Summary
comparing Connecticut's statutory dissolution standard to Delaware's standard
Summary of this case from Hadeed v. Advanced Vascular Res. of Johnstown, LLCOpinion
No. 4003783.
January 8, 2009
MEMORANDUM OF DECISION
This action arises out of the breakdown of the relationship between the principals, the plaintiff, Rosa Connors, and the defendant, Jennifer Kiman, who are the sole members of the defendant Howe Elegant, LLC (hereafter Howe), a beauty and hair salon. Connors (hereafter the plaintiff) alleges that in February 2005, she informed Kiman (hereafter the defendant) that she wanted to sell her interest in Howe or dissolve the business, but that she and Kiman were unable to come to terms about the business' future or the terms of dissolution. The plaintiff further alleges that on May 19, 2005, Kiman locked her out of the business' premises, subsequently closed the business' bank account and transferred those funds to another account, to which the plaintiff did not have access, and withdrew about $4,500 in operating cash.
The plaintiff brought this action on June 30, 2005. As amended, the complaint is in eighteen counts, including one count for breach of contract, two counts for conveyance without consideration, two counts for fraudulent conveyance, three counts of conversion, three counts of unjust enrichment and six counts alleging violations of the Connecticut Unfair Trade Practices Act ("CUTPA"). The plaintiff lists twenty-one claims for relief, including a decree of dissolution of Howe and an order to wind up its business, appointment of a receiver, money damages, punitive damages, double or treble damages and such other and further relief as the court deems just.
In their answer, the defendants assert a special defense of unclean hands against the plaintiff. They further assert a five-count counterclaim against the plaintiff for breach of her fiduciary and statutory duties to Kiman and to Howe and a violation of CUTPA.
The case was tried to the court, which now finds the following facts. The plaintiff is a skin care specialist; the defendant is a hairdresser. In February 2001, both parties left their prior employment, taking with them their respective clients, and created Howe. Howe's business was hair styling, and nail and skin care. The plaintiff and the defendant obtained a $70,000 bank loan that was guaranteed by the United States Small Business Association (SBA), for which they were individually liable. Howe entered into a five-year lease on February 12, 2001 for the premises at 500 Howe Avenue in Shelton, Connecticut, which the plaintiff and defendant individually guaranteed.
By mutual agreement, the incomes that the plaintiff and the defendant derived from the business varied in a manner not prescribed by the LLC's operating agreement. Initially, the plaintiff and the defendant each put $700 back into the business each week, over and above what each party had earned from her respective customers. There was no evidence as to what the parties' arrangement was after this initial period, except that the plaintiff and the defendant took draws only out of what they respectively earned from their own clients, not from the revenue produced by anyone else in the shop.
In addition to the plaintiff and the defendant, the business had six employees: Tina Frag, the receptionist; Chris Heiman and Heather Fernandez, hairdressers; Lisa DiLorenzo and Carey Urbano, nail technicians; and Micalina Calabro, a massage therapist. DiLorenzo was the plaintiff's cousin; Calabro was the plaintiff's sister.
Employees were paid on a commission basis. The commission was not uniform for all employees, but varied from 25 percent to 50 percent. The balance was put back into the business. The employees had their own clients who they brought to the business. All the employees were employees at will, as were the plaintiff and the defendant. There were no employment contracts nor covenants not to compete.
Nonetheless, the employees were given W-2s.
Howe had three stations at which hair was cut or styled, one nail location and a skin station.
The parties maintained a petty cash bag, the proceeds of which were used for such matters as Christmas bonuses. They arbitrarily took turns holding the bag. In January 2005, the plaintiff gave the bag to the defendant. At that time the bag contained about $5,000.
For over three years, the plaintiff was the dominant member of Howe. Although Howe's operating agreement provided that each party was a member-manager, the plaintiff, with the defendant's acquiescence, was the de facto sole manager of the business. In the latter half of 2004, however, the defendant began to take a more assertive role in the business. On February 8, 2005, the plaintiff and the defendant had a telephone conversation about an issue that had arisen at work. An argument erupted at the end of which the plaintiff and the defendant agreed that they no longer would be partners and that their association would be terminated.
In the ensuing two and one-half months, the business continued. The atmosphere in the business was tense, but professional. The parties spoke little to each other; they generally only communicated through counsel. In March, the plaintiff, by her attorney, offered to sell her interest in Howe to the defendant "at a price to be determined by mutual agreement." In the alternative, the plaintiff suggested that they dissolve Howe. These offers failed to result in an agreement.
In March, the plaintiff informed the employees that she would be leaving Howe to start her own business. The employees made it clear to the plaintiff that they would be following her to that business. The defendant approached one employee, Heather Fernandez, informed her that she and the plaintiff would not be working together and encouraged Fernandez to stay with her. Fernandez was, at best, equivocal.
In March 2005, the plaintiff found a new location one-half mile away from Howe, obtained a building permit and began fitting up the building for her business, Sona Bella Salon and Spa, LLC (Sona Bella). Employees talked openly with their customers about their going to the plaintiff's new establishment, so much so that the defendant could overhear the remarks. The plaintiff took customer information from Howe's computer and used it to send a mailing to some of her customers, and to customers of the employees, announcing that Sona Bella would be opening and would employ Howe's soon-to-be former employees. She also took Howe's appointment book home and copied it and sold a gift certificate for her competing salon while she was still working at Howe. The plaintiff told the employees to tell their customers that the employees would be moving to Sona Bella soon, and the customers should make their next appointments there.
On April 28, 2005, an apprehensive defendant and her husband went on vacation. Before leaving, she asked the employees to provide her with two weeks notice and with letters of resignation. The defendant and her husband returned on May 7, 2005, which corresponded with the last day the employees worked at Howe. On Monday, May 9, 2005, the defendant called the plaintiff to discuss terms for dissolving the LLC. The parties did not reach an agreement on terms. During the week of May 9, 2005, the plaintiff was in and out of Howe, taking care of some of her customers, then leaving to tend to the fitting up of Sona Bella, where her work station was not yet ready. Although the fit up for Sona Bella was not complete, its new employees started seeing customers there on May 10, 2005. The plaintiff continued seeing her customers at Howe until May 18 or 19, 2005; she had nowhere else to service them.
On Thursday, May 19, 2005, the defendant changed the locks to the premises at 500 Howe Avenue. That evening, after business hours, the plaintiff tried to gain entry to the business, unsuccessfully, to retrieve a make-up unit she needed to service teenage customers who were attending a high school prom that weekend. The plaintiff's husband then telephoned the defendant's husband and asked him to open the door to the business that evening. The defendant's husband refused and also refused a request to provide the plaintiff with a new key to the premises. The plaintiff retrieved the make-up unit the following day, when she arrived at the business with a police officer. She never entered the premises again. She also made no payments on the lease to 500 Howe Avenue or on the SBA loan.
Thereafter, the defendant ceased doing business at 500 Howe Avenue under the name Howe Elegant LLC and did business under Jennifer Lee, LLC. She never again consulted with the plaintiff, and she assumed the lease and used the equipment and improvements that were made to the premises in 2001, when Howe first began operating. She also used the existing inventory of supplies. The defendant took charge of Howe's bank account, closed it with a balance of about $23,000, and transferred the money to a new account entitled Howe Elegant Old Money. She used that money, however, only to pay obligations of Howe or the SBA loan. Additional facts will be set forth as necessary.
I
The first count of the plaintiff's amended complaint seeks a dissolution of Howe. Consideration of that count is deferred to part VI of this decision.
The second count of the amended complaint alleges that the plaintiff informed the defendant that she wanted to either sell her interest in Howe or dissolve it; that the parties were unable to arrive at an agreement as to the future of Howe or its dissolution, that the defendant locked the plaintiff out of the business and withdrew all funds from Howe's bank account and started a new account to which the plaintiff was not given access; that the defendant withheld $4,500 in operating funds from the plaintiff and has not included the plaintiff in any business decisions. The second count further alleges that the defendant "has breached the covenants, terms and responsibilities as contained in the Operating Agreement." As to this count, the plaintiff seeks money damages for breach of contract.
The parties do not specifically address the second count in their briefs. To the extent that the plaintiff relies on paragraph four of Howe's operating agreement, which is the only provision that is alleged in count two, the plaintiff's claim is not well taken. The provision sets forth the procedure to be followed where a member of Howe seeks to sell her interest to an outside party. There is no evidence that either party sought to sell her interest to an outside party. Judgment may enter for the defendants on the second count.
Paragraph four of the agreement between the parties signed on February 27, 2001, which was attached to Howe's operating agreement, states: "In the event of a sale of the interest of a Member to an outside party, the members agree to arrive at a value of the business as based on the income, capital account of each member, contribution and deduction of the liabilities of the business as arrived at by the company accountant within 30 days of the notice that a Member wants to sell or transfer her interest. The other Member/Manager has the ability to buy out the Member/Manager at a fair price. In the event that an Agreement cannot be approved and agreed upon by the selling Member and remaining Member, the Members agree to dissolve the LLC."
II
The court turns to counts three through thirteen of the amended complaint. The third count alleges conversion based on the defendant's taking over Howe's assets and refusing to turn over to the plaintiff her share of the assets. The fourth count alleges unjust enrichment based on essentially the same facts. The fifth count alleges conversion based on the defendant's transfer of Howe's business assets to the new LLC and refusal to turn over to the plaintiff her share of the assets. The sixth count alleges unjust enrichment based on the same facts alleged in the fifth count. The seventh count alleges a violation of CUTPA based on those same facts. The eighth, ninth and tenth counts again allege conversion, unjust enrichment and CUTPA, respectively. Count eleven alleges a fraudulent conveyance by the defendant of Howe's assets to her new LLC. Count twelve alleges a CUTPA violation based on that fraudulent conveyance. Count thirteen again alleges fraudulent conveyance based on the same facts, plus an allegation that in October 2006, the defendants changed the name of the business to New Day Hair Skin Salon.
Although the issue of the plaintiff's standing to bring these counts has not been raised by the defendants, the court raises it sua sponte because it implicates the court's jurisdiction. Smith v. Snyder, 267 Conn. 456, 460 n. 5, 839 A.2d 589 (2004).
"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 . . . When standing is put in issue, the question is whether the person whose standing is challenged is a proper party to request an adjudication of the issue . . . Standing requires no more than a colorable claim of injury; a [party] ordinarily establishes . . . standing by allegations of injury. Similarly, standing exists to attempt to vindicate arguably protected interests . . .
"Standing is established by showing that the party claiming it is authorized by statute to bring suit or is classically aggrieved . . . The fundamental test for determining aggrievement encompasses a well-settled twofold determination: first, the party claiming aggrievement must successfully demonstrate a specific, personal and legal interest in [the subject matter of the challenged action], as distinguished from a general interest, such as is the concern of all members of the community as a whole. Second, the party claiming aggrievement must successfully establish that this specific personal and legal interest has been specially and injuriously affected by the [challenged action] . . . Aggrievement is established if there is a possibility, as distinguished from a certainty, that some legally protected interest . . . has been adversely affected . . . AvalonBay Communities, Inc. v. Orange, 256 Conn. 557, 567-68, 775 A.2d 284 (2001).
"Since at least the middle of the [nineteenth] century, it has been accepted in this country that the law should permit shareholders to sue derivatively on their corporation's behalf under appropriate conditions . . . [I]t is axiomatic that a claim of injury, the basis of which is a wrong to the corporation, must be brought in a derivative suit, with the plaintiff proceeding secondarily, deriving his rights from the corporation which is alleged to have been wronged . . . Fink v. Golenbock, 238 Conn. 183, 200, 680 A.2d 1243 (1996).
"[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. Id., 201. It is commonly understood that [a] shareholder — even the sole shareholder — does not have standing to assert claims alleging wrongs to the corporation. Jones v. Niagara Frontier Transportation Authority, 836 A.2d 731, 736 (2d Cir. 1987), cert. denied, 488 U.S. 825, 109 S.Ct. 74, 102 L.Ed.2d 50 (1988)." (Internal quotation marks omitted.) Smith v. Snyder, supra, 267 Conn. 460-62.
Fink v. Golenbock, 238 Conn. 183, 680 A.2d 1243 (1996), has some similarities to and differences with the instant case. In Fink, the named parties were each 50 percent owners of a professional corporation (the corporation) that became a successful pediatric practice. The plaintiff's wife sued him for divorce and told an employee of the corporation, Joan Magner, that the plaintiff had engaged in sexual conduct with his young adopted children. After learning this information, the defendant informed the plaintiff that he was no longer part of the medical practice, that he would not be allowed to see patients, and that if he attempted to do so, the defendant would have him arrested. Soon thereafter, the defendant and Magner formed a new professional corporation and operated a pediatric medical practice in the same building, which building was owned by the parties' corporation, used the same telephone number as the corporation and used the equipment that belonged to the corporation. Furthermore, the defendant took $10,000 from the corporation's checking account to establish the new corporation, and he did not pay the corporation either for the use of its equipment or for the use of its building. Id., 186-87.
The plaintiff brought a derivative action on behalf of the corporation alleging conversion, tortuous interference with business expectancies, unjust enrichment and violation of CUTPA. On appeal, the defendant argued that the plaintiff did not have standing to sue on behalf of the corporation because the plaintiff's injuries were personal, and not derivative. The Supreme Court disagreed. It also declined to decide "whether the plaintiff could properly have brought a direct suit had he so chosen;" id., 200; although the court noted: "At least one authority has suggested that in the case of a closely held corporation, the court may choose to treat a derivative action as a direct action: `In the case of a closely held corporation . . . the court in its discretion may treat an action raising derivative claims as a direct action, exempt it from those restrictions and defenses applicable only to derivative actions, and order an individual recovery . . .' 2 American Law Institute, Principles of Corporate Governance: Analysis and Recommendations (1994) § 7.01(d)." Id., 200 n. 14; see also id., 202 n. 17.
Subsequent cases have cast doubt on the current viability of this suggestion in Fink. In Smith v. Snyder, supra, 267 Conn. 456, the plaintiffs, Patricia Smith, Carol Tartagnio and Lectron Labs, Inc., brought suit against the defendants, Bettina and Donald Snyder and CS Industries, under the common law, CUTPA and the Uniform Trade Secrets Act, alleging, inter alia, "that the named defendant, Charles Snyder, while serving as a director and officer of Lectron, breached a fiduciary duty that he owed to Lectron by engaging in a pattern of self dealing and other abuses of his position that were designed to destroy or devalue Lectron. The plaintiffs further alleged that certain other defendants conspired with Charles Snyder in his alleged improprieties. Among other things, the plaintiffs claimed that the defendants misappropriated corporate property and that their conduct violated the Connecticut Unfair Trade Practices Act (CUTPA) . . ." Id., 458-59. The defendants were defaulted for failure to comply with discovery orders, and the case proceeded to a hearing in damages, after which the trial court made the following findings of fact: "`The plaintiffs protected their suppliers, customers, pricing schemes and processes, and treated them as proprietary information. The defendants kept [a] competing venture secret from the plaintiffs. Specifically, the defendants, while in the plaintiffs' employ: (1) started a competing business, (2) utilized fraudulent means to misappropriate the plaintiffs' most productive and efficient machine, (3) [discouraged] the plaintiffs' existing customers by over-quoting jobs, (4) disrupted the plaintiffs' cash flow by not sending out bills, (5) altered the plaintiffs' company records to prevent the plaintiffs from being able to rehire employees who had been laid off, and (6) solicited the plaintiffs' customers and diverted them to the defendants' new business venture.'" Id., 459-60.
On appeal, the Supreme Court addressed sua sponte the issue of the plaintiffs' standing; id., 460 n. 5; and concluded: that "Smith and Tartagni lacked standing to bring this action in their individual capacities because the allegations in the plaintiffs' complaint, if true, demonstrate that Lectron was harmed, but that no specific shareholder sustained an injury separate and distinct from that suffered by any other shareholder or by the corporation. Accordingly, the individual claims of Smith and Tartagni must be dismissed." Id., 462.
So too, here, the injuries that the defendant allegedly committed, transferring inventory, equipment and leasehold to Jennifer Lee, LLC, and even the "lock-out," were injuries to Howe, not to the plaintiff.
In Wasko v. Farley, 108 Conn.App. 156, 170, 947 A.2d 978, cert. denied, 289 Conn. 922, 958 A.2d 155 (2008), the plaintiff sustained personal injuries in a motor vehicle accident caused by the defendant tortfeasor. She claimed on appeal that the trial court improperly failed to charge the jury on damages incurred by her dental practice due to her limited work capabilities. Id., 169. The Appellate Court "conclude[d] that the court properly declined to instruct the jury on damages resulting from costs borne by the plaintiff's dental practice because the plaintiff, suing in her capacity as an individual, was not entitled to recover damages incurred by a limited liability company of which she is a member. A limited liability company is a distinct legal entity whose existence is separate from its members . . . A limited liability company has the power to sue or be sued in its own name; see General Statutes §§ 34-124(b) and 34-186; or may be a party to an action through a suit brought in its name by a member. See General Statutes § 34-187. A member may not sue in an individual capacity to recover for an injury the basis of which is a wrong to the limited liability company." Wasko v. Farley, supra, 108 Conn.App. 170.
Based on Smith v. Snyder, supra, 267 Conn. 456, and Wasko v. Farley, supra, 108 Conn.App. 156, the court holds that the plaintiff lacks standing to bring the tort claims in her individual capacity. Therefore, counts three through eighteen of the plaintiff's amended complaint are dismissed.
Because these counts are dismissed, the court does not address the defendants' special defenses to these counts.
III
The defendants have filed a five-count counterclaim. Two counts are asserted by Howe, two counts by the defendant, and one CUTPA count by both Howe and the defendant.
In counts one and two of its counterclaim, Howe alleges that the plaintiff while she was a manager, member and employee of Howe, breached her fiduciary and statutory duties, pursuant to General Statutes § 34-141, in the following ways: "a. She obtained a location for a competing business within a short distance of the place of business of the defendant . . . b. She recruited employees of the defendant . . . for her competing salon; c. She and/or her recruited employees acting at her direction, compiled information relating to customers of Howe . . . for the purpose of soliciting their business away from the defendant . . . d. She and/or her recruited employees acting at her direction, communicated, directly or indirectly, to customers of Howe . . . that the defendant . . . was no longer going to be there; e. She and/or her recruited employees acting at her direction, sold gift certificates for her competing salon to customers of the defendant . . . who came into the place of business of the defendant . . . for the purpose of purchasing a gift certificate for the defendant . . . and f. She, and/or her recruited employees acting at her direction, sent mailings and other advertisements to customers of the defendant . . . in order to solicit their business for the competing salon opened by the plaintiff."
General Statutes § 34-141 provides: "(a) A member or manager [of a limited liability company] shall discharge his duties under section 34-140 and the operating agreement, in good faith, with the care an ordinary prudent person in a like position would exercise under similar circumstances, and in the manner he reasonably believes to be in the best interests of the limited liability company, and shall not be liable for any action taken as a member or manager, or any failure to take such action, if he performs such duties in compliance with the provisions of this section. (b) In discharging his duties under section 34-140 and the operating agreement, a member or manager is entitled to rely on information, opinions, reports or statements, including, but not limited to, financial statements or other financial data, if prepared or presented by: (1) One or more employees of the limited liability company whom he reasonably believes to be reliable and competent in the matter presented; (2) legal counsel, public accountants or other persons, as to matters he reasonably believes are within the person's professional or expert competence; or (3) a committee of members of which he is not a constituent if he reasonably believes the committee merits confidence. (c) A member or manager is not acting in good faith if he has knowledge concerning the matter in question that makes any reliance otherwise permitted by subsection (b) of this section unwarranted. (d) In discharging his duties under section 34-140 and the operating agreement, a member or manager shall not be liable to the limited liability company or to any other member for actions or failures to act based on his good faith reliance on the provisions of the operating agreement. (e) Unless otherwise provided in writing in the articles of organization or the operating agreement, every member and manager must account to the limited liability company and hold as trustee for it any profit or benefit derived by that person, without the consent of more than one-half by number of the disinterested managers or the majority in interest of the disinterested members, from (1) any transaction connected with the conduct or winding up of the limited liability company or (2) any use by the member or manager of its property, including, but not limited to, confidential or proprietary information of the limited liability company or other matters entrusted to the person as a result of his status as a member or manager."
General Statutes § 34-140 provides: "(a) Subject to any provisions of sections 34-100 to 34-242, inclusive, or the articles of organization, the business, property and affairs of a limited liability company shall be managed by its members. (b) The organizer or organizers may, in the articles of organization, and the members may, in any amendment to the articles of organization, vest management of the business, property and affairs of a limited liability company in a manager or managers. (c) The operating agreement of a limited liability company may contain any provisions for the regulation and management of its affairs, including provisions for the appointment or designation of officers by the members, if management of a limited liability company is vested in its member or members, or by the managers, if management of a limited liability company is vested in a manager or managers, which are not inconsistent with law, the articles of organization or any provisions of sections 34-100 to 34-242, inclusive. If the limited liability company has only one member, the operating agreement may be adopted by such member and the limited liability company or may be a statement adopted by such member. (d) If the management of a limited liability company is vested in a manager or managers, the operating agreement may set forth the number and qualification of the managers and the manner in which the managers are designated or elected, removed and replaced. Unless otherwise provided in the operating agreement or sections 34-100 to 34-242, inclusive: (1) Managers need not be members or natural persons; (2) designation or election of managers to fill initial positions or vacancies shall be by the vote of a majority in interest of the members; (3) any or all managers may be removed, with or without cause, by the vote of a majority in interest of the members; and (4) managers shall hold office until their successors are elected and qualified, unless removed as provided in subdivision (3) of this subsection. The operating agreement may provide that any class or group of members is entitled to designate or elect one or more managers. If the operating agreement provides that any class or group of members is entitled to designate or elect one or more managers, the vote of a majority in interest of the members in that class or group shall be required to fill any vacancies in manager positions designated or elected by such class or group of members."
Howe claims: "7. As a result of the breach of fiduciary duty by the plaintiff, the defendant . . . lost customers, sales gift certificates and products and the opportunity to develop new customers, all to its financial detriment.
"8. As a further result of [the] breach of duty by the plaintiff, the defendant . . . suffered damage to its business reputation."
General Statutes § 34-140 provides in part: "(a) Subject to any provisions of sections 34-100 to 34-242, inclusive, or the articles of organization, the business, property and affairs of a limited liability company shall be managed by its members. (b) The organizer or organizers may, in the articles of organization, and the members may, in any amendment to the articles of organization, vest management of the business, property and affairs of a limited liability company in a manager or managers. (c) The operating agreement of a limited liability company may contain any provisions for the regulation and management of its affairs . . ."
General Statutes § 34-141 provides in part: "(a) A member or manager shall discharge his duties under section 34-140 and the operating agreement, in good faith, with the care an ordinary prudent person in a like position would exercise under similar circumstances, and in the manner he reasonably believes to be in the best interests of the limited liability company, and shall not be liable for any action taken as a member or manager, or any failure to take such action, if he performs such duties in compliance with the provisions of this section. (b) In discharging his duties under section 34-140 and the operating agreement, a member or manager is entitled to rely on information, opinions, reports or statements, including, but not limited to, financial statements or other financial data, if prepared or presented by: (1) One or more employees of the limited liability company whom he reasonably believes to be reliable and competent in the matter presented . . . (e) Unless otherwise provided in writing in the articles of organization or the operating agreement, every member and manager must account to the limited liability company and hold as trustee for it any profit or benefit derived by that person, without the consent of more than one-half by number of the disinterested managers or the majority in interest of the disinterested members, from (1) any transaction connected with the conduct or winding up of the limited liability company or (2) any use by the member or manager of its property, including, but not limited to, confidential or proprietary information of the limited liability company or other matters entrusted to the person as a result of his status as a member or manager."
Howe's operating agreement names the plaintiff and the defendant as the only members of Howe and designates each one as a manager. Section 3.2 of the operating agreement provides that members "shall determine and distribute available funds annually or at more frequent intervals as they see fit. Available funds . . . shall mean the net cash of the company available after appropriate provision for expenses and liabilities as determined by the Managers." Section 5.1 provides: "The Managers shall maintain complete and accurate books of account of the Company's affairs . . ."
The court observes that Howe operated much like a cooperative. The "employees", as well as the plaintiff and the defendant, worked on a commission basis, with the balance of the fees after commissions put into the till to pay the expenses of the business. The plaintiff and the defendant did not personally share in the "profits" of the enterprise, but like the employees, retained a percentage only of the fees they personally earned from their respective customers. Even the customers were not customers of Howe. Rather, as the defendant conceded on cross-examination, it was the practice in the trade for beauticians to bring their customers to their place of employment and to take them, when they left that employment, to their new place of employment. Thus, neither information regarding customers nor customer lists were the property of Howe. Notably, there is no claim by either the plaintiff or the defendant for loss of good will. Neither the employees nor the parties had an employment contract or a covenant not to compete. Notably, mid-trial, the defendants abandoned their claim that the plaintiff encouraged others to leave Howe and to follow her to Sona Bella.
In their February 8, 2005 telephone argument, the plaintiff and the defendant agreed that they would go their separate ways. In that confrontation and in their subsequent conversations, they acknowledged that they would dissolve Howe. What they could not agree on, the only matters which remained outstanding, was the division of assets. Moreover, the defendant knew that the plaintiff would be relocating and establishing a business elsewhere, and that the employees, two of whom were the plaintiff's relatives, would be following her into that new business. For her part, the defendant was proceeding apace to establish her corporate entity, Jennifer Lee, LLC. By early May 2005, both the plaintiff and the defendant had, with the knowledge of the other, established their own respective LLCs, both of which were actively in business. By mid-May 2005, the "business" of Howe was at an end; what remained was the abstract legal entity, the inventory, the equipment, a dwindling bank account and some liabilities. On June 30, 2005, the plaintiff brought this action to dissolve the LLC. Again, it bears emphasis that from the outset of the trial, all parties disclaimed any claim for loss of good will. For these reasons, this case is a far cry from Fink v. Golenbock, supra, 238 Conn. 183.
The defendant filed documents with the secretary of state of Connecticut to form Sona Bella on May 6, 2005.
Although styled as a cause of action by Howe against the plaintiff, the first two counts of the counterclaim are in reality an action by the defendant against the plaintiff. As discussed in part II, such an action must be brought as a derivative action. The first two counts of the counterclaim are not brought as a derivative action and, therefore, are dismissed.
Each protagonist, the plaintiff and the defendant, established her own LLC with the knowledge of the other. Under all the circumstances, it was reasonable for them not to wait until the dissolution of Howe to do so. Indeed, this would have been unrealistic. These are not wealthy people; they are beauticians servicing the lower Connecticut valley area who could not afford to suspend their livelihood while awaiting the outcome of litigation, now three and one-half years old. Furthermore, as observed above, the plaintiff and the defendant each knew the other would be plying her trade under the guise of a new corporate entity. Cf. Ostrowski v. Avery, 243 Conn. 355, 376, 703 A.2d 117 (1997) ("[A]dequate disclosure of a corporate opportunity is an absolute defense to fiduciary liability for alleged usurpation of . . . a corporate opportunity.")
The plaintiff, a lay person, knew that the defendant would continue working as a hairdresser on her own, but did not know until the defendant's deposition was taken in this litigation, that the defendant had created a new LLC.
Moreover, comment (e) to § 393 of the Restatement (Second) of Agency, as well as 19 C.J.S., Corporations § 603 (2007), support a conclusion that a corporate officer should be allowed to make preparations for a competing business, prior to his or her resignation or termination, in the absence of a restrictive agreement stating otherwise. As noted in the Restatement, "[a]fter the termination of his agency, in the absence of a restrictive agreement, the agent can properly compete with his principal as to matters for which he has been employed . . . Even before the termination of the agency, he is entitled to make arrangements to compete, except that he cannot properly use confidential information peculiar to his employer's business and acquired therein. Thus, before the end of his employment, he can properly purchase a rival business and upon termination of employment immediately compete. He is not, however, to solicit customers for such rival business before the end of his employment nor can he properly do other similar acts in direct competition with the employer's business." 2 Restatement (Second), Agency § 393, comment e (1958). See Parsons Mobile Products, Inc. v. Remmert, 216 Kan. 256, 531 P.2d 428, 432 (1975); BL Corp. v. Thomas Thorngren, Inc., 917 S.W.2d 674, 679 (Tenn.Ct.App. 1995) (noting that corporate officer may prepare to compete prior to his termination from corporation); accord Bancroft-Whitney Co. v. Glen, 64 Cal.2d 327, 49 Cal. Rptr. 825, 411 P.2d 921, 935 (1966) (mere fact that officer makes preparations to compete before he resigns his office is not sufficient to constitute breach of duty). See also 2 Restatement (Third), Agency § 8.04 (2006); 19 C.J.S., supra, § 603.
Restatement (Second) of Agency is superceded by the Restatement (Third) of Agency. However, § 8.04 of Restatement (Third) of Agency is the counterpart of Restatement (Second) of Agency § 393. In fact, comment (a) to reporter's notes of § 8.04 quotes § 393 by stating that it is a "well-settled right of employees and other agents to make preparations to compete." 2 Restatement (Third), Agency § 8.04 (2006).
In addition, according to a federal district court, "[t]he rule set forth in the Restatement [(Second) of Agency § 393] has been applied by a number of other courts. See, e.g., Instrument Repair Service v. Gunby, 238 Ga.App. 138, 518 S.E.2d 161, 163-64 (1999); Augat, Inc. v. Aegis, Inc., 409 Mass. 165, 565 N.E.2d 415, 419 (1991); Operations Research, Inc. v. Davidson Talbird, Inc., 241 Md. 550, 217 A.2d 375 (1966); United Aircraft Corp. v. Boreen, 413 F.2d 694, 700 (3rd Cir. 1969); Keiser v. Walsh, 73 App. D.C. 167, 118 F.2d 13, 14 (1941) (`an agent need not wait until he is on the street before he looks for other work'); Bancroft-Whitney Company v. Glen, 49 Cal.Rptr. 825, 411 P.2d 921, 935 (1966); see also Maximus, Inc. v. Thompson, 78 F.Sup.2d 1182, 1190-91 (D.Kan. 1999) (Judge Brown recognizes application of Restatement (Second) of Agency § 393, comment e in case with similar claims)." BK Mechanical, Inc. v. Wiese, United States District Court, Docket No. 03-4149-RDR (D. Kan. March 22, 2007). As the court pointed out, "This is a country of free enterprise based upon competition. The essential inquiry on any charge of unfair competition is good faith. Good faith will insulate a former officer or director from liability unless it is shown the rival business was intentionally operated for the purpose and in such a way as to be unfair or detrimental to the former employer-corporation." Parsons Mobile Products, Inc. v. Remmert, supra, 513 P.2d 433.
"Under some authority, directors or officers are entitled to make arrangements to compete even before termination, provided that the nature of the preparations is not such as to make use of their positions while still serving as directors or officers for the future benefit of the competing corporation. In addition, they may purchase or initiate the rival business before the end of their relationship as directors or officers, and upon termination of the relationship, immediately compete . . ." 19 C.J.S., Corporations § 603 (2007).
As observed supra, the parties did not execute a restrictive covenant. Pursuant to the Restatement cited above, the plaintiff was permitted to make arrangements to compete with the defendant prior to her resignation. It is noteworthy that the plaintiff did not solicit customers for her rival business until the end of her employment. The court finds that the plaintiff merely informed Howe's employees that she would be leaving to start her own business, several employees announced that they would be following her, and the employees spoke openly to their customers about going to the plaintiff's new establishment. This conduct does not amount to solicitation under the circumstances.
Caselaw from other jurisdictions reflects that courts have found that, in the absence of a restrictive covenant, it is not a breach of fiduciary duty for an employee to prepare to compete with an employer prior to the employee's resignation or termination. The Court of Special Appeals in Maryland in Dworkin v. Blumenthal, 77 Md.App. 774, 782, 551 A.2d 947 (1989), held that two dentists, who were members of a professional association, did not actively compete with the association during their employment, although they did make arrangements to compete while they were still employees. In that case, the defendants began compiling a patient list from the association's records prior to their resignation. Id., 779. The court noted that the defendants only notified those patients that they, themselves, had treated, that they would be leaving the association and opening a new practice. Id., 780. Similarly, here, the court found that the plaintiff compiled customer information from Howe's computer records and used it to notify her customers and her employee's customers that she would be opening a new salon. There is no evidence that the plaintiff solicited any of the defendant's customers prior to her departure from Howe.
Likewise, the Missouri Court of Appeals held that when an officer, director and shareholder merely prepares to compete with the corporation with which the individual is still employed, the individual has not necessarily breached a fiduciary duty. Dwyer, Costello and Knox, P.C. v. Diak, 846 S.W.2d 742, 745 (Mo.Ct.App. 1993). There, the defendant, an accountant, began preparations to withdraw from an accounting firm partnership, in order to be able to form a new corporation. Id. The defendant rented new office space, had stationary printed, contacted customers and continued to work part-time at the plaintiff's place of business while also doing work for the new firm's clients, until he formally resigned. Id. The court stated that the plaintiff failed "to show that it lost any client for any reason other than the free choice of the client to use the services of the individual accountant who had done its work as an employee of the plaintiff, and who had continued to practice elsewhere." Id., 750. Here, the plaintiff made similar preparations. She rented new salon space, she sold gift certificates for her new competing salon, she and her employees spoke openly about the new salon to their customers while at Howe, and she continued to service customers at Howe on a part-time basis until her new salon was fully functional. The defendant has failed to provide any evidence that she lost any client for any reason other than the free choice of the client to use the services of the plaintiff at her new competing salon.
Additionally, the court finds that there is no evidence that the actions of either the plaintiff or the defendant in starting up a new, competing business, harmed any creditor of Howe.
By clear and convincing evidence, the court finds that the plaintiff did not breach any duty to Howe.
Even assuming, arguendo, that the plaintiff did breach a duty to Howe, the defendants have not proven that such a breach caused any but nominal damages. The court specifically notes that the defendants have failed to persuade the court that Howe lost gift certificate sales as a result of any wrongful act of the plaintiff, as claimed. Rather, gift certificate sales diminished because both the plaintiff and the defendant had acknowledged that Howe should be dissolved, they undertook no advertising in 2005, as they had in other years, and the employees had decided to leave Howe.
IV
In the third and fourth counts of the counterclaim, the defendant, individually, alleges that the plaintiff breached a fiduciary and statutory duty to her, as member-manager of Howe, and asserts the same claims of damages set forth in the first two counts of her counterclaim. As the court has held above, these claims may be asserted only in a derivative action.
In addition, however, the defendant alleges that the plaintiff failed to contribute to the payment of the promissory note they had signed when they embarked on their business together. The court finds that after May 2005, the defendant expended $17,610.04 of her own money to pay off the note, which was a joint obligation of the plaintiff and the defendant. Howe was not an obligor of the note.
"The right of action for contribution, which is equitable in origin, arises when, as between multiple parties jointly bound to pay a sum of money, one party is compelled to pay the entire sum. That party may then assert a right of contribution against the others for their proportionate share of the common obligation." Hanover Ins. Co. v. Fireman's Fund Ins. Co., 217 Conn. 340, 353, 586 A.2d 567 (1991); see MacArthur v. Cannon, 4 Conn. Cir. 208, 214-15, 229 A.2d 372, cert. denied, 154 Conn. 748, 227 A.2d 562 (1967).
On the third count of the counterclaim the court finds for the defendant in the amount of $8,805.02.
V
The fifth count of the counterclaim is brought by both defendants and they assert the same claims of wrongdoing pleaded in the first two counts. The defendants allege that the plaintiff's acts constitute CUTPA violations,
"Although purely intracorporate conflicts do not constitute CUTPA violations, actions outside the scope of the employment relationship designed `to usurp the business and clientele of one corporation in favor of another . . . fit squarely within the provenance of CUTPA.' Fink v. Golenbock, 238 Conn. 183, 212, 680 A.2d 1243 (1996)." Ostrowski v. Avery, supra, 243 Conn. 379.
The issue is whether the facts here are more analogous to those in Ostrowski, Fink and Larsen Chelsey Realty Co. v. Larsen, 232 Conn. 480, 492, 656 A.2d 1009 (1995), or to those in Russell v. Russell, 91 Conn.App. 619, 882 A.2d 98, cert. denied, 276 Conn. 924, 888 A.2d 92 (2005). For the following reasons, the court concludes that Russell governs: the plaintiff and the defendant mutually agreed to end their business together and to go their separate ways; there is no claim of loss of good will, nor could there be under the circumstances here; each beautician was free to stop plying his or her trade at Howe whenever the beautician wished to do so; nothing in the operating agreement required either party to actually work at Howe; each brought her own clients into the business and was free to take them when she left. Nor is there any claim that the plaintiff improperly caused the employees to leave Howe, that claim having been withdrawn by the defendant. In February or March 2005, the plaintiff informed the defendant that she would not be seeking to remain on the leasehold premises, that she would be establishing her business elsewhere. After February 2005, both the plaintiff and the defendant took steps to establish their own LLCs, and each had done so by early May. In May, Sona Bella was doing business with the customers that the plaintiff and her employees had brought with them from Howe; Jennifer Lee, LLC was in business with the customers the defendant had serviced at Howe. This case is primarily about compensating the defendant for the plaintiff's failure to contribute to the payment of the promissory note and compensating the plaintiff for her share of the inventory and equipment taken by the defendant when her new LLC assumed the lease. These issues do not rise to the level of CUTPA violations.
Indeed, the defendant testified that this was the practice in the trade.
The court takes this occasion to address the issues raised by the "lockout." Despite the drama associated with that word and the event itself, the lockout here is a far cry from that in Fink v. Golenbock, supra, 238 Conn. 183. The reality is that the plaintiff had already moved out of the premises. Sona Bella had been operating for over a week; so too Jennifer Lee, LLC was about to do business at 500 Howe Avenue that very week. The plaintiff's work station for doing skin care at Sona Bella was, however, incomplete. She was using the facilities at 500 Howe Avenue episodically to service her customers, after which she returned to Sona Bella to oversee its fit up and start up. The cooperative that was Howe having ceased, the defendant was entitled to lock her doors to the plaintiff and her employees at some point, if not on May 18, then the following day or the following week. She should not have done so without prior notice to the plaintiff, so that the plaintiff could have made arrangements with her customers to service them at an available location. And she could not do so without compensating the plaintiff for the equipment and inventory that belonged to Howe.
Judgment may enter for the plaintiff on the fifth count of the counterclaim.
VI
The court returns at last to where this action began on June 30, 2005, and where it should have ended, a dissolution of Howe. The plaintiff seeks a dissolution of Howe. In her trial brief, the defendant states that it is "her position that the LLC can be judicially dissolved with the court considering all the issues related to the equitable dissolution of Howe . . ." The court agrees.
A.
Article I § 1.4 of Howe's operating agreement provides: "The Company shall continue for a period of twenty years unless dissolved by: (a) Members whose capital interest as defined in Article 2.2 exceeds 50% vote for dissolution; or (b) Any event which makes it unlawful for the business of the Company to be carried on by the Members; or (c) The death, resignation, expulsion, bankruptcy, retirement of a Member or the occurrence of any other event that terminates the continued membership of a Member of the Company; or (d) Any other event causing a dissolution of a Limited Liability Company under the laws of the State of Connecticut." (Emphasis added.)
General Statutes § 34-206 provides: "A limited liability company is dissolved and its affairs shall be wound up upon the happening of the first to occur of the following: (1) At the time or upon the occurrence of events specified in Writing in the articles of organization or operating agreement; (2) unless otherwise provided in writing in the articles of organization or operating agreement, upon the affirmative vote, approval or consent of at least a majority in interest of the members; or (3) entry of a decree of judicial dissolution under section 34-207." General Statutes § 34-207 provides: "On application by or for a member, the superior court for the judicial district where the principal office of the limited liability company is located may order dissolution of a limited liability company whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement."
"Limited liability companies are relatively new business structure[s] allowed by state statute, having some features of corporations and some features of partnerships." McNamee v. Dept. of the Treasury, 488 F.3d 100, 107 (2nd Cir. 2007). "The Connecticut Limited Liability Company Act, General Statutes §§ 34-100 to 34-242, inclusive, was adopted in 1993 and is generally similar to the model act promulgated in 1995 by the Uniform Laws Commissioners." PB Real Estate, Inc. v. DEM II Properties, 50 Conn.App. 741, 742, 719 A.2d 73 (1998). When an act is a uniform law, "decisions from other states are valuable for the interpretation of its provisions. Hill v. Blake, 186 Conn. 404,408,441 A.2d 841 (1982).
The Delaware Code contains a provision identical to General Statutes § 34-207. See 6 Delaware Code § 18-802. In the recent case of Polak v. Kobayashi, United States District Court, Civ. No. 05-330-SLR (D. Del. November 13, 2008), which arose out of a dispute between the two members of a limited liability company, Pokobo L.L.C., the court, applying this statutory provision, said: "In Haley v. Talcott, 864 A.2d 86 (Del.Ch. 2004), the court found that judicial dissolution of an LLC pursuant to 6 Del. C. § 18-802 was proper where its two members, each owning a fifty percent interest, were deadlocked regarding its dissolution and had not interacted in over a year. Haley, 864 A.2d at 94-96. Similar to the parties in Haley, the parties in the case at bar each own a fifty percent interest in Pokobo, are deadlocked regarding its dissolution, and have not amicably communicated for several years. In addition, defendants wrongful retention of the 17-acre parcel belonging to Pokobo and his unilateral management of Pokobo have destroyed plaintiff's trust in defendant as a joint manager of Pokobo. Without communication and trust, the parties cannot effectively manage Pokobo going forward. Under these circumstances, it is not reasonably practicable to continue the business in conformity with the Agreement. Accordingly, the courts find that Pokobo should be dissolved." Polak v. Kobayashi, supra, United States District Court, Civ. No. 05-330-SLR.
Similarly, here, the plaintiff and the defendant are each 50 percent owner-member-managers of Howe. They have been deadlocked regarding the terms of its dissolution since the first half of 2005. They have not interacted since May 2005, over 3 1/2 years ago. Each protagonist's actions, including the lockout by the defendant of the plaintiff on May 18, 2005, has destroyed any trust that may have remained between them. They have held no meetings, either as members or managers, since at least 2005. Moreover, Howe has not operated as a functioning business since early May 2005. Accordingly, the court finds that Howe should be dissolved. See also Chance v. Norwalk Fast Oil, Inc., 55 Conn, App. 272, 278, 739 A.2d 1275, cert. denied, 251 Conn. 929, 742 A.2d 361 (1999); Martin v. Martin's News Service, Inc., 9 Conn.App. 304, 311, 518 A.2d 951 (1986), cert. denied, 202 Conn. 807, 520 A.2d 1287 (1987).
B.
A proceeding to dissolve a corporate entity is an action in equity. Beach v. Beach Hotel Corp., 117 Conn. 445, 450, 168 A. 785 (1933).
The defendant seeks reimbursement for the payments she made on Howe's lease after May 2005. The court finds that in mid-May 2005, Jennifer Lee, LLC assumed the lease and leasehold premises. The court does not credit the defendant's claim that Jennifer Lee, LLC was constrained to assume the lease and to occupy more of the leasehold premises than it needed. It was under no such compulsion. The defendant and her LLC could have relocated elsewhere. Their actions were voluntary. The defendant is not entitled to compensation for lease payments made after May 2005.
The court finds that there was a security deposit for the leasehold premises in the amount of $1,500 that is the property of Howe.
The money in Howe's bank account was segregated by the defendant into another account, "Howe Old Money." After examination of exhibits D and E and consideration of the defendant's testimony, the court finds that this money was used to pay legitimate remaining expenses of Howe and partially pay the parties' SBA loan. There is no money remaining in the account nor are there outstanding expenses.
Petty Cash
The plaintiff claims that she gave the petty cash bag to the defendant in January 2005, and that, at that time, it contained approximately $5,000. The defendant does not contest this, but claims that she deposited the cash into Howe's account. The defendant has failed to point to any evidence, such as a bank statement, corroborating her claim. The court finds for the plaintiff on this claim.
Inventory
When Jennifer Lee, LLC assumed the lease in May 2005, the leasehold premises contained inventory that was the property of Howe. The inventory consisted of products that were sold to customers and products that were used on customers, referred to as "back bar" items.
Prior to the lockout, the plaintiff claims that she and her husband catalogued the inventory at Howe and noted the purchase price of each product. The total was about $10,000. Purchase price would be relevant to fair market value since, the court infers, that the purchase of such items was not unduly remote. The plaintiff's claim that she catalogued the inventory prior to the lockout date was subject to impeachment on cross-examination. The defendant elicited evidence from which it could be inferred in that the pre-printed Aveda order forms on which much of the inventory was catalogued were not issued until the day of the lockout.
The defendant testified that after May 19, 2005, she expended $3,000 to restock the shelves of inventory.
Michael Sellers testified as an expert for the plaintiff. Although he is not a certified public accountant, Sellers is a former corporate accountant for IBM. After retiring from IBM, he purchased an accounting franchise known as Paget Business Services (Paget), which, he testified, is the largest small business accounting firm in the country. Sellers was Howe's accountant from its inception and also prepared the individual tax returns of the plaintiff and the defendant. He visited Howe three times a month to pick up stubs, checks and other financial data and to leave papers for the plaintiff and defendant. All receipts for the business went through him. He provided professional services to both parties, both before and after May 2005. He was an unbiased witness.
Prior to testifying in court, Sellers' opinion was that the value of Howe's inventory was $1,435.58. He based this opinion on accounting information. He changed his opinion at trial, partly because he believed that this estimate understated the inventory in that he personally observed that the shelves were "pretty full" of merchandise. He testified that, in his opinion, the fair market value of the inventory was $10,435.58. In addition to his visual observation, this estimate was based on Paget's database of what other salons maintained as inventory.
The court credits Sellers' testimony insofar as he concluded that his earlier estimate of the value of the inventory was understated. The court also credits his personal observations of Howe's shelves. Nevertheless, the court finds Sellers' reliance on Paget's database unacceptable, without more, and unpersuasive.
The plaintiff estimated the value of the inventory at $10,000. The defendant estimated it at $1,400.
The question is what the fair market of the inventory was in May 2005. "Fair market value" in this context is defined as the value that would be fixed in fair negotiations between a desirous buyer and a willing seller, neither of whom is under any undue compulsion to make a deal. Uniroyal, Inc. v. Middlebury Board of Tax Review, 174 Conn. 380, 390, 389 A.2d 734 (1978). In making its finding, the court is informed by the rule of law that "[w]here a defendant has by [her] wrongful conduct made the calculation of damages difficult, [s]he will not be heard to urge such difficulty as a reason for not assessing by approximation." Crowell v. Palmer, 134 Conn. 502, 510-11, 58 A.2d 729 (1948).
Based on all of the evidence, the court finds that the fair market value of the inventory in May 2005 was $7,000.
Equipment and Trade Fixtures
When the plaintiff and defendant fitted up Howe for their new business in 2001, they expended $63,842.56 on equipment, furniture and fixtures. These items are listed on Exhibit #5. Of the $63,842.56 total, $22,000 was expended on fixtures.
With the exception of a cabinet and a computer that were purchased in late 2002, and a "nail station" that was purchased on March 17, 2003, the items on Exhibit #5 were purchased or installed in early 2001. The plaintiff testified that, in her opinion, the fair market value of these items in May 2005, was $35,000. This opinion was influenced largely by what Sellers had told her the value of the items was after depreciation. The plaintiff, however, testified that she did not think the items had decreased in value.
Using depreciation schedules approved by the Internal Revenue Service, Sellers opined that the value of all these improvements was $35,350.03 at the end of April 2005, and that the depreciated value of the "leasehold improvements," including fixtures such as sheetrock, was $19,729.51. Therefore, Sellers opined that the value of the balance of the improvements, the equipment and furniture, was $15,620.52. The defendant offered no evidence of the value of this property.
The nomenclature Sellers used for categories of improvements did not comport with conventional legal definitions. For example, he referred to Howe's equipment and furniture as "fixtures" since they could easily be removed. A "fixture," in legal parlance, is "[p]ersonal property that is attached to land or a building and that is regarded as an irremovable part of the real property, such as a fireplace built into a home," Black's Law Dictionary (7th Ed.), p. 669; see Radican v. Hughes, 86 Conn. 536, 540-42, 86 A. 220 (1913). Sellers referred to such items as leasehold improvements. Notably, paragraph six of the parties' lease for 500 Howe Avenue provided: "The LESSEE agrees that it will not make any alterations, other than interior of $5,000 . . . and LESSEE further agrees to deliver up the premises at the expiration or sooner termination of its tenancy in as good condition as they are not in."
These items that Sellers referred to as fixtures were in fact personal property, such as furniture, equipment or trade fixtures. A trade fixture is "[r]emovable personal property that a tenant attaches to leased land for business purposes, such as a display counter . . . Despite its name, a trade fixture is not usu[ally] treated as a fixture — that is, as irremovable." Black's Law Dictionary, supra; see Slosberg v. Callahan Oil Co., 125 Conn. 651, 653, 7 A.2d 853 (1939); see also Beebe v. Richards, 115 Cal.App. 2d 589, 590-91, 252 P.2d 688 (1953).
Sellers' methodology was imperfect. He admitted that he was not an expert on the valuation of items such as those at issue here, and he did not state, indeed he was never asked, whether a market existed for used equipment such as that listed in Exhibit #5.
"`Fair market value' is generally said to be the value that would be fixed in fair negotiations between a desirous buyer and a willing seller, neither under any undue compulsion to make a deal . . . Hence, fair market value is ordinarily best ascertained by reference to market sales. " New Haven Water Co. v. Board of Tax Review, 166 Conn. 232, 236, 348 A.2d 641 (1974). However, it is not the only method. Fair market value may also be calculated "by reference to original . . . cost, less depreciation; Bridgeport Gas Co. v. Stratford, 153 Conn. 333, 335, 216 A.2d 439; Bridgeport Hydraulic Co. v. Stratford, 139 Conn. 388, 393, 94 A.2d 1." New Haven Water Co. v. Board of Tax Review, CT Page 1056 supra, 166 Conn. 237; see Connecticut Coke Co. v. New Haven, 169 Conn. 663, 669, 364 A.2d 178 (1975); Reynaud v. Winchester, 35 Conn.App. 269, 274, 644 A.2d 976 (1994). Again, the court's determination is informed by the rule restated in Crowell v. Palmer, supra, 134 Conn. 510-11.
The court finds that the fair market value of the equipment, furniture and trade fixtures of Howe, its personal property in May 2005, was $15,620.52.
VII
"The general rule is that after dissolution of a corporation, its property passes to its shareholders subject to the payment of corporate debts." Haddad v. Francis, 40 Conn.Sup. 567, 572-73, 537 A.2d 174 (1986), aff'd, 13 Conn.App. 324, 536 A.2d 597 (1988). However, a court is "justified in deciding the case on the theory on which it was tried." Nearing v. Bridgeport, 137 Conn. 205, 206, 75 A.2d 505 (1950).
As observed supra, Howe has no outstanding debts.
The fair market value of Howe's net assets as of May 2005, was $29,120.52. Judgment shall enter for the plaintiff on the first count of the amended complaint dissolving Howe Elegant LLC and awarding the plaintiff $19,560.52, plus three and one-half years interest in the amount of $6,816.09. Title to the property that was owned by Howe, and that have been value here, is vested in the defendant, Jennifer Kiman.
This sum excludes the bank account, the proceeds of which were used to pay legitimate expenses of Howe or the parties' SBA loan.
Judgment shall enter for the defendants on the second count of the amended complaint. Judgment shall enter for the defendants dismissing counts three through thirteen of the amended complaint.
Judgment shall enter dismissing counts one, two and three of the defendants' counterclaim.
Judgment shall enter against the plaintiff and for the defendant Kiman on count four of the counterclaim in the amount of $8,805.02, plus two years interest in the amount of $1,761.00.
Judgment shall enter against the defendants and in favor of the plaintiff on count five of the defendants' counterclaim.
There is no basis for the other relief claimed by the parties.