Opinion
3-00-CV-1986 (JCH)
May 22, 2002
RULING ON DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT [DKT. NOS. 89, 95] AND PLAINTIFF'S MOTION TO STRIKE [DKT. NO. 107]
In this case, the plaintiff, Alfred Stanger ("Stanger"), claims a prior suit by the defendants constituted vexatious litigation. In their motions for summary judgment, the defendants argue that they had probable cause to bring the prior suit, Her-Fic, S.A. v. Turbo Tech, Inc., 3:99-CV-1838 (JCH), to confirm a foreign arbitration award and assert Stanger's personal liability for the award. Stanger contends that the defendants could not have probable cause to bring a single action in order to both confirm an arbitration award and pierce the corporate veil, in light of Second Circuit precedent. See Orion Shipping Trading Co., Inc. v. E. States Petroleum Corp., S.A., 312 F.2d 299, 301 (2d Cir. 1963). Stanger also seeks to strike the defendants' reply brief for procedural reasons. Mot. to Strike [Dkt. No. 107].
I. FACTUAL BACKGROUND
The basic facts in this case are not disputed. Her-Fic's predecessor-in-interest obtained an arbitration award in Belgium against Turbo Tech, Inc. Stanger had been the president and controlling principal of Turbo Tech and was present on Turbo Tech's behalf at the arbitration. In its Ruling in the prior action, this court found that while the Belgium arbitration panel explored whether Turbo Tech should be held liable for Stanger's wrongdoing and concluded that his conduct would be imputed to the corporation, the panel did not consider whether Stanger was responsible for Turbo Tech's liabilities. Her-Fic, S.A. v. Turbo Tech, Inc., 3:99-CV-1838 (JCH) (D. Conn. Sept. 11, 2000) (Ruling on Pending Motions [Dkt. No. 61], at 6-7) (hereinafter Her-Fic).
Her-Fic sought to enforce the arbitration award and confirm judgment against Stanger, as well as Turbo Tech, in this court. On September 11, 2000, this court granted summary judgment in Stanger's favor on Her-Fic's claim to enforce the arbitration award against him. This court concluded that, under Second Circuit precedent, courts cannot pierce the corporate veil in an action to confirm arbitration awards where the corporate officer was not a party to the arbitration in his personal capacity. See Orion, 312 F.2d at 301. On October 17, 2000, Stanger filed his complaint alleging violations of Connecticut statutes prohibiting vexatious litigation and asserting a common-law vexatious litigation claim.
II. DISCUSSION
Summary judgment is only appropriate when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Hermes Int'l v. Lederer de Paris Fifth Ave, Inc., 219 F.3d 104, 107 (2d Cir. 2000). The burden of showing that no genuine factual dispute exists rests upon the moving party. Carlton v. Mystic Transp., Inc., 202 F.3d 129, 133 (2d Cir. 2000) (citing Gallo v. Prudential Residential Servs., Ltd. P'ship, 22 F.3d 1219, 1223 (2d Cir. 1994)). In assessing the record to determine if such issues do exist, all ambiguities must be resolved and all inferences drawn in favor of the party against whom summary judgment is sought. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Heilweil v. Mount Sinai Hosp., 32 F.3d 718, 721 (2d Cir. 1994). "Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge." Anderson, 477 U.S. at 255. When reasonable persons, applying the proper legal standards, could differ in their responses to the questions raised on the basis of the evidence presented, the question is best left to the jury. Sologub v. City of New York, 202 F.3d 175, 178 (2d Cir. 2000).
For a vexatious litigation claim, Connecticut requires that a plaintiff prove the prior action "was initiated maliciously, without probable cause, and terminated in the plaintiff's favor." Zeller v. Consolini, 235 Conn. 417, 424 (1995). The defendants assert that they had probable cause to proceed as they did in the prior action and that, therefore, the plaintiff's claim must fail.
Where facts are not disputed, "[w]hether particular facts constitute probable cause is always a question of law." Paranto v. Ball, 132 Conn. 568, 571 (1946). "Probable cause has been defined as the knowledge of facts sufficient to justify a reasonable man in the belief that he has reasonable grounds for prosecuting an action. Mere conjecture or suspicion is insufficient. Moreover, belief alone, no matter how sincere it may be, is not enough, since it must be based on circumstances which make it reasonable." Zenik v. O'Brien, 137 Conn. 592, 597 (1951); accord Vandersluis v. Weil, 176 Conn. 353, 356 (1978). "Thus, . . . the defendant lacks probable cause if he lacks a reasonable, good faith belief in the facts alleged and the validity of the claim asserted."DeLaurentis v. City of New Haven, 220 Conn. 225, 256 (1991).
Stanger concedes that the defendants had probable cause to assert a veil-piercing claim against him, but contends that they did not have probable cause to join that claim with the action to confirm the Belgium arbitration award. The defendants argue that they had probable cause to join a claim against Stanger with the action to confirm the arbitration award because of an exception to the joinder rule in Orion that allows a court to pierce the corporate veil if it does not require an extensive factual inquiry.
In the prior action, the court did not discount the defendants' argument, rather it held that piercing the corporate veil to reach Stanger would require extensive factual inquiry. In this action, Stanger challenges whether exceptions to Orion exist. His opposition, however, does not raise any issues about whether the defendants had probable cause to believe that piercing the corporate veil would involve minimal fact-finding. See Memo. in Opp. [Dkt. No. 103], at 6 ("Whatever Her-Fic may or may have believed . . ., Her-Fic could not have had probable cause to bring a piercing complaint against Stanger combined with its petition to confirm its arbital award against Turbo-Tech.").
As the court recognized in the prior action, Orion established a broad rule against joining a cause of action to pierce the corporate veil with an action to confirm an arbitration award. Her-Fic, supra, at 4; see Orion, 312 F.2d at 301. This court noted, however, that the Second Circuit did not apply the Orion rule in cases where the court would not be required to pierce the corporate veil nor to engage in extensive fact-finding. Her-Fic, supra, at 4 (citing Productos Mercantiles E Industriales, S.A. v. Faberge USA, Inc., 23 F.3d 41, 47 (2d Cir. 1994)).
In the prior action, the court implicitly assumed for the sake of argument that the Orion rule was not an absolute bar on all veil-piercing claims, but concluded that in this particular case, piercing the veil would require extensive fact-finding. Her-Fic supra, at 5. In this action, the court explicitly finds that lower courts' gloss on Orion and the language of Second Circuit decisions created a question regarding whether a plaintiff with a case that was not fact intensive could assert a veil-piercing claim in an action to confirm an arbitration award.
Although factually distinguishable, various decisions by district courts in the circuit interpreting Orion focused on the Second Circuit's concern about expeditious resolution of actions to confirm an arbitration award. E.g., In re Arbitration Between Bowen 39 Broadway Assoc., No. 91 Civ. 4673 (CSH), 1992 WL 73480, at *8 (S.D.N.Y. Apr. 2, 1992) ("The simplicity of the factual determination called for in resolving this issue indicates that the reasons for denying the propriety of making such a finding in Orion are absent here."); see Schiavone Constr. Co. v. Impresit-Girola-Lodigiani, Inc., No. 91 Civ. 8455 (JSM), 1992 WL 88178, at *5 (S.D.N.Y. Apr. 20, 1992) (refusing to consider the partnership liability of a partner that was not a party to the arbitration where an award was made against the partnership because "[t]he factual determinations necessary prohibit this matter from being decided" with a claim to confirm the award); cf. Orion, 312 F.2d at 301 ("This action is one where the judge's powers are narrowly circumscribed and best exercised with expedition."); In re Arbitration Between Promotora de Navegacion, S.A. Sea Containers, Ltd., 131 F. Supp.2d 412, 422-23 (S.D.N.Y. 2000) (noting exceptions to the Orion joinder rule and focusing on the "uniquely fact sensitive" nature of determining whether to pierce the corporate veil as the basis for denying to consider such a claim with an action to confirm) ("Thus, especially where the record is voluminous and fragmented, questions of alter ego are generally inappropriate for resolution on a motion to confirm."). While these decisions do not create an established exception to Orion, they raise issues about the proper interpretation of Orion's holding and present a reasonable argument that courts should focus on whether the joined claim requires extensive factual analysis, not merely whether the plaintiff seeks to pierce the corporate veil.
The language of both Orion and Faberge is fully supportive of this developing line of cases and of a finding that the defendants had probable cause to file the claim against Stanger with the arbitration enforcement action. In Orion, the Second Circuit wrote:
But we hold that an action for confirmation is not the proper time for a District Court to `pierce the corporate veil.' . . . It would unduly complicate and protract the proceeding were the court to be confronted with a potentially voluminous record setting out details of the corporate relationship between a party bound by an arbitration award and its purported `alter ego'.Orion, 312 F.2d at 301. Describing Orion, the Faberge court wrote: "We reasoned that a confirmation action was not the proper time to attempt to `pierce the corporate veil', due to the potentially complex fact-finding this inquiry would involve." Faberge, 23 F.3d at 47 (emphasis added).
Relying on a reasonable reading of Orion and Faberge and the district court decisions, the defendants in this case had an arguable basis in law to distinguish the holding of Orion. The court concludes that the defendants had probable cause to bring their action as they did. The court grants the defendants' motions for summary judgment.
Although not necessary to its decision, the court notes that the reasons for terminating the prior action would also figure in the calculus of probable cause. DeLaurentis v. City of New Haven, 220 Conn. 225, 251 (1991); accord Ruling on Motion for Judgment on the Pleadings [Dkt. No. 41], at 5-6. In that regard, the court finds that the prior action was not adjudicated on the merits as against Stanger and the circumstances of the termination provide no indication of Stanger's non-liability. See DeLaurentis, 220 Conn. at 251. In fact, the defendants have raised the same claim to pierce the corporate veil against Stanger as a counterclaim in this action. The less "favorable," non-merit termination further supports the defendants' argument that they had probable cause to proceed as they did.
Next, the court considers the plaintiff's motion to strike the defendants' reply brief. The plaintiff argues that the defendants did not obtain leave to file a brief as required by the Magistrate's Order dated January 28, 2002. Ruling and Order [Dkt. No. 84], at 2. Further, the plaintiff contends that the defendants' reply is not properly limited in scope in response to the plaintiff's Opposition. See D. Conn. Loc. R. Civ. P. 9(g). As an initial matter, the court notes that its ruling did not rely on any statements or arguments in the defendants' reply brief, and, therefore, the court would consider the plaintiff's motion to strike moot.
Alternatively, the court notes that it rarely limits parties' ability to file reply briefs; instead, the court relies on the Local Rules to set motion practice, including a default ten-day response period for reply briefs after an opposition. Further, the court accepts the defendants' representation, in their opposition to the motion to strike, that the failure to seek leave, in light of the Magistrate Judge's order, was inadvertent. Therefore, the court concludes that failure to seek leave was understandable in light of the court's deviation from its normal practice and finds it unnecessary to sanction the defendants by striking the reply brief.
In addition, the court does not agree with the plaintiff's interpretation of Local Rule 9(g) to limit the movant to "new" matters raised by the non-movant's opposition. Local Rule 9(g) limits "a reply brief . . . to a discussion of matters raised by the responsive brief."Id. The plaintiff cites no law supporting his interpretation that the reply brief must only address issues first raised in the opposition, and the court concludes that no basis exists for construing the Rule as stated by the plaintiff. Therefore, the reply brief was proper under the Local Rules. The court denies the plaintiff's motion to strike.
III. CONCLUSION
Based on the foregoing, the Defendants' Motions for Summary Judgment [Dkt. Nos. 89, 95] are GRANTED. The Plaintiff's Motion to Strike [Dkt. No. 107] is DENIED.
SO ORDERED.