Opinion
No. X07 CV 04 4025140 S
April 2, 2008
MEMORANDUM OF DECISION ON MOTION TO STRIKE
This action involves a dispute between Capital Properties Associates, L.P., R/C Capital Properties LTD (R/C Capital) and Richard C. Cohen (collectively, Capital) and the state of Connecticut, acting through the secretary of the office of policy and management (OPM), and Capital City Economic Development Authority (CCEDA) (collectively, the state) over the development of the housing and retail district (commonly known as the Front Street parcel) of the Adriaen's Landing master development plan. Capital alleges that it entered into a development agreement with the state on August 1, 2002 in which Capital agreed, in response to certain promises made by the state, to develop the property by constructing a minimum of 200 residential apartments and at least 150,000 square feet of retail, restaurant and other cultural space. The parties allegedly experienced several delays leading to an amended contract of April 21, 2004 with a target construction date of July 1, 2004. On or about August 16, 2004, the state declared Capital to be in breach and both sides filed suit.
Capital commenced suit against the state on November 2, 2004. On or around September 1, 2005, the state commenced an action against Capital, State v. Capital Properties Associates, L.P., Docket No. X07 CV 05 4025115, involving the exact same issues. For practical reasons, the court decides the issues under the framework of this case.
On November 21, 2007, Capital filed a motion to strike the first through the fifth counts, the seventh through the twelfth counts and the prayer for relief as to punitive damages in the state's counterclaim on various grounds. On December 19, 2007, the state withdrew the fourth, fifth, seventh and ninth counts and filed a memorandum in opposition to the motion to strike. Capital filed a reply brief on January 11, 2008. At a hearing on January 15, 2008, this court, on the record, denied the motion to strike the first, second and third counts. The state submitted a supplemental brief on January 22, 2008.
In the state's answer, special defenses and counterclaim filed September 19, 2007 in this case, the state does not set forth the counts of its counterclaim but refers to its complaint filed in State v. Capital Properties Associates, L.P., Docket No. X07 CV 05 4025115.
"A motion to strike tests the legal sufficiency of a cause of action and may properly be used to challenge the sufficiency of a counterclaim." Fairfield Lease Corp. v. Romano's Auto Service, 4 Conn.App. 495, 496, 495 A.2d 286 (1985). "It is fundamental that in determining the sufficiency of a [pleading] challenged by a [party's] motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted." (Internal quotation marks omitted.) Violano v. Hernandez, 280 Conn. 310, 318, 907 A.2d 1188 (2006). "The court must construe the facts in the [pleading] most favorably to the [pleader] . . . If facts provable in the [pleading] would support a cause of action, the motion to strike must be denied." (Internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997).
1.
In the eighth count, the state seeks to hold Cohen individually liable pursuant to General Statutes § 34-15. Specifically, the state alleges that Cohen represented that he was a "full and/or responsible partner" in Capital, that the state parties relied on his representations and that Cohen's disclaimer that he was not a "full and/or responsible partner" violates § 34-15. Section 34-15(a), in relevant part, provides that "a limited partner is not liable for the obligations of a limited partnership unless he is also a general partner or, in addition to the exercise of his rights and powers as a limited partner, he participates in the control of the business; provided, if the limited partner does participate in the control of the business, he is liable only to persons who transact business with the limited partnership reasonably believing, based upon the limited partner's conduct, that the limited partner is a general partner."
Capital, a foreign limited partnership, moves to strike these counts arguing that Connecticut statutes are inapplicable because, pursuant to General Statutes § 34-38f, New York law applies. Section 34-38f, in relevant part, provides that "the laws of the state under which a foreign limited partnership is organized govern its organization and internal affairs and the liability of its limited partners . . ." (Emphasis added.) In response, the state argues that, because it alleges that Cohen was acting as a general partner, § 34-38f does not apply and, therefore, Connecticut law should apply.
"In a limited partnership one or more general partners, with unlimited liability, manage the business while one or more limited partners . . . contribute only capital. A general partner's rights, powers, and obligations are similar to those of partners in an ordinary partnership, but those of a limited partner are far different. The latter have no right to participate in the management and operation of the business and assume no liability beyond the capital they have contributed." 59 Am.Jur.2d 708, Partnerships § 773 (2003).
"The meaning of a statute shall, in the first instance, be ascertained from the text of the statute itself and its relationship to other statutes. If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered." General Statutes § 1-2z.
In the present case, neither party argues that § 34-38f is ambiguous. By the plain meaning of the text of § 34-38f, the statute applies to the liability of limited partners, not general partners. Construing the revised complaint most favorably to the state, the state's allegations in the eighth count, i.e., that Cohen was a "full and/or responsible partner," may be construed to mean that he was a general partner. Therefore, § 34-38f does not apply and this court is not required to apply New York law.
The section regarding the governing law of a foreign limited partnership in the Uniform Limited Partnership Act of 2001 (ULPA-2001), which has not been enacted in Connecticut, does not distinguish between general and limited partners. Specifically, § 901(a) of ULPA-2001 states that "[t]he laws of the State . . . under which a foreign limited partnership is organized govern . . . the liability of partners as partners for an obligation of the foreign limited partnership." (Emphasis added.) Uniform Limited Partnership Act of 2001 § 901, 7A U.L.A. 96 (2003).
The state also alleges in the eighth count that Cohen is liable pursuant to General Statutes § 34-329, which, in relevant part, provides that "[i]f a person, by words or conduct, purports to be a partner . . . the purported partner is liable to a person to whom the representation is made, if that person, relying on the representation, enters into a transaction with the actual or purported partnership . . ." Capital argues that § 34-329 applies to a limited liability partnership, not a limited partnership. The state asserts that "[t]here is nothing in the language of that statute . . . that indicates that this is true."
Section 34-329 is found in chapter 614, Connecticut's Uniform Partnership Act, not in chapter 610, Connecticut's Uniform Limited Partnership Act. While these chapters were once linked by statute, this is no longer the case. Specifically, General Statutes § 34-44, in relevant part, provided "this chapter shall apply to limited partnerships except in so far as the statutes relating to such partnerships are inconsistent." See also Connecticut National Bank v. Cooper, 232 Conn. 405, 415, 656 A.2d 215 (1995) ("[t]he [Uniform Partnership Act (UPA)] applies to limited partnerships except insofar as it is inconsistent with the Uniform Limited Partnership Act"); Fidelity Trust Co. v. BVD Associates, 196 Conn. 270, 275, 492 A.2d 180 (1985) ("Under the Uniform Limited Partnership Act (ULPA); General Statutes §§ 34-9 through 34-38o; as originally enacted and until its 1979 amendments, there was very little substantive difference between the UPA and the ULPA regarding general and limited partnerships, except with respect to the liability of limited partners. Under General Statutes § 34-44, the UPA applies to limited partnerships except insofar as the ULPA is inconsistent therewith"). Nevertheless, the legislature repealed the statute in 1997 and, therefore, because § 34-329 is part of chapter 614, it does not appear to apply. Furthermore, even if § 34-329 is applicable, the state is alleging that Cohen was a general partner, not that he was merely a purported partner. Thus, Capital's motion to strike the eighth count as to § 34-329 is granted.
It is noted, however, that there are three enactments of the ULPA: the Uniform Limited Partnership Act of 1916, the Revised Uniform Limited Partnership Act of 1976 (RULPA), amended in 1985, and the Uniform Limited Partnership Act of 2001. See 59 Am.Jur.2d, Partnerships § 774 (2003). RULPA and the 1985 amendments were not meant to be stand-alone acts and were linked to the UPA. See 59 Am.Jur.2d, Partnerships § 775 (2003). Nevertheless, as noted above, there appears to be no link in Connecticut because of the repeal of § 34-44.
In the eleventh count, the state alleges that Cohen exceeded his role as a limited partner and that he completely dominated Capital resulting in the state reasonably believing that he was a general partner of Capital and is liable to the state under § 34-15. Capital argues that, pursuant to § 34-38f, New York law should be applied. This court agrees as § 34-38f by its plain terms applies as to the liability of limited partners in a foreign limited partnership.
New York requires that a partnership be insolvent before a claim against a partner may be asserted. See Ryan v. Brophy, 755 F.Sup. 595, 597-98 (S.D.N.Y. 1991) ("contract claims must be asserted first against the partnership itself, and not the individual partners, unless the partnership is insolvent or otherwise unable to pay its debts"); see also Meyer v. Park South Associates, 159 App.Div.2d 337, 337, 552 N.Y.S.2d 614 (1990); Helmsley v. Cohen, 56 App.Div.2d 519, 519-20, 391 N.Y.S.2d 522 (1977). Here, the state has failed to include any such allegation. In sum, the motion to strike the eighth count is denied as to § 34-15 and granted as to § 34-329 and the motion to strike the eleventh count is granted.
2.
In the tenth count, the state seeks to pierce the corporate veil claiming that Cohen both completely dominates and is the alter ego of R/C Capital, the general partner of Capital, and is personally liable for damages. Capital seeks to strike this count arguing that the state has only alleged legal conclusions rather than sufficient facts to maintain this cause of action.
"The concept of piercing the corporate veil is equitable in nature and courts should pierce the corporate veil only under exceptional circumstances." (Internal quotation marks omitted.) Old Farms Associates v. Commissioner of Revenue Services, 279 Conn. 465, 489, 903 A.2d 152 (2006). "Our Supreme Court has held that we may disregard the fiction of a separate legal entity to pierce the shield of immunity afforded by the corporate structure in a situation in which the corporate entity has been so controlled and dominated that justice requires liability to be imposed on the real actor . . . Additionally, the court has affirmed judgments disregarding the corporate entity and imposing individual stockholder liability when a corporation is a mere instrumentality or agent of another corporation or individual owning all or most of its stock." (Internal quotation marks omitted.) Miller v. Guimaraes, 78 Conn.App. 760, 771, 829 A.2d 422 (2003).
"Two theories for piercing the corporate veil are employed in Connecticut, the identity rule and the instrumentality rule . . . The identity rule primarily applies to prevent injustice in the situation where two corporate entities are, in reality, controlled as one enterprise because of the existence of common owners, officers, directors or shareholders and because of the lack of observance of corporate formalities between the two entities . . . The identity rule has been stated as follows: If [a] 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." (Citations omitted; internal quotation marks omitted.) Cahaly v. Benistar Property Exchange Trust Co., 73 Conn.App. 267, 284, 812 A.2d 1 (2002), rev'd on other grounds, 268 Conn. 264, 842 A.2d 1113 (2004).
"The instrumentality rule requires, in any case but an express agency, proof of three elements: (1) Control, 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 plaintiff[s'] legal rights; and (3) that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of." (Internal quotation marks omitted.) Miller v. Guimaraes, supra, 78 Conn.App. 771.
In the present case, the state alleges that Capital or its agents represented that Cohen owned 100 percent of the bidding entity; that Cohen was the managing partner and a majority shareholder in all partnerships owning properties; that the bidding entity had an estimated market value of over $1.05 billion; that the proposed ownership structure for certain buildings within the development would be a newly formed, single-purpose limited liability company to be formed by Cohen as president of the bidding entity; and that the bidding entity partners were R/C Capital, Cohen and his wife, Paula Zahn Cohen. (Revised Complaint [Rev. Cp.], State v. Capital Properties Associates, L.P., Docket No. X07 CV 05 4025115, ¶ 16.) It alleges that, despite obligations under the agreement, Cohen stated in January and again in February that Capital would not begin construction of two buildings until a prime tenant committed to a substantial portion of one of the buildings. (Rev. Cp., ¶¶ 33 and 35.) Likewise, on July 26, 2004, Cohen allegedly stated that Capital would not proceed with construction of its minimum committed development without additional public funding. (Rev. Cp., ¶ 58.) There are further allegations that Cohen or his agents represented, by words or conduct, that he was a full and/or responsible partner for Capital (Rev. Cp., ¶ 100); and that he was president and sole director of R/C Capital based upon a filing with the secretary of state of Delaware. (Rev. Cp., p. 38, ¶ 104(a)(1).)
As stated above, "in determining the sufficiency of a [pleading] challenged by a [party's] motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted." (Internal quotation marks omitted.) Violano v. Hernandez, supra, 280 Conn. 318. "The allegations of the pleading involved are entitled to the same favorable construction a trier would be required to give in admitting evidence under them and if the facts provable under its allegations would support a . . . cause of action, the motion to strike must fail . . . What is necessarily implied need not be expressly alleged." (Citation omitted; internal quotation marks omitted.) Craig v. Driscoll, 64 Conn.App. 699, 703-04, 781 A.2d 440 (2001), aff'd, 262 Conn. 312, 813 A.2d 1003 (2003).
The above allegations, construed favorably to the state, are not simply legal conclusions as Capital maintains. They provide a sufficient factual basis to support the state's claim under either the instrumentality or the identity rule. Specifically, the state alleges facts that may be construed to demonstrate a unity of interest among Capital, R/C Capital and Cohen such that the independence of the corporations may be called into question and to illustrate Cohen's dominance over Capital and R/C Capital. As a result, Capital's motion to strike the tenth count is denied.
3.
In the twelfth count, the state alleges that Capital violated the Connecticut Unfair Trade Practices Act, General Statutes § 42-110a et seq. (CUTPA), because Capital's acts and omissions were deceptive, they were made in the course of trade or commerce with the state, the state parties were consumers and they suffered a substantial loss. Capital moves to strike this count on the grounds that the court, Sferrazza, J., in its memorandum of decision, dated January 18, 2006, addressing CCEDA's motion to strike Capital's CUTPA claim against the state, found there was no consumer relationship between the parties.
In the third count of Capital's revised complaint against the state, Capital alleged that the state violated CUTPA. The state moved to strike the count arguing that it "did not engage in trade or commerce either as a general matter or under the circumstances." On January 17, 2006, the court dismissed the CUTPA count against OPM for lack of subject matter jurisdiction based upon sovereign immunity. Capital Properties Associates, L.P. v. Capital City Economic Development Authority, Superior Court, complex litigation docket at Tolland, Docket No. X07 CV 04 4001923 (January 17, 2006, Sferrazza, J.) (40 Conn. L. Rptr. 590). The court also granted the state's motion to strike the count as to CCEDA on January 18, 2006. In its memorandum of law, after discussing cases on point, Judge Sferrazza concluded that "[t]his court concurs with those decisions that have held that CUTPA is inapplicable to governmental action as a matter of law. Performance of a governmental function is, ipso facto, not trade or commerce. Missing is the consumer relationship required by Jackson v. R.G. Whipple, Inc. . . . [ 225 Conn. 705, 725-27, 627 A.2d 374 (1993)]." Capital Properties Associates, L.P. v. Capital City Economic Development Authority, Superior Court, complex litigation docket at Tolland, Docket No. X07 CV 04 4001923 (January 18, 2006, Sferrazza, J.) (40 Conn. L. Rptr. 594, 595).
Judge Sferrazza's analysis does not resolve the issue now before the court. It is one thing to allege, as Capital did, albeit improperly, that the government has committed an unfair or deceptive trade practice. It is another thing for the state to allege that Capital had engaged in the unfair or deceptive practice. It is the conduct, not the relationship, that is the focus of the act. See Fink v. Golenbock, 238 Conn. 183, CT Page 18756 214, 680 A.2d 1243 (1996).
Our Supreme Court has ruled "that CUTPA imposes no requirement of a consumer relationship. In McLaughlin Ford, Inc. v. Ford Motor Co., 192 Conn. 558, 473 A.2d 1185 (1984), we concluded that CUTPA is not limited to conduct involving consumer injury and that a competitor or other business person can maintain a CUTPA cause of action without showing consumer injury." (Internal quotation marks omitted.) Larsen Chelsey Realty Co. v. Larsen, 232 Conn. 480, 496, 656 A.2d 1009 (1995).
Nevertheless, General Statutes § 42-110g(a), in relevant part, provides: "[a]ny person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of a method, act or practice prohibited by section 42-110b, may bring an action . . . to recover actual damages . . ." (Emphasis added.) In § 42-110a(3), "person," as used in the chapter, is defined as "a natural person, corporation, limited liability company, trust, partnership, incorporated or unincorporated association, and any other legal entity."
Judge Bishop reviewed this definition as it applied to the state in Charter Communications Entertainment I, LLC v. The University of Connecticut, The Board of Trustees, Superior Court, complex litigation docket at Tolland, Docket No. X07 CV00 0072038 (March 23, 2000, Bishop, J.) (27 Conn. L. Rptr. 11, 12-13). In discussing sovereign immunity, the court found that, while the phrase "any other legal entity" could conceivably include the state, the legislature has, in other statutes, included specific references. Id., 12. As an example, the court cited General Statutes § 22a-2(c) which defines "person" as "any individual, firm, partnership, association, syndicate, company, trust, corporation, limited liability company, municipality, agency or political or administrative subdivision of the state, or other legal entity of any kind." (Emphasis added.) Id. "[W]here a statute, with reference to one subject contains a given provision, the omission of such provision from a similar statute concerning a related subject . . . is significant to show that a different intention existed . . . Since the General Assembly had specifically included the state in the definition of 'person' in one proscriptive statute, the court cannot find that the State is included, by implication, in the definition of 'person' in another similar statute." (Citation omitted; internal quotation marks omitted.) Id.
Furthermore, because Massachusetts statutes are "virtually identical" to those of Connecticut, our courts have repeatedly looked to Massachusetts decisions in determining the scope of CUTPA. Normand Josef Enterprises, Inc. v. Connecticut National Bank, 230 Conn. 486, 521, 646 A.2d 1289 (1994). Massachusetts' courts have consistently interpreted the term "person" in Massachusetts General Laws c. 93A as not including public entities. See Morton v. Town of Hanover, 43 Mass.App. 197, 205-06, 682 N.E.2d 889 (1997); Bretton v. State Lottery Commission, 41 Mass.App. 736, 738, 673 N.E.2d 76 (1996). Thus, because the definition of "person" in § 42-110a(3) does not include the state, the court finds that the state cannot sue Capital pursuant to § 42-110g. Accordingly, the motion to strike the twelfth count is granted.
It is noted, however, that, as in Connecticut, Massachusetts courts have used the definition of "person" to shield the commonwealth from liability rather than to prohibit it from bringing a suit.
Of course, the state, through the commissioner of consumer protection and the attorney general may act pursuant to other statutes under CUTPA, e.g., General Statutes §§ 42-110d and 42-110m. Nevertheless, the commissioner and the attorney general are not parties to this action and the state is seeking compensatory damages pursuant to § 42-110g. (Rev. Cp., ¶ 115.)
CT Page 18757
4.
Finally, Capital moves to strike the state's prayer for relief for common-law punitive damages on the grounds that they are precluded by § 10.03 of the contract. Section 10.03, in relevant part, provides that "the parties shall be entitled to pursue their respective rights and remedies pursuant to this Agreement or any other Operative Agreement or as may otherwise be available in law or equity. In no event shall either the State parties or Capital be entitled to consequential damages . . . or any other damages in excess of compensatory damages for breach or default under this Agreement or any other Operative Agreement." The state argues that § 10.03 is not a complete bar to punitive damages."Punitive damages are not ordinarily recoverable for breach of contract . . . This is so because . . . punitive or exemplary damages are assessed by way of punishment, and the motivating basis does not usually arise as a result of the ordinary private contract relationship. The few classes of cases in which such damages have been allowed contain elements which bring them within the field of tort. It is, of course, settled law that, in certain cases of tort, punitive or exemplary damages may properly be awarded.
"Breach of contract founded on tortious conduct may allow the award of punitive damages. Such tortious conduct must be alleged in terms of wanton and malicious injury, evil motive and violence, for punitive damages may be awarded only for outrageous conduct, that is, for acts done with a bad motive or with a reckless indifference to the interests of others . . . Thus, there must be an underlying tort or tortious conduct alleged and proved to allow punitive damages to be granted on a claim for breach of contract, express or implied. Elements of tort such as wanton or malicious injury or reckless indifference to the interests of others giving a tortious overtone to a breach of contract action justify an award of punitive or exemplary damages. In our jurisdiction such recovery is limited to an amount which will serve to compensate the plaintiff to the extent of his expenses of litigation less taxable costs." (Citations omitted; emphasis omitted; internal quotation marks omitted.) L.F. Pace Sons, Inc. v. Travelers Indemnity Co., 9 Conn.App. 30, 47-48, 514 A.2d 766, cert. denied, 201 Conn. 811, 516 A.2d 886 (1986).
In the present case, the state seeks damages for tortious conduct in addition to its breach of contract claims. Specifically, the court construes the sixth count to allege more than mere negligent misrepresentation. (See Rev. Cp., ¶ 103.) Such a sufficiently pled tort claim may warrant punitive damages. See O'Leary v. Industrial Park Corp., 211 Conn. 648, 651, 560 A.2d 968 (1989) ("[p]unitive damages may be awarded upon a showing of fraud"); Markey v. Santangelo, 195 Conn. 76, 77, 485 A.2d 1305 (1985) ("[t]o furnish a basis for recovery of . . . [punitive] damages, the pleadings must allege . . . wanton or wilful malicious misconduct"). The same is not true for the breach of contract claims and any prayer for relief for punitive damages therein is stricken both as a result of the contractual limitation and the failure to allege sufficient tortious conduct in addition to the breach of contact.
For the foregoing reasons, Capital's motion to strike the state's counterclaims is granted in part and denied in part.