Opinion
No. CV05 4002073 S
September 20, 2006
MEMORANDUM OF DECISION MOTION TO DISMISS
FACTS
On November 1, 2005, the plaintiff, Bausch Stroebel Machine Company, Inc., filed a twelve-count amended complaint against the defendants, Christo Angelov (Angelov) and Biles, LLC (Biles). In its complaint, the plaintiff alleges the following facts.
The plaintiff is a Connecticut corporation which manufactures machinery used in the medical and pharmaceutical industries. Prior to this lawsuit, the plaintiff employed Angelov as a manager and then as director of research and development. In early 1997, Angelov's employment with the plaintiff ended and Angelov formed Biles, a Connecticut limited liability company. After Biles was created, the plaintiff and Biles entered a consulting agreement in which Angelov agreed to provide consulting services to the plaintiff, and the plaintiff agreed to pay Biles for Angelov's services.
Later in 1997, the plaintiff, Angelov and another individual entered into a shareholder agreement to form a company that is affiliated with the plaintiff to sell the plaintiff's machinery in Russia and the Commonwealth of Independent States. To effectuate this agreement, a company called MachPharm, Ltd. (MachPharm) was created. By October 1998, the plaintiff owned seventy-five percent of MachPharm and Angelov, together with his wife, owned the remaining twenty-five percent.
Acting on behalf of MachPharm, Angelov would solicit machine orders from oversea purchasers and submit those orders to the plaintiff. In turn, the plaintiff would pay MachPharm a commission to be deposited in MachPharm's bank accounts to pay for its operating expenses. Angelov was primarily responsible for MachPharm's financial affairs and was the sole signatory with power of attorney over MachPharm's bank accounts.
In 2004, Angelov began to prepare for his retirement from MachPharm. At this time, the plaintiff requested that Angelov provide it with MachPharm's financial information. Upon review of the records provided, the plaintiff discovered that Angelov had transferred a substantial amount of money from MachPharm's accounts to his own personal account for his own use. Some or all of the unauthorized transfers of MachPharm's funds were made at Angelov's direction from MachPharm to Biles. The plaintiff then brought the present action.
In its complaint, the plaintiff sets forth seven causes of action against Angelov including: breach of fiduciary duty, theft pursuant to § 52-264, conversion, breach of contract, unjust enrichment, negligence, and violations of the General Statues § 41-110a et seq., the Connecticut Unfair Trade Practices Act (CUTPA). In addition, the plaintiff sets forth five causes of action against Biles including: theft pursuant to § 52-264, conversion, unjust enrichment, negligence, and violations of CUTPA.
Because General Statutes § 52-264 is entitled "Judges of Supreme Court to make rules for appeals and writs of error," it appears that the plaintiff has cited this section in error.
See footnote 1, supra.
On March 27, 2006, the defendants filed a motion to dismiss for lack of standing along with a memorandum in support, three affidavits, twelve exhibits, excerpts from a deposition and a photocopy of a document marked "defendant's exhibit 1." Thereafter, on April 28, 2006, the plaintiff filed a memorandum of law in opposition to the defendants' motion with an attached affidavit and nine exhibits. On June 8, 2006, the defendants filed a supplemental memorandum in support of its motion along with two affidavits and discovery compliance excerpts. Oral argument was heard on June 13, 2006.
DISCUSSION
In their motion to dismiss, the defendants argue that (1) the plaintiff lacks standing to bring this action because it has no legal or equitable interest in MachPharm; (2) even if the plaintiff has an interest in MachPharm, the plaintiff's action constitutes a shareholder derivative suit which is barred by statute because the plaintiff has not made demand upon MachPharm or demonstrated that demand would be futile; and (3) the plaintiff's parent corporation has not authorized its lawsuit. In opposition, the plaintiff argues that: (1) it is a shareholder of MachPharm; (2) shareholder derivative suit rules do not apply; and (3) Connecticut law does not require a corporation to obtain permission from its own board of directors prior to filing a lawsuit, and, even if authorization is required, the plaintiff's vice president, Oliver Bausch (Bausch), was authorized to institute this lawsuit.
In particular, the defendants argue that General Statutes § 33-722 requires the plaintiff make demand on MachPharm prior to bringing suit.
"The proper procedural vehicle for disputing a party's standing is a motion to dismiss." D'Eramo v. Smith, 273 Conn. 610, 615 n. 6, 872 A.2d 408 (2005). "Standing is the legal right to set judicial machinery in motion. One cannot rightfully invoke the jurisdiction of the court unless he [or she] has, in an individual or representative capacity, some real interest in the cause of action, or a legal or equitable right, title or interest in the subject matter of the controversy." (Internal quotation marks omitted.) West Farms Mall, LLC v. West Hartford, 279 Conn. 1, 11, 901 A.2d 649 (2006).
"[T]he plaintiff ultimately bears the burden of establishing standing." Seymour v. Region One Board of Education, 274 Conn. 92, 104, 874 A.2d 742 (2005). "Standing is established by showing that the party claiming it is authorized by statute to bring an action, in other words statutorily aggrieved, or is classically aggrieved." (Internal quotation marks omitted.) Wesley v. Schaller Subaru, Inc., 277 Conn. 526, 538, 893 A.2d 389 (2006). Moreover, "[a]ggrievement presents a question of fact for the trial court." (Internal quotation marks omitted.) Moutinho v. Planning Zoning Commission, 278 Conn. 660, 665, 899 A.2d 26 (2006).
On a motion to dismiss, "[w]hen issues of fact are necessary to the determination of a court's jurisdiction, due process requires that a trial-like hearing be held, in which an opportunity is provided to present evidence and to cross-examine adverse witnesses." Standard Tallow Corp. v. Jowdy, 190 Conn. 48, 56, 459 A.2d 503 (1983); see also Gordon v. H.N.S. Management Co., 272 Conn. 81, 92, 861 A.2d 1160 (2004); Marchentine v. Brittany Farms Health Center, 84 Conn.App. 486, 489 n. 5, 854 A.2d 40 (2004). "[A]ffidavits are insufficient to determine the facts unless, like the summary judgment, they disclose that no genuine issue as to a material fact exists." (Internal quotation marks omitted.) Standard Tallow Corp. v. Jowdy, supra, 190 Conn. 56. Moreover, our Appellate Court has said that "a [trial] court cannot make a critical factual finding based on memoranda and documents submitted by the parties." Coughlin v. Waterbury, CT Page 17292 61 Conn.App. 310, 315, 763 A.2d 1058 (2001). In fact, without an evidentiary hearing, it is improper for a court to resolve a critical fact issue solely on the basis of a complaint and affidavits containing controverted facts. See id., 315-16; see also Bellman v. West Hartford, 96 Conn.App. 387, 396-97, 900 A.2d 82 (2006).
In Coughlin v. Waterbury, 61 Conn.App. 310, 315, 763 A.2d 1058 (2001), the Appellate Court reversed a trial court's ruling on a motion to dismiss in which the trial court dismissed the case without holding an evidentiary hearing to resolve an underlying factual issue. In Coughlin, the plaintiff brought suit against the town of Waterbury for injuries she sustained when she fell at the intersection of an elementary school driveway and the sidewalk. Id., 312. The defendant town filed a motion to dismiss for lack of subject matter jurisdiction on the grounds that the plaintiff failed to allege any statutory exception to the defendant's governmental immunity and because the school, not the defendant, was responsible for maintaining the area where the plaintiff fell. Id.
In support of its contentions, the defendant submitted an affidavit from the school board's inspector supporting its claim that the area where the plaintiff fell was owned and maintained by the school and not the town. Id., 312-13. The plaintiff filed a memorandum in opposition along with her own affidavit in which she attested that the defendant had the responsibility of maintaining the area where she fell. Id., 313. The trial court granted the defendant's motion to dismiss stating, "the plaintiff's affidavit does not contradict any of the material facts attested to by the defendant's affiants." Id. After the trial court rendered its decision, the plaintiff filed a motion to reargue, which the trial court denied, and the plaintiff then appealed. Id.
On appeal, the Appellate Court recognized that the issue of whether the trial court had subject matter jurisdiction was tied to a determination as to who had a duty to maintain the area where the plaintiff fell. Id., 315. The court also recognized that the parties' affidavits conflicted on this issue and "[a]ccordingly, a genuine issue of material fact [existed] as to where the plaintiff fell and whether the city or the board had the duty to maintain that property." Id., 315. Thus, the court stated that "[b]ecause the issue of maintenance [remained] in dispute and the resolution of the issue [was] determinative of the court's subject matter jurisdiction, the [trial] court was precluded from granting the motion to dismiss on the ground that it lacked jurisdiction." (Emphasis added.) Id. Accordingly, the Appellate Court concluded that the trial court improperly decided the motion to dismiss without first holding an evidentiary hearing. Id., 316.
In the present case, the issue of whether the plaintiff has standing is inextricably related to whether it has an interest in MachPharm. The defendants argue that the plaintiff has not and cannot produce any evidence supporting its allegation that it owns such an interest. In addition, the defendants argue that at best, Bausch himself had some form of equitable interest in MachPharm by virtue of his status as an investor, however, he is not a party and his interest cannot be imputed to the plaintiff. In opposition, the plaintiff argues that it authorized Bausch to enter into an agreement so that the plaintiff would become a MachPharm shareholder, that he entered such an agreement, and as a result, the plaintiff became a MachPharm shareholder. As such, the plaintiff argues that it holds an interest in MachPharm and, therefore, has standing.
The parties' affidavits conflict on this issue. In Angelov's affidavit, he attests that between 1997 and 1998, no company by the name of MachPharm was ever created, but, in February 1998, he registered an entity known as "MachPharm Limited" in the Virgin Islands. According to Angelov, he was the sole owner of "MachPharm Limited." Angelov further attests that in 2001, he employed a Russian law firm to form a corporation in New Zealand, also called "MachPharm Limited," to replace the Virgin Island corporation. Angelov attests that neither the plaintiff nor Bausch possessed any ownership interest in the New Zealand company.
In contrast, Bausch attests that he signed a shareholder agreement on the plaintiff's behalf which initially gave the plaintiff a fifty-five percent ownership share in a company referred to as "BIOMASH," which was ultimately called MachPharm Ltd. Bausch further attests that the plaintiff's fifty-five percent ownership interest eventually increased to seventy-five percent through a shareholder buyout and that the plaintiff's ownership interest is evidenced by true and accurate copies of attached exhibits.
Taking into account the parties' affidavits, if the plaintiff is a MachPharm shareholder, then the standing issue before the court would most likely be to determine whether the plaintiff is attempting to assert claims alleging wrongs against MachPharm because "[i]t is commonly understood that [a] shareholder — even the sole shareholder — does not have standing to assert claims alleging wrongs to the corporation." Smith v. Snyder, 267 Conn. 456, 461, 839 A.2d 589 (2004). If, however, the plaintiff is not a MachPharm shareholder, then the standing issue before the court would be to determine if the plaintiff can meet its burden of proving that it has some nonshareholder interest in the cause of action, or legal or equitable right, title or interest in the subject matter of the controversy. In either scenario, however, the initial issue presented by the parties' arguments and affidavits, id. est, whether the plaintiff is a MachPharm shareholder, needs to be resolved by the requisite evidentiary hearing to allow this court to make the appropriate factual findings and to comply with the dictates set forth by the Appellate Court in Coughlin.
Accordingly, absent an evidentiary hearing, the court is precluded from ruling on the defendant's motion. Therefore, a Standard Tallow hearing is necessary to provide the court with the ability to make the necessary factual findings. The clerk, therefore, is directed to schedule such an evidentiary hearing at a time convenient to the parties and the court.