Opinion
No. CV 03 0822764
September 10, 2003
MEMORANDUM OF DECISION ON MOTION FOR SUMMARY JUDGMENT
The defendant moves for summary judgment on the ground that the claims are barred by the doctrines of collateral estoppel (issue preclusion) and/or res judicata (claim preclusion).
The plaintiff, Maxemus Entertainment, LLC, filed this action against the defendant, Stephen Josey, on January 28, 2003. It arises out of a failed agreement between the defendant and Tate George, who together formed the plaintiff limited liability company for the purpose of operating and managing an independent record company. The agreement contained an express term in which the defendant and George promised that they neither were nor would be a party to any contract that would materially interfere with their performance of exclusive services for the plaintiff. The plaintiff alleges that contrary to that term, at the time the defendant executed the agreement with George, the defendant had a contractual agreement with another record company, L.A.B. Entertainment, which interfered with his performance under the agreement and that his failure to disclose that information amounted to fraud and misrepresentation.
The plaintiff's amended complaint contains four counts. The first three counts of the plaintiff's amended complaint rely on the alleged fraud and misrepresentation of the defendant as a basis for the claimed cause of action. Count four seeks a declaratory judgment that Tate George is the plaintiff's sole member and that he retains the name "Maxemus Entertainment, LLC" per the agreement.
On May 28, 2003, after the defendant had filed his motion for summary judgment, the plaintiff filed its amended complaint pursuant to Practice Book § 10-60, adding a fourth count not in the original complaint. The defendant has not sought to amend his motion for summary judgment to address that additional count. Nevertheless, this court may consider whether the fourth count is also barred by res judicata or collateral estoppel pursuant to Practice Book § 10-61, which provides in relevant part that "pleadings already filed by the adverse party shall be regarded as applicable so far as possible to the amended pleading."
Count one, which alleges breach of contract, states that "by reason of such fraud and misrepresentation," the plaintiff issued to the defendant a membership interest and seeks actual damages, a forfeiture of the membership interest, punitive damages and attorneys fees. (Compl., count one, ¶ 3.) Count two seeks a declaratory judgment that the defendant "owns no further interest in Plaintiff" because the defendant allegedly "wrongfully obtained his membership interest by reason of his fraud and misrepresentation." (Compl., count two, ¶ 22.) Count three seeks a rescission of the defendant's membership interest "[b]y reason of Defendant's misrepresentation and fraud toward the partnership . . ." (Compl., count three, ¶ 25.)
On May 2, 2003, the defendant filed an answer in which he pleaded res judicata and collateral estoppel as special defenses. The defendant concurrently filed a motion for summary judgment and supporting memorandum of law. The plaintiff filed an opposition to the motion for summary judgment on May 29, 2003. The defendant filed a reply to the plaintiff's opposition on June 2, 2003.
"Summary judgment in favor of the defendant is properly granted if the defendant in its motion raises at least one legally sufficient defense that would bar the plaintiff's claim and involves no triable issue of fact." (Internal quotation marks omitted.) Serrano v. Burns, 248 Conn. 419, 424, 727 A.2d 1276 (1999). "The party seeking summary judgment has the burden of showing the absence of any genuine issue [of] material facts which, under applicable principles of substantive law, entitle him to a judgment as a matter of law . . . and the party opposing such a motion must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact." (Internal quotation marks omitted.) Schilberg Integrated Metals Corp. v. Continental Casualty Co., 263 Conn. 245, 252, 819 A.2d 773 (2003).
"[S]ummary judgment is an appropriate vehicle for raising a claim of res judicata . . ." (Citations omitted.) Joe's Pizza, Inc. v. Aetna Life Casualty Co., 236 Conn. 863, 867 n. 8, 675 A.2d 441 (1996). "Because res judicata or collateral estoppel, if raised, may be dispositive of a claim, summary judgment [is] the appropriate method for resolving a claim of res judicata." Jackson v. R.G. Whipple, Inc., 225 Conn. 705, 712, 627 A.2d 374 (1993).
The defendant moves for summary judgment on the ground that there are no genuine issues of material fact in dispute and that he is entitled to judgment as a matter of law on all counts of the complaint because they are bared by the doctrines of res judicata and collateral estoppel. Specifically, the defendant argues that in November 2002, the court, Boothe, J., tried an earlier lawsuit, in which the defendant filed suit against George and George filed counterclaims against him arising from the same facts at issue in the present action. The court issued a January 9, 2003 memorandum of decision in that case, which, the defendant argues, resolved all claims and counterclaims. Josey v. George, Superior Court, judicial district of Hartford, Docket No. CV 01 0810269 (Jan. 9, 2003, Booth, J.). The defendant argues that the alleged issues of fraud and misrepresentation were fully litigated in that earlier action and should not be relitigated in the current action. The defendant contends that the interests of the plaintiff are essentially identical to those of George, who is its principal and only member. Further, the claims made by the plaintiff in the present litigation, the defendant argues, were either raised by George in that earlier action or should have been raised at that time. Accordingly, the defendant argues that the doctrines of res judicata and collateral estoppel should bar all counts of the plaintiff's complaint.
As evidentiary support for his motion, the defendant has attached the following documents to his memorandum of law: (1) an uncertified copy of the agreement between the defendant and George; (2) an uncertified copy of the complaint and answer filed in Josey v. George, supra, Superior Court, Docket No. CV 01 0810269; and (3) a copy of Judge Booth's January 9, 2003 memorandum of decision in Josey v. George, supra, Superior Court, Docket No. CV 01 0810269.
"As the party moving for summary judgment, the [movant] is required to support its motion with supporting documentation, including affidavits." Heyman Associates No. 1 v. Insurance Co. of Pennsylvania, 231 Conn. 756, 796, 653 A.2d 122 (1995). "Only evidence that would be admissible at trial may be used to support or oppose a motion for summary judgment." (Internal quotation marks omitted.) Great Country Bank v. Pastore, 241 Conn. 423, 436, 696 A.2d 1254 (1997), citing Practice Book § 17-46. Although the defendant should have verified the documents with an accompanying affidavit, because the plaintiff has made no objection to their admission, the court may consider the evidence as presented.
In opposition to the defendant's motion for summary judgment, the plaintiff argues that res judicata cannot bar the claims in the present action because the plaintiff was not a party to the previous action, the same claims or causes of action are not at issue and the parties did not have a fair and full opportunity to litigate the matter. Further, the plaintiff argues that the court should not grant summary judgment on the basis of collateral estoppel because it was not a party to the previous action and the previous court made no specific mention of the issue of misrepresentation or fraud in its memorandum of decision and those issues were, therefore, not actually and necessarily determined. In evidentiary support of its opposition, the plaintiff submits a signed and sworn affidavit of its attorney, a copy of an employment contract allegedly executed by the defendant and L.A.B. Entertainment, and copies of an exhibit list and an offer of proof from Josey v. George, supra, Superior Court, Docket No. CV 01 0810269.
Collateral Estoppel
"[C]ollateral estoppel precludes a party from relitigating issues and facts actually and necessarily determined in an earlier proceeding between the same parties or those in privity with them upon a different claim." (Internal quotation marks omitted.) Dowling v. Finley Associates, Inc., 248 Conn. 364, 373-74, 727 A.2d 1245 (1999). An issue is subject to collateral estoppel against a party or a privy of the party if it was fully and fairly litigated in the first action, actually decided and the decision was necessary to the judgment. RR Pool Patio v. Zoning Board of Appeals, 257 Conn. 456, 466, 778 A.2d 62 (2001). For purposes of its collateral estoppel analysis, therefore, the court must decide if the plaintiff was a party or a privy to the previous action and, if so, whether the issue of fraud and misrepresentation were actually litigated and necessarily determined in the prior action.
It is undisputed that the plaintiff was not an actual party to the previous action, which was between the current defendant and George. A more complex question is whether the plaintiff was in privity with George as to the issue of fraud and misrepresentation.
"While it is commonly recognized that privity is difficult to define, the concept exists to ensure that the interests of the party against whom collateral estoppel is being asserted have been adequately represented because of his purported privity with a party at the initial proceeding . . . There is no prevailing definition of privity to be followed automatically in every case. It is not a matter of form or rigid labels; rather it is a matter of substance. In determining whether privity exists, we employ an analysis that focuses on the functional relationships of the parties. Privity is not established by the mere fact that persons may be interested in the same question or in proving or disproving the same set of facts. Rather, it is, in essence, a shorthand statement for the principle that collateral estoppel should be applied only when there exists such an identification in interest of one person with another as to represent the same legal rights so as to justify preclusion." (Citation omitted; internal quotation marks omitted.) Young v. Metropolitan Property Casualty Ins., 60 Conn. App. 107, 114, 758 A.2d 452, cert. denied, 255 Conn. 906, 762 A.2d 912 (2000).
No Connecticut decisions discuss the circumstances under which a court properly may conclude that privity exists between a limited liability company and one of its members or managers. A federal district court, however, recently granted summary judgment on grounds of claim preclusion and issue preclusion, holding that the defendant limited liability companies were in privity for preclusionary purpose with the person who was the designated manager of the companies and had a controlling ownership interest. Direct Marketing Concepts, Inc. v. Trudeau, United States District Court, Docket No. 02 C 9014 (N.D.Ill. June 5, 2003). The district court stated: "In light of [the person's] self-created total control over both [limited liability companies] by virtue of his management, coupled with his ownership interest in both, it would represent the height of artificiality — an impermissible exaltation of form (and indeed not much formal separation at that) over substance — to view the [limited liability companies] as anything other than in privity with [the person]." Id. We also look to the Restatement (Second) of Judgments for guidance.
Generally, a judgment in an action involving "an officer, director, stockholder, or member of a non-stock corporation" has no preclusive effect on the party's corporation. 2 Restatement (Second), Judgments § 59, pp. 93-94 (1982). "This rule of general applicability, however, is subject to an exception for corporations that are closely held: `If the corporation is closely held, in that one or a few persons hold substantially the entire ownership in it, the judgment in an action by . . . the holder of ownership in it is conclusive upon the [corporation] as to issues determined therein . . . except when relitigation of the issue is justified in order to protect the interest of another owner or a creditor of the corporation.'" Joe's Pizza, Inc. v. Aetna Life And Casualty Co., supra, 236 Conn. 869, quoting 2 Restatement (Second), supra, § 59(3)(b). Comment (e) to § 59 states: "When the corporation is closely held . . . interests of the corporation's management and stockholders and the corporation itself generally fully coincide . . . For the purpose of affording opportunity for a day in court on issues contested in litigation . . . there is no good reason why a closely held corporation and its owners should be ordinarily regarded as legally distinct. On the contrary, it may be presumed that their interests coincide and that one opportunity to litigate issues that concern them in common should sufficiently protect both."
Although not a corporation, under Connecticut law, a limited liability company may sue and be sued in its own name. General Statutes §§ 34-124 (b) and 34-186. That separate jural identity makes a limited liability company more like a corporation than like a partnership when considering issues of preclusion. Connecticut courts have applied other rules governing corporations to limited liability companies due to that similarity. See, e.g., Litchfield Asset Management Corp. v. Howell, 70 Conn. App. 133, 158, 799 A.2d 298, cert. denied, 261 Conn. 911, 806 A.2d 49 (2002) (court applies "identity" rule to "pierce the corporate veil" of limited liability company); Stone v. Frederick Hobby Assoc. II, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 000181620 (July 10, 2001, Mintz, J.) (same).
The court, therefore, applies the rule and exceptions outlined in § 59 of the Restatement in the present case. Such treatment also accords with § 61 of the Restatement (Second) of Judgments dealing with unincorporated associations, which states in relevant part: "If under applicable law an unincorporated association is treated as a jural entity distinct from its members, a judgment for or against the association has the same effects with respect to the association and its members as judgment for or against a corporation, as stated in § 59." 2 Restatement (Second), Judgments § 61(2) (1982).
That rationale is equally applicable to the facts in the present case. The parties do not dispute that George is the plaintiff's sole member. The plaintiff's current interests regarding the alleged fraud and misrepresentation fully coincide with those of George in the previous action. Although procedural steps toward final dissolution were at issue at the time of the previous action, the plaintiff's interest in remedying a fraudulent inducement of a membership interest was nevertheless fully represented in the previous action by George: The plaintiff has not argued or presented evidence that the respective interests were in conflict in some way. There is no evidence that relitigation of the particular issue is necessary to protect someone else's ownership interest or the interest of a creditor. Because there is an overwhelming identity of interest as to the underlying allegations of misrepresentation and fraud common to both lawsuits, this court will consider the plaintiff in privity with George as to prior determinations of the court regarding those issues.
The court's analysis now turns to whether the issues of fraud and misrepresentation were actually litigated and necessarily determined in the prior action. "An issue is actually litigated if it is properly raised in the pleadings or otherwise, submitted for determination, and in fact determined . . . An issue is necessarily determined if, in the absence of a determination of the issue, the judgment could not have been validly rendered . . . If an issue has been determined, but the judgment is not dependent upon the determination of the issue, the parties may relitigate the issue in a subsequent action." (Internal quotation marks omitted.) Carnemolla v. Walsh, 75 Conn. App. 319, 325-26, 815 A.2d 1251, cert. denied, 263 Conn. 913, 821 A.2d 768 (2003).
In his second counterclaim in the previous action, George claimed he was entitled to damages because the defendant in the present action had fraudulently misrepresented his ability to enter into a contractual relationship with him due to an existing contract with a third party. Further, George's first special defense to the present defendant's action based on the partnership agreement was that the agreement was "null and void" because it was "procured by. fraudulent representation." (Mem. in Supp. of Def.'s Mot. for Summ. J., Attach. C, p. 3, ¶ 3.) The issue, therefore, was raised in the prior pleadings and submitted to the court for determination.
Evidence concerning the alleged fraud and misrepresentation has been presented to the court. In his affidavit submitted in opposition to summary judgment, the plaintiff's attorney states that the defendant testified in the previous action that he was not a party to a contract with L.A.B. Entertainment. Further, the affidavit states that when confronted with the alleged contract, the defendant denied that the signature on the document was his. The affidavit also states that the court refused to allow another witness to authenticate the alleged contract and that it was not entered into evidence. Contrary to the arguments of the plaintiff, however, that refusal in no way meant that the issues of misrepresentation and fraud were if not properly before the court or that the court properly could not have decided the issues. The court could have relied solely on the defendant's testimony in determining the issues.
The court's memorandum of decision did not contain an express determination by the court whether the present defendant made fraudulent misrepresentations in his agreement with George. This court must therefore consider whether, absent such a determination, the court properly could have rendered the judgment that it did. The court in its memorandum of decision expressly found that George formally terminated the partnership by letter in April 2001. This implies that the agreement between the defendant and George was valid. Further, the court's conclusions could only be based on an implicit finding that the agreement was valid. This in turn means that the court must have rejected George's special defense that the agreement was void due to the alleged fraud and misrepresentation of the defendant in the present action. The court, therefore, necessarily determined the issues of fraud and misrepresentation against George.
Having decided that the plaintiff in the present action was in privity with George and that the issues of fraud and misrepresentation were actually litigated and necessarily determined in the previous action, the plaintiff is collaterally estopped from relitigating those issues in the present case. Because the first three counts rely on a contrary determination as to those issues, those counts fail as a matter of law. Because the defendant has met his burden of showing that no material facts are in dispute and that he is entitled to summary judgment as a matter of law as to counts one, two and three, the court grants the defendant's motion for summary judgment as to those counts.
Since this court has granted Summary Judgment as to counts one, two and three under a collateral estoppel analysis, there is no need to address the Res Judicata argument. However, we choose to do so.
Res Judicata
"The principles underlying the doctrine of res judicata, or claim preclusion, are well settled. [A] valid, final judgment rendered on the merits by a court of competent jurisdiction is an absolute bar to a subsequent action between the same parties, or those in privity with them, upon the same claim or demand . . . Furthermore, the doctrine of claim preclusion . . . bars not only subsequent relitigation of a claim previously asserted, but subsequent relitigation of any claims relating to the same cause of action which were actually made or which might have been made." (Citation omitted; internal quotation marks omitted.) Gaynor v. Payne, 261 Conn. 585, 595-96, 804 A.2d 170 (2002). The judicial [doctrine] of res judicata . . . [is] based on the public policy that a party should not be able to relitigate a matter which it already has had an opportunity to litigate . . . [W]here a party has fully and fairly litigated his claims, he may be barred from future actions on matters not raised in the prior proceeding." (Internal quotation marks omitted.) Thorpe v. Commissioner of Correction, 73 Conn. App. 773, 777, 809 A.2d 1126 (2002). "The rule of claim preclusion prevents reassertion of the same claim regardless of what additional or different evidence or legal theories might be advanced in support of it." Delahunty v. Massachusetts Mutual Life Ins. Co., 236 Conn. 582, 589, 674 A.2d 1290 (1996).
"[Connecticut courts] have adopted a transactional test as a guide to determining whether an action involves the same claim as an earlier action so as to trigger operation of the doctrine of res judicata. [T]he claim [that is] extinguished [by the judgment in the first action] includes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions, out of which the action arose. What factual grouping constitutes a transaction, and what groupings constitute a series, are to be determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage . . . In applying the transactional test, we compare the complaint in the second action with the pleadings and the judgment in the earlier action." (Internal quotation marks omitted.) Cadle Co. v. Gabel, 69 Conn. App. 279, 296-97, 794 A.2d 1029 (2002).
As set out above in the discussion on collateral estoppel, the plaintiff was in privity with George for the purpose of preclusion analysis. It is not necessary, as the plaintiff suggests in its opposition, that the court determine that the identity of the parties were identical. Further, it is not disputed that the memorandum of decision in the previous action constitutes a final judgment on the merits by a court of competent jurisdiction. The plaintiff argues that the two actions did not involve the same claim, demand or cause of action and that the parties did not have an opportunity to fully and fairly litigate the matter.
Although different causes of action may have been pleaded, the claims raised in both actions arise out of the same transaction or occurrence, namely the formation and subsequent dissolution of the plaintiff company by the defendant and George. In the prior litigation, the present defendant brought suit against George for, inter alia, breach of the agreement, including failure to follow procedures for dissolving the relationship. George's second counterclaim alleged that the present defendant had made fraudulent misrepresentations, which George relied on in agreeing to form their business relationship. The current litigation also involves the relationships of the parties relative to that same agreement. Count one alleges that the defendant had made fraudulent misrepresentations which the plaintiff relied on to issue the defendant a membership interest. This is essentially the same claim as raised in George's second counterclaim in the first action, just framed in terms of the defendant's relationship with the plaintiff. As previously noted, the court implicitly rejected George's counterclaim and the defendant cannot revive it now in a latter action simply by framing it on behalf of a company of which he is the sole member. Counts two and three, although they allege different causes of action and seek different remedies than those sought in the earlier action, spring from the same allegations of fraud and misrepresentation. These are claims that the defendant could have and should have brought on behalf of the plaintiff in the previous action but did not do so.
Finally, the plaintiff cannot succeed on its argument that it did not have the opportunity to fully and fairly litigate the matter. The plaintiff again argues that because the court prevented the defendant from entering the alleged contract with L.A.B. Enterprise into evidence, "[t]he issue of [the defendant's] deceit was never joined. (Pl's Opp'n. to Def's Mot. for Summ. J., p. 9.) As explained above, the plaintiff itself points to testimonial evidence of the defendant concerning the validity of the contract. Although George and the plaintiff may believe the court improperly excluded their rebuttal witness, that is not an issue for this court. "The fact that a prior judicial determination may be flawed . . . is ordinarily insufficient, in and of itself, to overcome a claim that otherwise applicable principles of res judicata preclude it from being collaterally attacked . . . If the judgment [in the prior action] is erroneous, the unsuccessful party's remedy is to have it set aside or reversed in the original proceedings." (Internal quotation marks omitted.) Carnemolla v. Walsh, supra, 75 Conn. App. 327.
Because res judicata bars the litigation of the first three counts, those counts fail as a matter of law. The defendant has met his burden of showing that no material facts are in dispute and that he is entitled to summary judgment as a matter of law as to counts one, two and three; therefore, the court grants the defendant's motion for summary judgment.
Count four seeks a declaratory judgment that the defendant is no longer a member of the plaintiff company. This fact is admitted in the defendant's first special defense, which states: "Tate George remains the only member of the Plaintiff Limited Liability Company." (Def.'s First Special Defense, ¶ 13.) The plaintiff replied: "Plaintiff admits and accepts the stipulation that Tate George is the sole member of [the plaintiff] as alleged in paragraph 13 of the first special defense." (Pl.'s Reply to Def.'s Special Defenses, ¶ 12.)
"Because courts are established to resolve actual controversies, before a claimed controversy is entitled to a resolution on the merits it must be justiciable. Justiciability requires that there be an actual controversy between or among the parties to the dispute . . ." (Internal quotation marks (omitted.) Wallingford v. Dept. of Public Health, 262 Conn. 758, 766, 817 A.2d 644 (2003). Because the parties have agreed that George is the sole member of the plaintiff company, there is no actual controversy and the claim is nonjusticiable. "A case that is nonjusticiable must be dismissed for lack of subject matter jurisdiction." Mayer v. Biafore, Florek O'Neill, 245 Conn. 88, 91, 713 A.2d 1267 (1998). The court dismisses count four, sua sponte, for lack of subject matter jurisdiction. Practice Book § 10-33.
BY THE COURT
Hennessey, J.