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explaining that "[a]ctions to pierce the corporate veil to enforce a judgment, however, do not violate due process because once alter ego status is established, the previous judgment is then being enforced against entities who were, in essence, parties to the underlying dispute; the alter egos are treated as one entity"
Summary of this case from Semmaterials, L.P. v. Alliance Asphalt, Inc.Opinion
No. CV 05-4015888
March 15, 2006
MEMORANDUM OF DECISION
This action is before the court on the defendants' motion to strike the plaintiffs' entire complaint, which seeks enforcement of a prior judgment through reverse piercing and piercing the corporate veil to reach the assets both of a corporation allegedly controlled by the judgment debtor and of the corporation's majority shareholder. The plaintiffs, the commissioner of the department of environmental protection, the town of Hamden (Hamden) and Hamden's zoning enforcement officer, allege that on September 21, 2001, they obtained a judgment against Joseph Farricielli and five corporations that he owned and or controlled. Joseph Farricielli and these companies have allegedly not complied with the judgment.
The judgment required, inter alia, that Joseph Farricielli and three of the five corporations: (1) comply with a consent order from February 1998; (2) fund the closure of two solid waste areas; and (3) comply with a stipulated judgment from March 1997 that requires payment of civil penalties to the Commissioner in the amount of $2,336,800 and to Hamden in the amount of $1,416,910.
On August 17, 2005, the plaintiffs commenced the present action seeking to enforce the prior judgment, through reverse piercing and piercing the corporate veil, against the defendants, State Five Industrial Park, Inc. (State Five) and Jean Farricielli. In the four-count amended complaint, the first and second counts ask the court to reverse pierce the corporate veil based upon the instrumentality rule and the identity rule, respectively, from the judgment debtor, Joseph Farricielli, to State Five, a corporation allegedly owned and or controlled by Joseph Farricielli. The third and fourth counts seek to pierce the corporate veil from State Five to Jean Farricielli, State Five's majority shareholder, using the instrumentality rule and the identity rule, respectively.
Jean Farricielli is also allegedly Joseph Farricielli's wife.
The defendants moved to strike the plaintiffs' first amended complaint on October 13, 2005 and filed a memorandum of law in support of their motion. The ground for the defendants' motion is that the plaintiffs fail to state a claim upon which relief may be granted because the defendants were not parties to the prior judgment. The plaintiffs filed a memorandum of law in opposition to the motion on October 27, 2005 and the defendants filed a reply memorandum on November 7, 2005. Oral arguments were heard on the motion on November 21, 2005.
"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). "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." (Internal quotation marks omitted.) Commissioner of Labor v. C.J.M Services, Inc., 268 Conn. 283, 292, 842 A.2d 1124 (2004). "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, 498. In deciding whether to grant the motion to strike, "[t]he court must construe the facts in the complaint most favorably to the plaintiff." (Internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997). "[I]f facts provable in the complaint would support a cause of action, the motion to strike must be denied." (Internal quotation marks omitted.) Larobina v. McDonald, 274 Conn. 394, 400, 876 A.2d 522 (2005).
The issue is whether the court should grant the defendants' motion to strike the plaintiffs' complaint on the ground that the complaint fails to state a claim upon which relief may be granted because the defendants were not parties to the prior judgment. The plaintiffs argue that the defendants need not be parties to the prior judgment. This court agrees with the plaintiffs.
"Generally, an action on a judgment can only be brought against the defendant of record and not against an entity or person not named in the original judgment." Associated Aviation Underwriters v. Wood, 209 Ariz. 137, 180, 98 P.3d 572 (App. 2004), cert. denied, 126 S.Ct. 390, 163 L.Ed.2d 174 (2005); see also 47 Am.Jur.2d 433-34, Judgments § 990 (1995). Nevertheless, "[w]here the post-judgment proceeding is an effort to collect a . . . judgment, the courts have permitted judgment creditors to pursue . . . the assets of the judgment debtor even though the assets are found in the hands of a third party." Epperson v. Entertainment Express, Inc., 242 F.3d 100, 106 (2d Cir. 2001). Connecticut courts have also allowed post-judgment proceedings against parties not named in the original judgment and found these parties liable on a prior judgment based on reverse piercing and piercing the corporate veil. See, e.g., Litchfield Asset Management Corp. v. Howell, 70 Conn.App. 133, 147-59, 799 A.2d 298 (upholding lower court order that reverse pierced corporate veil to enforce foreign judgment), cert. denied, 261 Conn. 911, 806 A.2d 49 (2002); Davenport v. Quinn, 53 Conn.App. 282, 300-03, 730 A.2d 1184 (1999) (upholding lower court order that pierced corporate veil to enforce default judgment).
The defendants argue that an action to enforce a judgment against a nonparty to the original judgment violates due process. Rendering judgment for or against a nonparty may be a denial of constitutional due process because the nonparty did not receive notice or an opportunity to be heard. Bronco Wine Co. v. Frank A. Logoluso Farms, 214 Cal.App.3d 699, 717, 262 Cal.Rptr. 899 (1989), citing Lambert v. California, 355 U.S. 225, 228, 78 S.Ct. 240, 2 L.Ed.2d 228 (1957), and Twining v. New Jersey, 211 U.S. 78, 110-11, 29 S.Ct. 14, 53 L.Ed. 97 (1908). Actions to pierce the corporate veil to enforce a judgment, however, do not violate due process because "once alter ego status is established, `the previous judgment is then being enforced against entities who were, in essence, parties to the underlying dispute; the alter egos are treated as one entity.'" JSC Foreign Economic Assn. Technostroyexport v. International Development Trade Services, Inc., 295 F.Sup.2d 366, 376 (S.D.N.Y. 2003), quoting William Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d 131, 143 (2d Cir. 1991); see also Turner Murphy Co. v. Specialty Constructors, Inc., 659 So.2d 1242, 1245-46 (Fla.Dist.Ct.App. 1995).
In the present case, the plaintiffs allege that Joseph Farricielli was the alter ego of State Five and that State Five was the alter ego of Jean Farricielli. The defendants argue, however, that it is not possible that Joseph Farricielli, Jean Farricielli and State Five could all be alter egos of one another. One judge of this court has found, however, probable cause, in the context of a prejudgment remedy application, to sustain a claim for piercing the corporate veil to reach two members of a limited liability company. Stone v. Frederick Hobby Associates II, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 00 0181620 (July 10, 2001, Mintz, J.). Other courts have also examined whether more than one individual may be liable when piercing the corporate veil. See George Hyman Construction Co. v. Gateman, 16 F.Sup.2d 129, 148-60 (D.Mass. 1998) (considering whether corporate veil should be pierced to reach two individuals); Dana v. 313 Freemason, a Condominium Assn., Inc., 266 Va. 491, 502, 587 S.E.2d 548 (2003) (upholding lower court decision to reverse pierce corporate veil to reach corporation controlled by two shareholders). Like these cases, if the plaintiffs prove that Joseph Farricielli and Jean Farricielli used State Five interchangeably with their own personal identities and with the identities of other entities under their control and failed to observe corporate formalities, then Joseph Farricielli, Jean Farricielli and State Five may be found to be alter egos of one another. See Stone v. Frederick Hobby Associates II, supra, Superior Court, Docket No. CV 00 0181620. Thus, if the plaintiffs can prove the alter ego status of State Five and Jean Farricielli, they were, in essence, parties to the underlying dispute and their due process rights are not violated.
Nevertheless, the defendants argue in their reply memorandum that various counts of the complaint are insufficient to state a claim to pierce the corporate veil. Specifically, regarding counts one and three, which seek to pierce the corporate veil under the instrumentality rule, the defendants argue that the plaintiffs have failed to allege facts that would establish complete domination of State Five by Joseph Farricielli and Jean Farricielli with respect to the transactions that gave rise to liability in the prior action. Regarding counts two and four, which seek to pierce the corporate veil under the identity title, the defendants argue that it is impossible for State Five to be both the alter ego of Joseph Farricielli and the alter ego of Jean Farricielli at the same time. The defendants essentially argue that count two, which seeks to reverse pierce the corporate veil from Joseph Farricielli to State Five, is factually and legally inconsistent with count four, which seeks to pierce the corporate veil from State Five to Jean Farricielli. Thus, the defendants' argument is not really that the facts of the complaint generally, or the facts of count two, standing alone, are legally insufficient to state a claim of reverse piercing. Rather, the defendant is simply arguing that the plaintiff cannot prevail on both counts two and four because they conflict.
As stated above, the defendants move to strike the entire complaint on the ground that it fails to state a claim upon which relief can be granted because the defendants were not parties to the prior judgment. A motion to strike an entire complaint must fail if any of the plaintiffs' claims are legally sufficient. Whelan v. Whelan, 41 Conn.Sup. 519, 520, 588 A.2d 251 (1991) ( 3 Conn. L. Rptr. 135); Kovacs v. Kasper, 41 Conn.Sup. 225, 226, 565 A.2d 18 (1989); Doyle v. AP Realty Corp., 36 Conn.Sup. 126, 127, 414 A.2d 204 (1980); see also Water Commissioners v. Robbins, 82 Conn. 623, 633, 74 A. 938 (1910). Moreover, "grounds other than those specified should not be considered by the trial court in passing upon a motion to strike . . ." (Internal quotation marks omitted.) Gazo v. Stamford, 255 Conn. 245, 259, 765 A.2d 505 (2001). As stated, the defendants have not pointed to any deficiency in count two of the complaint that would render it legally insufficient to state a claim of reverse piercing under the identity rule. Accordingly, the defendants' motion to strike the entire complaint is denied.
SO ORDERED.