to the individual defendants, count two as to the individual defendants and Integrated and count three as to the individual defendants and Integrated. The defendants filed a memorandum of law in support of their motion to strike. The defendants claim that the plaintiff has failed to state a claim under § 31-72 because the statute requires an allegation that an employer failed to pay the employee's wages.
The defendants claim that the plaintiff has failed to state a claim for breach of directors' and shareholders' fiduciary duty against shareholders and Integrated because the claim is based solely on the plaintiff's claim of improper termination.
The defendants also claim that the plaintiff has not alleged facts which show that there has been fraudulent, illegal or oppressive conduct by the directors of Integrated. The defendants assert that the plaintiff's claim that his employment was terminated for a false reason is insufficient to state a claim for dissolution under General Statutes § 33-896. The defendants assert that the plaintiff has failed to state how this conduct has injured him as a shareholder, rather than as an employee and the plaintiff has failed to allege any facts to show that Integrated has acted beyond the scope of its corporate powers. On February 9, 2004, the plaintiff submitted a memorandum in opposition to the defendants' motion to strike. On February 13, 2004, the defendants submitted a reply memorandum to plaintiff's memorandum in opposition to the motion to strike.
DISCUSSION
"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." Id. "The court must construe the facts in the complaint most favorably to the plaintiff." (Internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997). "[I]f facts provable in the complaint would support a cause of action, the motion to strike must be denied." (Internal quotation marks omitted.) Bhinder v. Sun Co., 263 Conn. 358, 365, 819 A.2d 822 (2003). "Moreover, . . . [w]hat is necessarily implied [in an allegation] need not be expressly alleged." (Internal quotation marks omitted.) Gazo v. City of Stamford, 255 Conn. 245, 260, 765 A.2d 505 (2001).
COUNT ONE
The defendants move to strike the first count of the complaint as against the individual defendants on the grounds that the plaintiff has failed to state a claim under General Statutes § 31-72. Section 31-72 provides in pertinent part: "When any employer fails to pay an employee wages in accordance with the provisions of sections 31-71a to 31-71i, inclusive . . . such employee . . . may recover, in a civil action, twice the full amount of such wages, with costs and such reasonable attorneys fees as may be allowed by the court, and any agreement between him and his employer for payment of wages other than as specified in said sections shall be no defense to such action."
The defendants assert that the plaintiff has not alleged any facts to show that the shareholders employed the plaintiff or that they had any relationship with the plaintiff that would obligate them to pay the plaintiff. Section 31-71a(1) defines employer to include: "any individual, partnership, association, joint stock company, trust, corporation, the administrator or executor of the estate of a deceased person, the conservator of the estate of an incompetent, or the receiver, trustee, successor or assignee of any of the same, employing any person, including the state and any political subdivision thereof." Section 31-71a(2) defines an employee to include: "any person suffered or permitted to work by an employer."
In Butler v. Hartford Technical Institute, Inc., 243 Conn. 454, 704 A.2d 222 (1997), the Connecticut Supreme Court has addressed whether an individual can be held liable under § 31-72 when their corporate entity may also be held liable. The Court held, "an individual personally can be liable as an employer pursuant to § 31-72, notwithstanding the fact that a corporation is also an employer of the claimant, if the individual is the ultimate responsible authority to set the hours of employment and to pay wages and is the specific cause of the wage violation." Id., 463-64. The Court explained, "[o]ur interpretation of the term employer as used in § 31-72 . . . effectuates the statutory policies of compensating employees and deterring employers from failing to pay wages." Id., 463.
The defendants argue that the plaintiff has not sufficiently alleged that the shareholder/director defendants had the ultimate authority to set hours of employment, pay wages or were the specific cause of the wage violation. The plaintiff alleged that the individual defendants were the shareholders and directors of Integrated, a closely held corporation. The plaintiff has alleged that all the shareholders/directors were present at a luncheon meeting where the plaintiff's employment was terminated and that on that date Integrated owed the plaintiff back wages in the sum of $28,250.23. Taking the facts as alleged in the light most favorable to the plaintiff, it can be inferred from this that the individual defendants did have some control over the terms of the employment of the plaintiff and may have been the cause of the wage violation. Given the definitions of employer and employee, for the purposes of this motion to strike the plaintiff has sufficiently alleged that he was an employee and that the shareholders were his employers for purposes of the motion to strike. The motion to strike is, therefore, denied as to count one.
COUNT TWO
The defendants move to strike the second count of the complaint as against the individual defendants and Integrated on the grounds that the plaintiff has failed to state a claim for the breach of directors' and shareholders' fiduciary duty because the claim is based solely on plaintiff's claim of improper termination. The defendants argue that the claim for breach against Integrated fails because Integrated does not owe a fiduciary duty to the plaintiff as an employee. Further, the defendants assert that the plaintiff's claim of breach in connection with the presentment of the bylaws amendment and acquisition proposal fails because the plaintiff has not alleged: 1) fraudulent conduct; 2) how the conduct was wrongful; 3) how it pertained to his termination; or 4) how the plaintiff or Integrated was damaged as a result of the alleged conduct. Additionally, the defendants assert that because Integrated is not a plaintiff to the action and the plaintiff has not alleged facts that he is entitled to bring an action on behalf of Integrated, plaintiff's claim that the shareholders breached their fiduciary duty fails. Further, the defendants argue the plaintiff has not alleged how Integrated was damaged by the conduct.
The plaintiff argues in his memorandum in opposition that he has not made a claim against defendant Integrated in the second count but rather that his claims are against the defendants in their individual capacities as directors and shareholders. The plaintiff further asserts that the actionable conduct that he has alleged is not based solely on the termination of employment but instead has made allegations including: 1) termination as a director upon a false premise; 2) amending bylaws of Integrated to restrict transfer of stock shortly before the plaintiff's removal as a director and employee; and 3) approval of an agreement relating to the pursuit of an acquisition right before the plaintiff was removed as director and officer. The plaintiff argues that the gravamen of the second count is the wrongful conduct of the individual defendants before his termination of employment, not the termination itself.
The case of Hart v. Mill Plain Autobody, Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 98 0353463 (December 3, 1999, Melville, J.), is factually similar to the case presently before the court. In Hart, the defendants and the plaintiff were directors officers and employees of the two closely held corporations. Id. The plaintiff alleged that the defendants in their capacities as directors, officers and majority stockholders breached their fiduciary duty to him by removing him, without cause, from both the board of directors and from his position as vice-president of the company. Id. The plaintiff further alleged that he was terminated without cause from his employment with the company and that on several occasions the defendants had attempted to coerce him into signing a buyout agreement, which would have the effect of reducing the value of his shares of stock. Id. The defendants filed a motion to strike asserting that the plaintiff had failed to allege sufficient facts to support a claim of a breach of fiduciary duty. Id.
In that case, the court stated, "authority exists in this state supporting breach of fiduciary duty actions as a mechanism for holding directors, officers and stockholders personally liable for engaging in fraudulent acts." Id., citing Katz Corporation v. T.H. Canty Co., 168 Conn. 201, 208-09, 362 A.2d 975 (corporate directors and officers may be liable for breach of fiduciary duty owed to corporation if proven that they usurped corporate opportunity); Pacelli Bros. Transportation, Inc. v. Pacelli, 189 Conn. 401, 407-08, 456 A.2d 325 (1983) (officers and directors occupy fiduciary relationship to the corporation and stockholders; the misappropriation of corporate funds and the failure to disclose information about the misappropriation may result in liability for breach of fiduciary duties); Banks v. Vito, 19 Conn. App. 256, 262, 562 A.2d 71 (1989) (controlling majority stockholders may be liable for breach of fiduciary duty where they seek to injure the minority stockholder by looting the corporation so that the minority stockholder would get nothing out of his assets); Yanow v. Teal Industries, Inc., 178 Conn. 262, 283, 422 A.2d 311 (1979) (a majority stockholder may be liable for breach of fiduciary duty).
In Hart, the court stated that in order to support his allegations that the defendants breached their fiduciary duty, the plaintiff had to allege fraudulent conduct. The essential elements of an action in common-law fraud are: "(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." Barbara Weisman, Trustee v. Kasper, 233 Conn. 531, 539, 661 A.2d 530 (1995).
In Hart, the plaintiff's complaint alleged that the individual defendants removed him from the board of directors and as an officer, however, he failed to allege that his removal was predicated upon a false representation made as a statement of fact by the defendants, made to induce reliance, which was known to be untrue at the time it was made and upon which he relied to his injury. See Barbara Weisman, Trustee v. Kasper, supra, 233 Conn. 539. In Hart, the plaintiff failed to allege any of the established grounds for the imposition of personal liability upon the directors, officers or majority stockholders. The complaint did not allege that the defendants attempted to usurp a corporate opportunity; see Katz Corporation v. T.H. Canty Co., supra, 168 Conn. 208-09; intentionally withheld information regarding their dealings with the corporation; see Pacelli Bros. Transportation, Inc. v. Pacelli, supra, 189 Conn. 407-08; engaged in improper transactions with the corporation; see Banks v. Vito, supra, 19 Conn. App. 263; or looted the corporation and breached their fiduciary duties to minority stockholders; see Yanow v. Teal Industries, Inc., supra, 178 Conn. 283. Finally, the plaintiff did not allege that the corporation, or its stock, was harmed in anyway. Hart, supra. The court therefore granted the defendants' motion to strike the plaintiff's claim for breach of fiduciary duty. Id.
However, the plaintiff has not sufficiently alleged that there was a false representation made to him that caused him to agree/vote at the meeting or that he acted upon that representation to his injury. Further, the plaintiff did not sufficiently allege any of the established grounds for the imposition of personal liability upon the directors, officers or majority stockholders. Accordingly, the defendants' motion to strike the second count of the complaint is granted.
COUNT THREE
The defendants move to strike the third count of the complaint as against the individual defendants and Integrated on the grounds that the plaintiff has failed to state a claim for dissolution because, the defendants argue, the plaintiff has not alleged facts which show that there has been fraudulent, illegal or oppressive conduct by the directors of Integrated. The defendants argue that the plaintiff's claim that his employment was terminated for a false reason is insufficient to state a claim for dissolution under General Statutes § 33-896. Further, the defendants argue that the allegations concerning the presentment of the bylaws amendment and acquisition resolution do not amount to "fraud, collusion or gross mismanagement" of the company. Additionally, the defendants assert that the plaintiff has failed to allege how the conduct has injured him as a shareholder, rather than an employee and that the plaintiff has not alleged facts to show that Integrated acted beyond the scope of its corporate powers.
The plaintiff responds in his memorandum in opposition that he properly alleged a violation of law on the part of the corporation and the individual defendants. The plaintiff argues that failing to pay wages within the prescribed statutory period constitutes as violation of law with both civil (§ 33-72) and criminal (§ 31-71g) consequences.
The defendants argue in response that the plaintiff has not sufficiently alleged that Integrated is being operated in an illegal manner. Further, the plaintiff's allegations, they assert, only suggest that he was possibly injured as an employee. The defendant also argues that a high level of egregious conduct is required to permit the remedy of judicial dissolution. Further, the defendants argue that the plaintiff has not alleged a pattern of ongoing conduct that is injuring Integrated or that as a shareholder rather than as an employee he has been injured.
Section 33-896(a) provides in relevant part, "The superior court for the judicial district where the corporation's principal office or, if none in this state, its registered office, is located may dissolve a corporation: (1) In a proceeding by a shareholder if it is established that: (A) The directors or those in control of the corporation have acted, are acting or will act in a manner that is illegal, oppressive or fraudulent; or (B) the corporate assets are being misapplied or wasted; (2) In a proceeding by a creditor if it is established that: . . . the corporation has admitted in writing that the creditor's claim is due and owing and the corporation is insolvent . . ." "All that is required under § 33-896(a) for corporate dissolution is an allegation that those in control of the corporation have acted illegally." Hart v. Mill Plain Autobody, Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 98 0353463 (March 18, 1999, Mottolese, J.).
In Stone v. R.E.A.L. Healthcare, Inc., Superior Court, judicial district of New Haven, Docket No. CV 980414972 (July 27, 1999, Pittman, J.), the plaintiff alleged that the decisions of three shareholders, in a closely held corporation, who constituted a majority of the directors of the corporation are illegal, oppressive, and fraudulent and constitute the misapplication or wasting of corporate assets. The plaintiff sought dissolution of the corporation under § 33-896 and the defendant moved to strike the complaint as insufficient. The court in denying the motion to strike found that "[w]hat is or is not `oppressive' conduct . . . is a mixed question of law and fact . . . [on which] reasonable minds could certainly differ . . ." (Internal quotation marks omitted.) Id.
The plaintiff has alleged that he is the holder of shares having at least one-tenth of the voting power for the election of directors. The plaintiff alleged that the corporation wilfully exceeded its powers by removing and terminating him. The plaintiff has alleged that the individual defendants engaged in fraud, collusion or gross mismanagement in the conduct or control of the corporation. He supports the statement with the allegation that he was removed and terminated for a false reason and that the individual defendants solicited and obtained his approval for significant corporate resolutions at a time when either they had made the decision to remove and terminate him or were considering doing so without disclosing such facts to the plaintiff. The plaintiff asserts that it is necessary to wind up the corporation for the protection of the rights or interest of the plaintiff shareholder. The plaintiff further alleges that the plaintiff is a creditor of the corporation and is owed back pay in the sum of $28,250.33 and that the defendants have refused to pay despite demands for back pay and that such payment will make the defendant Integrated insolvent. These allegations are legally sufficient to state an action for dissolution of the corporation pursuant to § 33-896(a), therefore the defendants' motion to strike count three is denied.
CONCLUSION
In conclusion, the defendants motion to strike is denied at to count one, granted as to count two and denied as to count three.
D. Michael Hurley, JTR