Opinion
X03HHDCV176087023S
10-31-2019
Oleg Shikhman v. Bobcat Endoscopy, LLC et al.
UNPUBLISHED OPINION
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Schuman, Carl J., J.
MEMORANDUM OF DECISION
Carl J. Schuman Judge, Superior Court
The plaintiff, Oleg Shikhman (Shikhman), has filed suit against the defendants, Bobcat Endoscopy, LLC (f/k/a LumenR, LLC) ("LumenR") and Gregory Piskun, M.D. (Piskun) on grounds arising out of their business venture. The operative July 18, 2018 Second Amended Complaint (Complaint, Entry #126.00), after resolution of the defendants’ summary judgment motion and the plaintiff’s unilateral action, alleges three counts of breach of contract (counts one, two, and thirteen), two counts of breach of fiduciary duty (counts twelve and fourteen), and one count each of quantum meruit (count seven), unjust enrichment (count eight), and promissory estoppel (count nine). The operative amended answer (Answer, Entry #134.00), after summary judgment and the defendants’ unilateral action, contains a counterclaim by LumenR alleging tortious interference with contract (fifth counterclaim). A six-day bench trial of these claims took place between September 23 and October 3, 2019. The parties filed post-trial briefs on October 18, 2019. This memorandum contains the court’s findings of fact and decision in the case.
I. THE 2009 CONSULTING AGREEMENT (COUNTS ONE AND TWO)
A. The Defendants’ Breach
In 2006 Shikhman, a mechanical engineer, and Piskun, a medical doctor specializing in surgery, began working together on the invention of an endoluminal surgical device (the "LumenR device"). The device, as ultimately marketed, "provides and facilitates tissue retraction," particularly during scoping of the lower gastrointestinal tract. (Ex. 337.) In a December 2006 email, Piskun offered Shikhman "15% of endoluminal" and a position as a "key decision maker in the [company’s] business directions." (Ex. 6.) There were further discussions, but there was no signed contract at the time.
Shikhman did some work, of disputed value, in developing the device between 2006 and 2009. On July 13 and 14, 2009, Shikhman and Piskun, the latter as managing director of LumenR, signed a "Consulting Agreement." Paragraph 3(a) of the agreement stated: "In full consideration of Consultant’s [Shikhman’s] consulting services under this Agreement, Consultant shall be paid by the Company 15,000 of Profits Interests for the period ending December 31, 2009." (Ex. 13, ¶3(a).) The contract contains a merger clause stating: "This Agreement constitutes the entire agreement between Consultant and the Company and supersedes all prior agreements and undertakings, both written and oral, with respect to the subject matter hereof. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the Consultant and the Company." (Ex. 13, ¶12.) The contract also provides that it will be governed by New York law. (Ex. 13, § 12.)
It is not clear why the parties would agree to the application of New York law. The contract states that Shikhman lived in Connecticut. (Ex. 13, p. 1.) The contract does not disclose Piskun’s address but he testified that he now lives in Florida. There was no apparent connection to New York. Agreeing to apply New York law and then filing suit in Connecticut unnecessarily added to the complexities of this case.
In count one, Shikhman alleges that LumenR breached the Consulting Agreement by failing to issue Shikhman "15,000 units of ‘Profits Interests’ " in LumenR. (Complaint, ¶34.) Shikhman, then alleges, apparently relying on the 2006 email, that LumenR "also breached the Consulting Agreement by failing to issue Mr. Shikhman a 20% share of the outstanding equity of LumenR." (Complaint, ¶35.) Shikhman seeks damages based on his failure to receive a distribution from the sale of the LumenR device to Boston Scientific Corporation (BSC). (Complaint, ¶36.) Count two is identical except that it seeks specific performance of LumenR’s duty to recognize Shikhman’s ownership in the company and his entitlement to past and future distributions. (Complaint, ¶45.)
Unfortunately, the captions of counts one and two do not specifically state the defendant or defendants being named, as do counts six, ten, and others. However, the court construes counts one and two to name only the corporate defendant in view of allegations such as "LumenR breached the Consulting Agreement ..." (Complaint, ¶34.)
Under New York law, "a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms ... Extrinsic evidence of the parties’ intent may be considered only if the agreement is ambiguous, which is an issue of law for the courts to decide." (Citations omitted.) Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569, 780 N.E.2d 166 (2002). "[E]xtrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face." (Internal quotation marks omitted.) W.W.W. Associates, Inc. v. Giancontieri, 77 N.Y.2d 157, 163, 566 N.E.2d 639 (1990). "[W]here a contract contains a merger clause, a court is obliged to require full application of the parol evidence rule in order to bar the introduction of extrinsic evidence to vary or contradict the terms of the writing." (Internal quotation marks omitted.) Schron v. Troutman Sanders, LLP, 20 N.Y.3d 430, 436, 986 N.E.2d 430 (2013).
In the present case, the contract does contain an ambiguity because the phrase "15,000 of Profits Interests" is obviously missing a word or phrase. This ambiguity is readily resolved, however, by looking at two exhibits from the time immediately preceding the July 13 signing. The first is a draft of the Consulting Agreement. Paragraph 3(a) of the draft provides that Shikhman shall receive "15,000 Class E Units of the Company. The terms and conditions of the Class E Units shall be set forth in a separate unit award agreement." (Ex. 21, p. 1784.) The second exhibit consists of a series of emails beginning with one dated June 30 from Piskun in which he sends the draft consulting agreement to Shikhman. In a July 5 email, Shikhman asks Piskun "could you please tell me how many units are being issued?" Piskun responds on July 6 that "[t]he company has two types of units at the moment. ‘A Units’ have been available for the purchase only. ‘E Units’ have been created for the exclusive employees and consultants ... In the same period of time, the company is issuing 75 E Units ... 50— to me, and 15— to you." An email Piskun sent four minutes later stated: "I meant 75,000 E Units: ... 50,000— to me, and 15,000— to you." (Ex. 25.)
The court will occasionally cite pages within an exhibit by the last four digits of the Bates number found on the bottom right of the page.
Unfortunately, Piskun did not directly answer Shikhman’s question as to how many units are being issued. The answer is that approximately two million A Units were issued in addition to a revised original figure of 85,000 E Units. (Ex. 20, p. 0527; Ex. 43, p. 2.) Had Piskun answered Shikhman’s question more precisely, this lawsuit may have been avoided. Similarly, the parties’ simple failure to proofread the July 13 Consulting Agreement and notice the omission in the phrase "15,000 of Profits Interests" contributed to years of costly litigation.
These exhibits make clear that "15,000 of Profits Interests" meant 15,000 E units and that the company was also issuing A units "at the moment." To the degree that Shikhman claims that "15,000 of Profits Interests" means 15% or 20% of the entire company, there is no credible basis for the claim. While Shikhman’s claim for 15% comes from the December 2006 email and his claim for 20% comes from the fact that 15,000 E units is 20% of 75,000 units, there is nothing in writing contemporaneous with the 2009 agreement suggesting that the phrase that the court must actually interpret— "15,000 of Profits Interests"— means that Shikhman would receive 15% or 20% of the entire company. To the extent that the court considers oral testimony on this point, the court credits Piskun’s testimony that the parties did not talk about a percentage ownership of the company at the time.
It is also unfortunate that there is no explanation or subsequent use of the phrase in the draft agreement stating that "[t]he terms and conditions of the Class E Units shall be set forth in a separate unit award agreement." However, as stated above, the credible evidence reveals that there were both E units and A units. Further explanation of the "terms and conditions of the Class E Units" would not change that fact.
Shikhman’s real complaint is not so much that the contract is ambiguous but rather that it is incomplete. Shikhman seeks to add a phrase awarding him 15% or 20% of the outstanding equity in the company. The parties could certainly have added such a phrase to the contract, but they did not. Under the merger clause of the contract, the court cannot "vary or contradict the terms of the writing" based on Shikhman’s extrinsic evidence. (Internal quotation marks omitted.) Schron v. Troutman Sanders, LLP, supra, 20 N.Y.3d 436.
The plaintiff also relies on a Restatement rule providing essentially that "a party who makes a contract knowing of a misunderstanding is sufficiently at fault to justify his being subjected to the other party’s understanding." Centron DPL Co. v. Tilden Financial Corp., 965 F.2d 673, 675 (8th Cir. 1992). It is questionable whether this rule applies to commercial cases in New York today, as Shikhman cites only a 1913 civil case; Nellis v. Western Life Indemnity Co., 207 N.Y. 320, 332, 100 N.E. 1119 (1913); and a 1980 criminal case in which the issue was interpretation of a drug sale statute. See People v. Houston, 72 A.D.2d 369, 383, 424 N.Y.S.2d 726 (1980) ("Where the promisor has reason to suppose that the promisee understands a promise in a particular sense, that meaning should be adopted in construing the agreement").
The full rule provides: "Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made (a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or (b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know of the meaning attached by the first party." Restatement (Second) of Contracts § 201(2) (1981).
Even if the rule applies in New York, the plaintiff cannot prevail on this theory. The plaintiff’s argument is that Piskun knew of Shikhman’s belief that he was getting 15% or 20% of the company and therefore Piskun should be bound by that belief. As mentioned, however, Piskun testified credibly that he and Shikhman did not discuss ownership of the company in percentage terms in 2009. Indeed, there is nothing in writing from either party from that time period that addresses percentage ownership. On the other hand, Piskun did write Shikhman at that time that he understands that Shikhman is "very busy with new and prior responsibilities and [I] plan to engage you at this stage only on [an] as needed basis, likely infrequently." (Ex. 21.) Such a statement is not consistent with offering Shikhman a significant percentage of ownership of the company.
The plaintiff relies on an October 13, 2012 email in which Piskun wrote Shikhman that "[y]our percentage in ‘our company’ was 17.6% (15,000/85,000) before investment." (Ex. 35, p. 8571.) According to Shikhman, this email reveals Piskun’s thinking in 2009. Interpretation of this email, however, is not so straightforward. Piskun uses the phrase "our company" twice more in italics, suggesting that it has some meaning other than the usual meaning of "company." Piskun writes: "The issue for all was that there was no value created during ‘our exploratory phase’ to add to the negotiation power by ‘our company’— no prototype, no solid or convincing designs, etc." Piskun then states "[m]y 50,000 E Units of ‘our company’ had the same fate as your 15,000 due to large dilution ... As a result, your 15,000 shares and my 50,000 shares, which end up being a small percentage after very dilutive financing, is of significant value today; value which was really created by other [people’s] money and hard work over the last 3.5 years." (Ex. 35, p. 8571.) Given that emails between business associates will not necessarily bear the formality of a court pleading filed by a lawyer, it appears that Piskun uses the phrase "our company" to refer to the group of original founders rather than the company as a whole. This interpretation makes sense of the point that "your 15,000 shares and my 50,000 shares [of ‘our company’] ... end up being a small percentage after very dilutive financing." Only if these 65,000 shares of "our company"— shares that represented a majority of the original E units issued— refer to the shares of the original founders rather than the company as a whole could they end up constituting a "small percentage after very dilutive financing." In any case, it is Shikhman’s burden to prove the applicability of the Restatement rule. The October 2012 email contains too many uncertainties to contribute to meeting that burden. For all these reasons, the plaintiff has failed to meet his burden to prove that Piskun promised Shikhman 15% or 20% of the company. Instead, the plaintiff has proven that Piskun promised Shikhman 15,000 E units.
In view of this conclusion, it is unnecessary to reach the defendants’ argument that, under Restatement [Second] of Contracts § 154, Shikhman, as a party who was uncertain about the meaning of a contract, bore the risk of a mistake in interpretation by failing to investigate the matter further. See Eisenberg v. Hall, 147 A.D.3d 602, 604-05, 48 N.Y.S.3d 71 (2017).
B. The Plaintiff’s Alleged Breach
The parties present a variety of legal arguments on the issue of whether Shikhman breached his own duties under the Consulting Agreement by failing to comply with the provision regarding "Inventions" in paragraph 5(a). That provision required that "[a]ll products, processes, ideas, improvements, and inventions (collectively, ‘Inventions’) relating to any of the Company’s products on which Consultant worked prior to the date of this agreement and work under this agreement which Consultant conceives, creates, develops or invents during the term of this agreement on behalf of the Company, and all patent rights with respect to such Inventions, shall be disclosed to and be the sole and absolute property of the Company." (Ex. 13, ¶5(a).) The factual issues are whether Shikhman adequately disclosed twenty notebook pages that he compiled containing his ideas on the LumenR device and whether any breach of that obligation should bar him from recovery of his 15,000 E Units. (Ex. 48.)
Shikhman initially relies on what he contends is the New York rule that, when one party has partially performed, the other party cannot rescind the contract but instead can only sue the first party for breach. See Estate of John Lennon, by Lennon v. Leggoons, Inc., No. 95 CIV.8872(HB), 1997 WL 346733, at *1 (S.D.N.Y. June 23, 1997); Scheibe v. Zaro, 199 A.D. 807, 810, 192 N.Y.S. 433 (1922). Shikhman observes that the defendants have withdrawn their counterclaims for breach of the 2009 contract (Answer, Entry #134.00; Withdrawal, Entry #157.00) and thus have ultimately declined to sue for breach.
In the alternative, Shikhman asserts that there was no material breach of the contract. Under New York law, a material breach is a breach that "go[es] to the root of the agreement between the parties, and is so substantial that it defeats the object of the parties in making the contract." (Internal quotation marks omitted.) Wechsler v. Hunt Health Systems, Ltd., 330 F.Supp.2d 383, 414 (S.D.N.Y. 2004). "When one party commits a material breach, the other party is relieved, or excused, from its further performance obligations." Id. "[O]rdinarily one seeking to escape the obligation to perform under a contract must demonstrate a material breach or prejudice ..." Unigard Security Ins. Co. v. North River Ins. Co., 79 N.Y.2d 576, 581, 594 N.E.2d 571 (1992).
The defendants cite the principle that "[i]n order to recover for substantial performance, the plaintiff must establish that its failure to perform was inadvertent or unintentional and that the defects were insubstantial." Sear-Brown Associates, P.C. v. Blackwatch Development Corp., 112 A.D.2d 765, 765, 492 N.Y.S.2d 266 (1985). Accord Novair Mechanical Corp. v. Universal Management & Contracting Corp., 81 A.D.3d 909, 910, 917 N.Y.S.2d 876 (2011). The defendants contend that Shikhman’s partial performance was inadequate.
The parties do not present any clear answer on how to reconcile these principles of New York law. Logically, however, it would seem that, if a breach is material, then performance by that party would not have been substantial. One New York court has suggested as much. "A material breach leaves less than substantial performance, thus resulting in failure of the constructive condition which discharges the promisor. Also it is often said that a material breach results in failure of the consideration for the defendant’s promise, and this is regarded as a defense sufficient to defeat liability." Rawcliffe v. Aguayo, 108 Misc.2d 1027, 1031-32, 438 N.Y.S.2d 697 (Sup.Ct. 1981) (citing 7 N.Y. Contracts Law, § 1418).
The evidence establishes that any breach on Shikhman’s part was not material and that his performance was substantial. The defendants do not claim that Shikhman did not provide adequate consulting services concerning the LumenR device under the consulting agreement. Instead, they focus on Shikhman’s compliance with the Inventions clause in paragraph 5(a). Paragraph 5(a) contains two basic requirements. The first is that any work that Shikhman did on the project must remain "the sole and absolute property of the Company." The apparent purpose of this type of contractual provision was to protect the company from competition from one of its own consultants based on products developed on company time. Indisputably, Shikhman was in full compliance with this provision. Shikhman simply sought attribution and not any ownership rights. There is no evidence that Shikhman sought to compete with the defendants concerning the LumenR device.
The other requirement in paragraph 5(a) is that Shikhman’s work "shall be disclosed to ... the Company." In this case, Shikhman compiled a notebook containing twenty pages of drawings of his ideas concerning the LumenR device. (Ex. 48.) The evidence establishes clearly that Shikhman disclosed three of these pages to Piskun in 2007 (Ex. 9.) Shikhman contends that, although he lost his confirming proof, he sent the other pages to Piskun. Shikhman also testified that animations he helped produce in 2007 and 2008 contain many of these additional pages. Piskun denies receiving any additional notebook pages until 2015, when Shikhman formally claimed that he was among the inventors of the LumenR device. (Ex. 41.) Piskun testified that Shikhman did not contribute any original ideas to the LumenR device between 2006 and 2009. He added that the features in the notebook were not highly relevant to the current device. In his deposition testimony, which the plaintiff introduced at trial, Piskun admitted that, even if he had received the notebook pages in 2009, he would not have included Shikhman as an inventor in the formal materials.
Given these facts, there was no material breach or insubstantial performance. Piskun’s belief that Shikhman did not contribute any original ideas, that his notebook pages were not highly relevant, and that the pages did not justify a claim of inventorship means that, even if Shikhman failed to produce all of his drawings in a timely fashion, that failure did not harm the company and would not have made any significant difference in production of the device. When added to the fact that there is no claim that Shikhman did not perform the consulting work agreed upon or that Shikhman competed against the company in any way, it follows that any breach by Shikhman did not go "to the root of the agreement between the parties," and was not "so substantial that it [defeated] the object of the parties in making the contract." (Internal quotation marks omitted.) Wechsler v. Hunt Health Systems, Ltd., supra, 330 F.Supp.2d 414. Therefore, LumenR remains liable to Shikhman for breach of its consulting agreement to provide Shikhman 15,000 E Units.
II. THE 2012 COMPENSATION PACKAGE (COUNTS SEVEN, EIGHT, NINE)
After discussions about a resumption of Shikhman’s consulting work, Piskun sent Shikhman an email on July 9, 2012 stating the following: "[W]e will send $1.5K for second half of June and $3K automatically monthly starting in July with bonus as discussed at the end of year ...
"At this point your ownership in HET is slightly more than 7% subject to capital gains only (there was a modest dilution only in the last 3 years)[.]
"As agreed I will prepare contract for you to have total 1.5% of Lumenr [sic], subject to capital gains only." (Ex. 31.)
HET was another company Piskun controlled for which Shikhman did work.
Shikhman did resume working on the LumenR device at about that time and continued until approximately December 19, 2012. He does not dispute that he received the cash component of Piskun’s offer. Shikhman nonetheless claims that, pursuant to the email, the promise of "total 1.5%" meant additional equity of 1.5% and that he has not received any of those shares. Piskun denies any liability but alternatively posits that "total 1.5%" meant additional shares of equity that would bring Shikhman’s total up to 1.5%.
Here again poor drafting and review by the parties has contributed to prolonged litigation.
Because Shikhman did not sign a contract at that time, he advances three theories other than breach of contract to recover. In count seven, Shikhman alleges quantum meruit; in count eight, unjust enrichment; and, in count nine, promissory estoppel. The court resolves this matter based on promissory estoppel and does not reach the other counts.
"[U]nder the doctrine of promissory estoppel [a] promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise ... A fundamental element of promissory estoppel, therefore, is the existence of a clear and definite promise which a promisor could reasonably have expected to induce reliance. Thus, a promisor is not liable to a promisee who has relied on a promise if, judged by an objective standard, he had no reason to expect any reliance at all ...
"Although the promise must be clear and definite, it need not be the equivalent of an offer to enter into a contract because [t]he prerequisite for ... application [of the doctrine of promissory estoppel] is a promise and not a bargain and not an offer." (Citations omitted; internal quotation marks omitted.) Stewart v. Cendant Mobility Services Corp., 267 Conn. 96, 104-05, 837 A.2d 736 (2003).
In the present case, the offer to "have total 1.5% of Lumenr" is a clear promise of new equity, even if the precise meaning of the promise is unclear. Further, Shikhman testified credibly that he would not have returned to work if he had known that he would only receive cash and no equity. Shikhman did rely on this promise and, while also working full time for another company, returned to work part-time for the defendants for an additional six-month period. Thus, Shikhman has proven the essential elements of promissory estoppel.
The defendants rely on case law holding that "the promise must reflect a present intent to commit as distinguished from a mere statement of intent to contract in the future." Id., 105. The July 9 email is not a "mere statement of intent to contract in the future" but rather, in addition to expressing such an intent, contains a promise of additional cash and equity.
In order to determine damages, the court must nonetheless determine the meaning of "total 1.5%." The July 9 email states that "your ownership in HET is slightly more than 7%," which strongly suggests a reference to Shikhman’s total ownership in HET. Logically, the court should read the statement "I will prepare contract for you to have total 1.5% of Lumenr" similarly as a reference to the percentage of total ownership of LumenR that Piskun agreed Shikhman should have. In contrast, it is a distortion of the English language to read "total 1.5%" to mean "additional 1.5%," as Shikhman would like to do. Part of Shikhman’s misunderstanding stems from his claim that he already owned 15% or 20% of the company, a claim that the court has now rejected. The court concludes that "total 1.5%" refers to that amount that would bring Shikhman’s ownership of the company up to a total of 1.5% in 2012.
The defendants also rely on a provision of the draft consulting agreement that Piskun sent to Shikhman on October 10, 2012 that called for vesting of the additional shares at a rate of 25% per year for four years. (Ex. 33, p. 8091; p. 8093, ¶3(a); p. 8099, ¶2.2.) The defendants contend that, since Shikhman did not work for one full additional year, it would be a windfall for him to receive the entire additional grant of equity. In the alternative, the defendants ask that the court simply prorate Shikhman’s recovery to reflect that Shikhman worked only part-time for approximately six months.
The court agrees in part. The vesting agreement, however, was not part of the original promise that Piskun made to induce Shikhman’s reliance. Shikhman never signed the consulting agreement or the vesting agreement. He should not be bound by it. Further, Shikhman did not leave LumenR purely on his own volition. Rather, it was Piskun who asked Shikhman to "disengage" from further work. (Ex. 38, pp. 7980-81.) On the other hand, one cannot say that Shikhman detrimentally relied on Piskun’s promise of 1.5% for more than the six months that Shikhman actually worked plus some additional time to find new part-time work. In view of these circumstances, the court will make an appropriate prorated deduction from Shikhman’s overall award.
Although Piskun also promised Shikhman 2%— up from 1.5%— in October 2012, that promise came in an email that referred to an attached proposed vesting agreement. (Ex. 33.) Thus, Shikhman cannot claim that Piskun promised him 2% without also acknowledging that Piskun made this amount subject to the vesting principles in the agreement. Because Shikhman presumably has no interest in making his award subject to the vesting agreement, the court limits Shikhman’s claim to 1.5% minus an appropriate prorated deduction.
III. COUNTS 12-14
Count twelve alleges that Piskun engaged in a "willful, wanton and intentional" breach of fiduciary duty in failing to recognize Shikhman’s equity interest in the company. (Complaint, ¶103.) Count fourteen similarly alleges that Piskun breached his fiduciary duty in a "willful, wanton and intentional" way by, among other things, withholding amounts properly distributable to Shikhman as a member of LumenR. (Complaint, ¶114(e).) The plaintiff apparently seeks compensatory and common-law punitive damages against Piskun in his individual capacity. (Complaint, p. 33, ¶4.)
The court does not find any wilful, wanton or intentional behavior or any bad faith on Piskun’s part. Instead, this dispute stems primarily from a misunderstanding based on poor drafting and imprecise language in business documents. Therefore, the plaintiff is not entitled to punitive damages.
Moreover, in order to prove entitlement to any damages, whether punitive or compensatory, against Piskun in his individual capacity, Shikhman would have to pierce the corporate veil of LumenR, for whom Piskun was an officer. To do so, Shikhman must prove not only a breach of fiduciary duty but also "fraudulent acts of individuals who occupy a fiduciary relationship"; Banks v. Vito, 19 Conn.App. 256, 263, 562 A.2d 71 (1989); or use of the corporation for "fraudulent or illegal purposes." (Internal quotation marks omitted.) Angelo Tomasso, Inc. v. Armor Construction & Paving, Inc., 187 Conn. 544, 559, 447 A.2d 406 (1982). The court finds, however, that there is no evidence that Piskun committed any fraud or used the corporation for illegal purposes.
The defendants also argue that the three-year tort statute of limitations bars count twelve, which Shikhman filed with the original complaint in 2017. See General Statutes § 52-577. Count twelve is vague and does not specify a date, but it appears to refer to actions occurring through 2012. (Complaint, ¶¶100, 103.) The defendants raised the limitations bar for count twelve in their answer, but Shikhman failed to amend his complaint to allege any actions occurring after 2012. (Amended Answer, ¶124e.) Accordingly, the court holds that the statute of limitations bars relief on count twelve. In sum, the court denies liability on both counts twelve and fourteen for all the reasons stated above.
The defendants do not raise the statute of limitations for count fourteen, which appears to allege actions occurring in 2016 and 2017
Accordingly, the court does not reach the other grounds asserted by the defendants to deny liability on these counts. For this reason, the court denies as moot Shikhman’s motion to strike some of these grounds. (Entry #187.00.)
Count thirteen alleges a breach of contract by LumenR in failing to include Shikhman in both a December 2016 and a July 2017 cash distribution that LumenR made to its owners after BSC purchased LumenR’s assets. (Complaint, ¶¶104-10.) Shikhman relies on portions of the LumenR operating agreement providing that "the Company shall make distributions on or before March 31 of the immediately succeeding Fiscal Year based on the Company’s Distributable Cash to Members in accordance with their respective Percentage Interests ..." (Ex. 40, § 3.1.) Shikhman also relies on Delaware limited liability law in view of LumenR’s incorporation in that state. Shikhman seeks damages in the amount of funds that the defendants should have distributed to him in 2016 and 2017 along with an award of interest.
The defendants acknowledge that Shikhman is a record owner of 15,000 E units and that they did not make distributions to him. They seek to justify their actions by claiming that they had a good faith basis to question whether Shikhman sufficiently disclosed his notebook pages and therefore adequately performed under the Consulting Agreement. The defendants contend that nothing in the operating agreement requires the company to make distributions when there is a bona fide dispute over the underlying basis for those distributions. The defendants represent that they have held funds allocated for distribution to Shikhman in an interest-bearing account pending resolution of the case.
It is unnecessary to resolve this dispute. In count thirteen, Shikhman seeks the same damages as those sought in counts one and two, which the court has already awarded. The only remaining issue is interest, which the court can also impose on the judgment for counts one and two and which the court discusses below.
Count thirteen is an example of the unnecessary multiplication of the plaintiff’s claims, which have consumed up to sixteen counts in the complaint.
III. THE COUNTERCLAIM
In the fifth counterclaim, LumenR alleges tortious interference with contract. The essential allegation is that Shikhman’s October 17, 2017 letter to BSC interfered with an asset purchase agreement between LumenR and BSC and that, as a result, BSC withheld $3 million in escrow funds that otherwise would have been released to LumenR on November 1, 2017. (Answer, Fifth Counterclaim, ¶¶47-51.)
As required for tortious interference, LumenR alleges that Shikhman’s letter was "without justification." (Fifth Counterclaim, ¶48.) See American Diamond Exchange, Inc. v. Alpert, 101 Conn.App. 83, 91, 920 A.2d 357, cert. denied, 284 Conn. 901, 931 A.2d 261 (2007). On this point, LumenR failed to carry its burden of proof. It is true that there is temporal proximity between the sending of the letter and the scheduled release of escrow funds. However, the October 17 letter does not mention the release of escrow funds or purport to interfere with them. Shikhman did not learn of the asset purchase and escrow agreements until June 2017. He met with counsel, Attorney Michael Rye, in August 2017. Rye testified credibly that his timing in mailing the letter had nothing to do with the scheduled forthcoming release of escrow funds to LumenR, of which he was unaware. Instead, Rye mailed the letter on October 17 based on a litigation strategy— which the court finds reasonable— to coordinate the letter with the filing of this lawsuit on October 23.
Shikhman and Rye’s letter makes no claim of ownership of the LumenR device— a claim that would have been improper in view of paragraph 5(a) of the Consulting Agreement. Rye instead claims that Shikhman deserves attribution as an inventor on several patents relating to the device. This claim is hardly spurious. After receiving Rye’s letter, BSC did its own investigation of Shikhman’s inventorship claims. Although BSC did not agree with Shikhman’s claims in thirteen instances, BSC did conclude that Shikhman contributed as an inventor on two of the patent applications for the LumenR device and reached no decision on fourteen others. BSC filed the documents containing its conclusions, including the two findings that Shikhman was an inventor, with the U.S. Patent Office. (Ex. 345, pp. 26, 71.) Thus, there was a valid justification for Shikhman’s letter. For all these reasons, the court finds in favor of Shikhman on the fifth counterclaim.
Unfortunately, the letter does make what the court views as unsupported claims that LumenR excluded Shikhman as an inventor "in bad faith because of concerns with financial implications." (Ex. 330, pp. 0177, 0178.) Contrary to this claim, Piskun named Shikhman as an inventor on patents relating to other devices made by Piskun’s other companies. Piskun simply concluded, after his company did its own investigation, that Shikhman did not qualify as an inventor of the LumenR device.
V. REMEDIES
The court has determined that, on counts one, two, and nine, Shikhman is entitled to 15,000 E units plus an additional amount that would bring his share of ownership up to 1.5% in 2012, minus an appropriate deduction based on his disengagement in 2012. Piskun calculated that it would take 31,180 additional shares to bring Shikhman’s ownership to 1.5% in 2012, giving Shikhman a total of 46,180 shares. (Ex. 33, p. 8093.) In exhibits 61 and 74, plaintiff’s expert witness Vladmir Korobov, a CPA, calculated that a total of 46,180 shares would entitle Shikhman to .401% of the proceeds of the distributions made by LumenR to its shareholders after the purchase of its assets by BSC. (Ex. 61, scenario 3; Ex. 74, p. 4, line 22.) The evidence reveals that LumenR distributed $23 million in December 2016 and $10 million in July 2017. (Ex. 49, p. 5.) Of this $33 million, .401% yields $132,330. The court will make a deduction for Shikhman’s early disengagement of $32,330, which is roughly 25% of $132,330, and award Shikhman $100,000.
Korobov explained that the new issuance of shares by the company will, quite logically, dilute an owner’s percentage of ownership. Nevertheless, it is not entirely clear how Korobov concluded that Shikhman’s 1.5% ownership in 2012 qualifies him for only .401% of the proceeds in 2016 and 2017. Nevertheless, because Korobov was the plaintiff’s expert, the court will hold the plaintiff to his conclusions.
In the prayer for relief, the plaintiff seeks not only damages but also specific performance. The prayer for specific performance requests a "decree directing the defendant, LumenR, to specifically perform the Consulting Agreement by: a. Conveying to Mr. Shikhman "15,000 units of ‘Profits Interests’ (determined as of 2009); or in the alternative b. Conveying to Mr. Shikhman a "20% share of the outstanding equity of LumenR (determined as of 2009)." (Complaint, p. 33, ¶¶1, 5.) Although Shikhman did not plead the precise alternative amount of 46,180 shares that the court has determined he owns, the fact that he pleaded amounts both less than and greater than 46,180 shares gave the defendants ample notice of a possible order of specific performance in that amount. Accordingly, the court orders that the defendants convey to Shikhman 46,180 shares of LumenR for purposes of any future distributions or other forms of recovery.
Shikhman also seeks prejudgment interest pursuant to General Statutes § 37-3a. (Complaint, p. 33, ¶6.) "[P]rejudgment interest is awarded in the discretion of the trial court to compensate the prevailing party for a delay in obtaining money that rightfully belongs to him ... The detention of the money must be determined to have been wrongful ... Its detention can only be wrongful, however, from and after the date on which the court, in its discretion, determines that the money was due and payable." (Citations omitted; internal quotation marks omitted.) DiLieto v. County Obstetrics & Gynecology Group, P.C., 310 Conn. 38, 51, 74 A.3d 1212 (2013). "Prejudgment interest pursuant to § 37-3a is appropriate only where the essence of the action itself involves the wrongful withholding of money due and payable to the plaintiff." (Internal quotation marks omitted.) Muckle v. Pressley, 185 Conn.App. 488, 497, 197 A.3d 437 (2018). Under these principles, Shikhman is entitled to prejudgment interest from the date that the defendants made distributions to the other owners of LumenR. Shikhman posits, somewhat favorably to the defendants, that LumenR made its distribution of $23 million on December 31, 2016 and its distribution of $10 million on July 31, 2017. (Pl. Br., p. 30.) Because Shikhman’s share of the $23 million distribution represents approximately 70% of his share of the total $33 million distribution, the court will order that interest on $70,000 of the $100,000 award run from December 31, 2016 and that interest on the remaining $30,000 run from July 31, 2017.
Section 37-3a(a) provides: "Except as provided in sections 37-3b, 37-3c and 52-192a, interest at the rate of ten per cent a year, and no more, may be recovered and allowed in civil actions or arbitration proceedings under chapter 909, including actions to recover money loaned at a greater rate, as damages for the detention of money after it becomes payable ..."
The remaining issue is the interest rate. The court has discretion to award up to 10%. See Nolan v. Milford, 86 Conn.App. 817, 818, 862 A.2d 879 (2005). The defendants represent that they have held at least some of the funds due Shikhman from the distribution in an interest-bearing trust account. (Def’s. Br., pp. 28, 30.) The court does not know how much the defendants are holding and what interest rate the account awards. Accordingly, the court will make the following order. The court awards prejudgment interest at the rate of 5% except to any extent that some of the funds have earned a higher interest rate, in which case that higher interest rate applies to those funds. If the funds held in trust are earning interest at a rate lower than 5%, then the defendants must pay additional interest to bring the net interest rate up to 5%.
VI. CONCLUSION
The court enters judgment on the complaint in favor of the plaintiff and awards compensatory damages to the plaintiff in the amount of $100,000. The court also orders the defendants to convey to the plaintiff 46,180 shares of LumenR for purposes of any future distributions or other forms of recovery. The court awards prejudgment interest at the annual rate of 5% or higher as detailed in this opinion. The court denies the request for punitive damages.
The court enters judgment for the plaintiff on the counterclaim. It is so ordered.