Opinion
FSTCV106007771S.
12-05-2012
Michael MARCANTE v. COLLINS ENTERPRISES, LLC et al.
UNPUBLISHED OPINION
ALFRED J. JENNINGS, JR., Judge Trial Referee.
In this action, the plaintiff, Michael Marcante, seeks to obtain distribution of profit entitlements from his former employer Collins Enterprises, LLC, and its owners and an affiliate, which distributions he alleges to have earned while employed as the chief financial officer of Collins Enterprises. The claim in Counts One and Two is made pursuant to Connecticut General Statutes § 31-72 which authorizes an employee to bring a civil action against an employer who has failed to pay wages by the statutory deadlines of §§ 31-71a through 31-71i to recover " twice the full amount of such wages, with costs and such reasonable attorneys fees as may be allowed by the court." The key issue presented by this motion to strike is whether the claimed distribution of profits entitlements qualify as " wages" under § 31-72.
On March 22, 2011, the plaintiff filed a five-count Second Amended Complaint against the defendants, Collins Enterprises, LLC, Collins Employees, LLC, Arthur Collins and Dwight Collins. The defendants filed a motion to strike all five counts of that complaint on July 1, 2011. By memorandum of decision dated February 17, 2012, Judge Tobin granted the motion to strike as to Counts One, Two and Four and denied it as to Counts Three and Five. See Mercante v. Collins Enterprises, LLC, Superior Court, Judicial District of Stamford-Norwalk at Stamford, Docket No. CV 10 6007771 (February 17, 2012, Tobin, J.) (53 Conn. L. Rptr. 551). The plaintiff then repleaded by filing a five-count Substitute Second Amended Complaint on March 1, 2012, which is the operative complaint. It re-alleges the same causes of action as in the Second Amended Complaint but with additional facts.
On March 16, 2012, the defendants filed the instant motion to strike Count One (against Collins Enterprises, LLC) and Count Two (against Arthur Collins, III and Dwight Collins individually) of the plaintiff's Substitute Second Amended Complaint on the grounds that: (1) the distributions that the plaintiff alleges were wrongly withheld do not constitute " wages" within the meaning of the wage withholding statutes, General Statutes § 31-71a et seq. and (2) with regard to Count Two the plaintiff fails to allege that the individual defendants possessed the requisite level of control and authority with respect to the terms of employment and payment of wages so as to support a claim of personal liability against them. The defendants filed a memorandum of law in support of their motion. The plaintiff filed a memorandum of law in opposition to the motion, to which the defendants responded by their reply memorandum. The matter was heard at the short calendar on July 30, 2012. On November 27, 2012 this court issued an electronic order denying the motion to strike for reasons to be articulated. This memorandum of decision is the court's articulation for denial of the motion to strike Counts One and Two of the Substitute Second Amended Complaint.
DISCUSSION
" The purpose of a motion to strike is to contest ... the legal sufficiency of the allegations of any complaint ... to state a claim upon which relief can be granted." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003). " A motion to strike admits all facts well pleaded; it does not admit legal conclusions or the truth or accuracy of opinions stated in the pleadings." (Emphasis in original; internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 588, 693 A.2d 293 (1997). " It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted ... Indeed, pleadings must be construed broadly and realistically, rather than narrowly and technically." (Internal quotation marks omitted.) Connecticut Coalition for Justice in Education Funding, Inc. v. Rell, 295 Conn. 240, 252-53, 990 A.2d 206 (2010). The court must " construe the complaint in the manner most favorable to sustaining its legal sufficiency." (Internal quotation marks omitted.) American Progressive Life & Health Ins. Co. of New York v. Better Benefits, LLC, 292 Conn. 111, 120, 971 A.2d 17 (2009). " A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, supra, 262 Conn. at 498.
(A.) Count One: Violation of § 31-72 as to Collins Enterprises
The defendants argue the following in support of their motion to strike. Despite the plaintiff's repeated allegations that Collins Enterprises granted him in consideration of his services as its CFO certain " participation interests" in Collins entities which entitled him to agreed percentages of their annual profits, he fails to distinguish between the participation interests and his right to receive distributions arising from those interests. Further, the distributions were not " wages" within the meaning of General Statutes § 31-71a(3). Instead, the distributions were the equivalent of corporate stock dividends in the sense that they were payments of future profits which arose from the Collins Project entities in which the plaintiff held participation interests and were payable without regard to his employment status or his performance as an employee. Although the plaintiff alleges that he received the participation interests as part of his compensation, he has not alleged that the distributions were payable as part of his compensation or were related to his status or services as an employee. The distributions were dependent on the performance of the Collins Project entities, not upon the plaintiff's labor or services, as the plaintiff was entitled to the distributions only if the entities had profits to distribute.
Collins Enterprises was in the business of real estate development and acquisition and conducted each project through a separate limited liability company. Plaintiff's participation interests were percentage interests is several of those " Collins Project Entities" which entitled him to a percentage of the profits of those entities.
In his opposition memorandum, the plaintiff contends that he has cured satisfactorily the pleading deficiencies noted by Judge Tobin in his memorandum of decision, and he argues the following. The distributions due to the plaintiff were wages in that they were non-discretionary and were related to his labor and services. While the exact amount of the compensation payments or bonuses depended upon the performance of the affiliated entities, that did not render the payments non-discretionary. Instead, simply the schedule or formula used to calculate the compensation payment must be non-discretionary, which it was in this case because the amended employment agreement between the parties provided the plaintiff with a specific percentage of distributions that were fully vested. Once the affiliated entities yielded a distribution, the percentage of that distribution that was due to the plaintiff was fixed and non-discretionary. Moreover, the plaintiff's labor and services as the chief financial officer of Collins Enterprises contributed to the success and profitability of the affiliated entities. Thus, the distributions were additional consideration for the plaintiff's rendering of services. Furthermore, the plaintiff accepted the participation interests in lieu of a higher base salary, and if the plaintiff voluntarily resigned his employment or was terminated for cause, he automatically would forfeit his participation interests and right to receive distributions from them. Unlike the general right to invest in corporate stock, the plaintiff received his participation interests only because he was an employee of Collins Enterprises. The fact that the value of the plaintiff's participation interests depended on future profits is immaterial; the relevant inquiry is not the value of the promised consideration, but whether such compensation was promised to the plaintiff as part of his employment and in return for his labor and services.
The defendants' reply memorandum emphasizes the following additional arguments. There must be a specific and direct connection between the plaintiff's labor or services and the distributions at issue in order for them to qualify as wages. Payments that depend on factors other than the plaintiff's performance as an employee are not wages. Here, the ultimate calculation of the distributions arose from the profitability of the affiliated entities; the profitability of those entities, in turn, depended on factors unrelated to the plaintiff's employment, such as market conditions and pure chance. Furthermore, the distributions were not alleged as consideration for the plaintiff's labor and services. The participation interests were not a promise to pay anything; they simply were ownership interests that gave the right to a percentage of profits only to the extent that such profits were generated. Finally, the fact that the parties agreed that the plaintiff's right to receive future distributions was subject to forfeiture under certain conditions conclusively establishes that these future payments were not earned by the plaintiff as compensation for his labor and services and that, therefore, these future payments were not wages.
Conn. Gen.Stat. § 31-71a(3) defines " wages" as " compensation for labor or services rendered by an employee, whether the amount is determined on a time, task, piece, commission or other basis of calculation ..." " [T]he term ‘ wages' has been defined broadly ... Although [§ 31-71a(3) ] lists certain nonexclusive factors that may assist in the computation of an employee's wage, it fails to set forth a specific formula by which wages must be calculated or determined. Rather, it merely requires that wages be paid as compensation to an employee for services rendered. The determination of the proper amount to be tendered purposely is left vague by the reference to ‘ or other basis of calculation’ contained in § 31-71a(3)." Mytych v. May Dept. Stores. Co., 260 Conn. 152, 159, 793 A.2d 1068 (2002). " [T]here are no formulaic structures provided. Instead, the formula by which an employee's wage is calculated is determined by the agreement between the employer and the employee." Id., at 160.
The Connecticut Supreme Court has addressed the question of whether bonus-type payments to employees constitute " wages" within the meaning of § 31-71a(3) in three recent cases. In Weems v. Citigroup, Inc., 289 Conn. 769, 961 A.2d 349 (2008), the plaintiffs brought a class action against their former employer, Citigroup, Inc., and its subsidiaries, alleging that the forfeiture provisions of three different capital accumulation plans violated the wage statutes because they enabled the defendants to withhold accrued wages, including bonuses, from their employees and because the plaintiffs did not knowingly and voluntarily authorize the deductions and the state department of labor never approved the deduction. In ascertaining whether the various plan deductions constituted wages, as defined by § 31-71a(3), the court began its analysis by noting that " [w]hether a bonus constitutes a wage under § 31-71a(3) raises a question of statutory construction, which is a [question] of law, over which we exercise plenary review ... The process of statutory interpretation involves the determination of the meaning of the statutory language as applied to the facts of the case, including the question of whether the language does so apply." (Internal quotation marks omitted.) Id., at 778-79. In determining that the legislative history of § 31-71a(3) was silent about whether a bonus constitutes a wage, the court relied on a New York Appellate Court case, Truelove v. Northeast Capital & Advisory, Inc., 95 N.Y.2d 220, 738 N.E.2d 770, 715 N.Y.S.2d 366 (2000), and held that " bonuses that are awarded solely on a discretionary basis, and are not linked solely to the ascertainable efforts of the particular employee, are not wages under § 31-71a(3)." Weems v. Citigroup, Inc., supra, 289 Conn. at 782. The court thus concluded: " [T]he terms of the regular and branch manager bonuses in this case are not wages subject to Connecticut's wage statutes. Payments under both the bonus and branch manager programs are purely discretionary. Although the plaintiffs argue that the branch managers had to achieve ‘ specific goals' to receive the bonuses, thus rendering them compensation for services rendered ... the bonus awards are tied to subjective factors such as diversity within a branch, and the profitability of the particular branches, which are factors not entirely predictable or within the control of the specific employee. Thus, we conclude that the bonus and branch manager programs are not wages contemplated by § 31-71a(3), and, therefore, the wage statutes are inapplicable to these particular claims." Id.
Two years later in Ziotas v. Reardon Law Firm, P.C., 296 Conn. 579, 997 A.2d 453 (2010), the court expanded the holding of Weems from instances where the awarding of the bonus itself was discretionary to situations in which an employee is contractually entitled to a bonus that is discretionary and indeterminate in amount. In that case, a former associate of the defendant law firm brought suit alleging breach of an employment contract to pay the plaintiff a year-end bonus and seeking statutory double damages under § 31-72. The parties had entered into an employment contract, which stated that the plaintiff was an at-will employee of the defendant subject to termination, with or without cause, at any time. The contract further provided that annual compensation would be subject to review by the board of directors of the firm and that compensation would be based, in part, on eight different criteria. In finding for the defendant, the court held that Weems applies not only to situations in which the bonus itself was discretionary, but also to instances in which " an employee is contractually entitled to a bonus, but the amount is indeterminate and discretionary." Id., at 589. The court reasoned: " Discretionary additional remuneration, as a share in a reward to all employees for the success of the employer's entrepreneurship, falls outside the protection of the statute ... Although an employee may have a justified expectation of additional compensation when the employer is contractually obligated to give a bonus to the employee and any contractual conditions, such as the employer's annual profitability, are met, the relationship between performance and compensation is still attenuated if the amount of the bonus is discretionary and dependent on factors other than the employee's performance." (Citation omitted; internal quotation marks omitted.) Id. The court further reasoned that " a review of other statutes reveals that, when the legislature intends for a statutory scheme to apply broadly to all forms of remuneration, it knows how to make that intention clear." Id., at 589-90. Finally, the court stated that, given that a violation of the wage statute gives rise to substantial criminal and civil penalties, " [a]n interpretation of the term ‘ [w]ages' as defined by § 31-71a(3) that would allow the imposition of these penalties when the amount of a bonus is indeterminate and discretionary would raise serious questions of fundamental fairness and due process." (Internal quotation marks omitted.) Id., at 590-91.
The most recent case in which our Supreme Court addressed the issue of whether bonus awards constitute wages within the meaning of § 31-71a(3) is Assn. Resources, Inc. v. Wall, 298 Conn. 145, 2 A .3d 873 (2010). In that case, a former employee of the defendant brought suit alleging that the defendant's failure to pay the plaintiff certain bonuses constituted a breach of his employment contract and a violation of the wage statutes. The defendant was a Connecticut corporation that provides administrative, marketing and technical services to numerous nonprofit professional and trade associations. The defendant hired the plaintiff to serve as its chief operating officer, with the title of senior vice president. The plaintiff worked initially in accordance with a letter of intent, followed by an employment contract. The contract provided for bonuses twice a year " based upon the overall profitability" of the firm and calculated based upon the department's budget. The court held that the bonuses were covered by § 31-72 " because, under the employment agreement, they were entirely nondiscretionary, both as to whether they could be awarded, and the amount thereof. " Under the employment agreement, the defendant was contractually bound to pay the bonus to the plaintiff. Additionally, the amount of the bonus, which derived from the net profitability of the [department] after expenses, was nondiscretionary because it was subject to calculation by applying a contractually mandated, precise formula set forth in ... the employment agreement." Id., at 176.
The Wall court distinguished Weems by reasoning that " unlike the present case, in Weems, both the awarding of a bonus, and the amount thereof, were entirely discretionary." Id., at 177. With regard to the language in Weems stating that bonuses are not wages under § 31-71a(3) if they are " not linked solely to the ascertainable efforts of the particular employee"; Weems v. Citigroup, Inc., supra, 289 Conn. at 782; the court held that it is still necessary to " recognize the nature of the plaintiff's employment as a senior level, executive manager of one of the defendant's divisions, with the bonus tied directly to the success of that specific division, rather than the performance of the defendant as a whole. Although the profitability of any business entity depends in no small part on the performance of that organization's employees ... the employment agreement, as well as the parties' testimony, demonstrates that the plaintiff was employed primarily to manage the [department's] employees and operations ... [T]o conclude that the bonus is not a wage because not every dollar earned by the [department] was directly attributable to the plaintiff's labors would be to ignore the realities of his executive-level managerial position, which was to be directly and solely responsible for the profitability of that division." Assn. Resources, Inc. v. Wall, supra, 298 Conn. at 177-79. (Citation omitted; emphasis in original.) The court concluded that " [t]he plaintiff's contract thus established the necessary link between the plaintiff's efforts and the mandated bonus." Id., at 179.
The issue in this case thus is whether the plaintiff alleges that his right to distributions from the affiliated entities was (1) non-discretionary or (2) tied directly to the success of those entities by virtue of the plaintiff's labor or services. See Burns v. RBS Securities, Inc., Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 09 5013222 (February 9, 2012, Tobin, J.). The court seemed to focus on the second factor of this formula in ruling on the defendants' first motion to strike the plaintiff's wage withholding claims. See Mercante v. Collins Enterprises, LLC, supra, 53 Conn. L. Rptr. at 554-55. Specifically, Judge Tobin noted a common characteristic among a variety of equity interests that the Superior Court and Supreme Court have analyzed under § 31-72-namely, those interests that are deemed to be " wages" under § 31-71a(3) are related to the employee's labor or services for the employer. Id. In holding that the plaintiff's wage claims were legally insufficient, the court found that the plaintiff alleged that " the defendants would award the plaintiff his distribution entitlement only if the affiliated entities garnered a net profit." Id., at 555. The court explained: " [T]he plaintiff does not allege that he was guaranteed a regularly paid distribution that was related to his labor or services, or that was based on any personal effort. Moreover, the plaintiff fails to allege that his participation interests were made part of his employment agreement as consideration for his services to the defendant. The plaintiff's second amended complaint makes no attempt to distinguish his participation interests from a general right to invest in a corporation that is wholly independent from any work he performed for the defendants." Id.
After consideration of the progression of the law from Weems to Wall, and comparing the allegations of the substituted second amended complaint to those of the second amended complaint, this court concludes that the plaintiff has cured the pleading deficiencies noted by Judge Tobin by substituting his second amended complaint with the following additional allegations. First, he alleges that his participation interests in the distributions were fully vested and were not discretionary; that the defendants did not have the authority or discretion to withhold the distributions from the plaintiff. (Substitute Second Amended Compl. ¶ 21.) The plaintiff alleges, in particular, that his receipt of the participation interests and his right to receive distributions arising from the participation interests were based on his employment at Collins Enterprises and his services to Collins Enterprises as its chief financial officer; that he received his participation interests as additional compensation for his labor and services as the chief financial officer and that, under the terms of his Employment Agreement, if the plaintiff voluntarily resigned his employment or was terminated for cause, he would forfeit all of his vested participation interests and right to receive any distributions arising therefrom, and that Collins Enterprises did not offer or provide such participation interests to individuals who were not employees at Collins Enterprises. (Id., ¶ ¶ at 22, 23.) Finally, the plaintiff adds that his labor and services as the chief financial officer of Collins Enterprises contributed to the success of the affiliated entities and that his rendering of services provided assistance in various financial and management aspects of the affiliated entities and contributed to the ability of these entities to generate distributions. (¶ 27.) These allegations are reflected in the specific terms of the Employment Agreement which is attached as an exhibit to both Amended Complaints ... It is significant initially that plaintiff's claims regarding his distributions flowing from participation interests are premised not on the Operating Agreement for Collins Enterprises, LLC (the existence of which is referenced in the complaints, and which would generally contain the provisions regarding distributions of profits to members or holders of participation interests) but rather on the provisions of plaintiff's bilateral employment agreement with Collins Enterprises which contains detailed provisions as to the issuance of the participation interests, their duration, their assignability, and the profit distributions associated with them. The inclusion of these provisions in plaintiff's employment agreement is consistent with plaintiff's claim of a unique linkage between his employment and the distribution rights attached to his participation interests. Indeed, a close reading of the contract confirms that plaintiff could not own these participation interests or be entitled to the profit distributions under any circumstances unless he was and continued to be an employee of Collins Enterprises. Under paragraph 4(b)(iii) of the Agreement, plaintiff's vesting schedule for the certificates is determined by " the number of months that Employee [plaintiff] has been employed by the Company during the Applicable Vesting Period." Absent employment, plaintiff's certificates could never vest. Under para. 4(c) even vested rights are " immediately" forfeited and his vested percentage is reduced to zero " in the event that Employee's Employment is terminated by the Company for cause, or due to Employee voluntarily terminating his employment." If plaintiff's employment is terminated for any other reason, or even no reason at all, the Company must purchase from the plaintiff all of his Participation Interests at an appraised value (Para.4(b)(2)). The participation interests, then, are totally linked to plaintiff's employment and would be null and void if held by a non-employee independent shareholder or investor. Defendant does not challenge the allegation that plaintiff received the participation interests as additional compensation for his labor and services as the Chief Financial Officer of Collins Enterprises. The Employment Agreement specifically so provides. Defendant's argument is that the plaintiff received the investment interests in consideration of his services to Collins Enterprises and it is those interests which entitle him to agreed percentages of annual profits, and he fails to distinguish between the participation interests and his right to receive distributions arising from those interests. But the clear provisions of the contract belie that interpretation. The agreement establishes a mechanism to award the plaintiff a share of the entity profits. The participation interests are a medium carefully calculated to ensure the plaintiff's entitlement to the agreed share of profits:
" The profits and losses of a limited liability company shall be allocated among the members, and among the classes of members, in the manner agreed to in the operating agreement." Connecticut Limited Liability Company Act, Conn. Gen.Stat. § 34-152.
Under para. 5 of the Employment Agreement, " Either party may terminate Employee's employment hereunder unilaterally at any time for any reason or for no reason by giving the other party hereto at least thirty (30) days advance notice ..."
" As additional consideration for the Employee's rendering of services pursuant to this Agreement, the Company shall grant to the Employee certain participation interests ..." (para.4.)
Employee has been or shall be granted passive membership interests in those affiliated entities of the Company (" Existing Project Entities") identified on Schedule B [percentages ranging from 3% to 14% for ten entities] in amounts sufficient so that Employee will have an interest in the profits of each such Existing Project Entity as specified in Schedule B. (Emphasis added.) Employment Agreement, para. 4(a).
The investment interests are the product of the agreed share of profits-not the opposite as defendants argue. The profit distributions are therefore awarded in consideration of plaintiff's services to the same extent, if not more, than the participation interests. The two cannot be distinguished to the extent that one can be granted in consideration of services, but the other not.
In light of these additional allegations, which the court must accept as true along with facts necessarily implied therefrom in deciding a motion to strike, the court finds that the plaintiff's participation interests and distribution entitlements are most analogous to the bonus payments at issue in Wall. Like those bonus distributions, the plaintiff here alleges that his entitlements were nondiscretionary and fully vested, both as to entitlement and calculation of the amount, and were directly tied to his efforts as an employee, were contingent on his remaining employed by the defendants and were linked to the success and profitability of the affiliated entities, which were based in part on his personal efforts. Just as Mr. Wall's employment in an executive-level managerial position and responsibility for the profitability of his division was the significant factor in holding his bonus to constitute " wages, " so also does plaintiff Marcante's employment as the Chief Financial Officer of Collins Enterprises making him " responsible for the overall management of the financial affairs of the Company and its affiliated entities" (Employment Agreement, para 1(a)) determine sufficiently for pleading purposes his claim for nonpayment of wages under Section 31-72. And as in Wall, it is immaterial that the amount of the distribution entitlements here depended at least in part on the role of other factors in determining profitability Accordingly, the court denies the motion to strike the First Count.
(B.) Count Two: Violation of § 31-72 as to Individual Defendants
As to the plaintiff's second count, alleging a wage statutes violation against the managing members of Collins Enterprises, Arthur Collins III and Dwight Collins, the defendants argue that this claim also fails because (1) the distributions were not wages and (2) the plaintiff fails to allege facts to hold Arthur Collins III and Dwight Collins personally liable. As to their second reason, the defendants specifically argue that the plaintiff does not allege that either of the individual defendants in any way dictated the plaintiff's duties, determined the amount of time he worked or otherwise controlled the terms of his employment. The defendants thus conclude that the plaintiff fails to allege sufficient facts to support a claim that either of the individual defendants exercised the requisite level of authority and control over the plaintiff's duties as to incur liability for withholding any wages. The plaintiff responds that he has alleged sufficiently that the individual defendants were ultimately responsible for paying wages to him and were the causes of the wage violation. The plaintiff contends, however, that " [A]n individual personally can be liable as an employer pursuant to § 31-72, notwithstanding the fact that a corporation is also an employer of the claimant, if the individual is the ultimate responsible authority to set the hours of employment and to pay wages and is the specific cause of the wage violation." Butler v. Hartford Technical Institute, Inc., 243 Conn. 454, 463-64, 704 A.2d 222 (1997).
The chain of responsibility for paying to the plaintiff the disputed distributions of profit is clearly alleged in the Amended Complaints. Under the Operating Agreement of Collins Enterprises, LLC, Collins Enterprises agreed to distribute to Collins Employees, LLC a certain percentage of its profits from specific real estate development and/or acquisition projects and Collins Employees agreed to distribute a certain percentage of those payments to Mr. Marcante. (Para.15.) Pursuant to the Operating Agreement, Collins Enterprises is the sole Managing Member of Collins Employees. (Para .13.) During all relevant times Arthur Collins, III and Dwight Collins were Managing Members of Collins Enterprises who communicated directly with Mr. Macante about his participation interests in the Collins Project Entities. (Para.44, 45.) The plaintiff then plainly alleges that the individual defendants had the ultimate authority and responsibility to decide whether to pay distributions to the plaintiff arising from his participation interests, and that the individual defendants willfully and intentionally caused the corporate defendants to refuse to pay distributions to the plaintiff. The plaintiff further alleges that by refusing to pay the plaintiff distributions, the individual defendants violated General Statutes §§ 31-71c and 31-71e. (Para.46-48.) These allegations are sufficient to sustain a claim of personal liability against Arthur Collins III and Dwight Collins for a violation of the wage statutes. Accordingly, defendants' motion to strike the Second Count is also denied.
ORDER
For the foregoing reasons, the motion to strike Counts One and Two of the Substitute Second Amended Complaint is denied.