Blumenthal v. Barnes
| Decision Date | 20 August 2002 |
| Docket Number | (SC 16597). |
| Citation | 261 Conn. 434,804 A.2d 152 |
| Court | Connecticut Supreme Court |
| Parties | RICHARD BLUMENTHAL, ATTORNEY GENERAL v. ROBIN BARNES |
Sullivan, C.J., and Norcott, Palmer, Vertefeuille and Zarella, Js. Eliot D. Prescott, with whom were Gregory T. D'Auria and David E. Ormstedt, assistant attorneys general, and, on the brief, Richard Blumenthal, attorney general, for the appellant (plaintiff).
William M. Bloss, for the appellee (defendant).
The sole issue in this appeal is whether the plaintiff, Richard Blumenthal, the attorney general of the state of Connecticut (attorney general), has common-law authority to maintain an action against the defendant, Robin Barnes, the president and treasurer of Village Academy, Inc. (academy), for several alleged breaches of her fiduciary duties to the academy. The attorney general filed a three count complaint against the defendant in which he alleged, inter alia, that the defendant had enriched herself at the expense of the academy, an educational, not-for-profit organization, by entering into one lease and two employment agreements with the academy. The defendant moved to dismiss the complaint on the ground that the attorney general lacked authority to maintain the "action in his own name." The trial court denied the defendant's motion, concluding that the attorney general had standing under General Statutes § 3-1251 to pursue an action against the defendant insofar as he sought to remedy the misappropriation of charitable contributions made to the academy. The trial court further concluded, however, that the attorney general had no authority, statutory or otherwise, to pursue an action against the defendant to remedy the misappropriation of noncharitable academy receipts. In light of the nominal amount involved, the attorney general thereafter abandoned his claim with respect to the recovery of charitable contributions, which, according to the trial court, was authorized under § 3-125. Upon motion of the attorney general, the trial court rendered judgment in favor of the defendant, from which the attorney general appealed to the Appellate Court. Pursuant to General Statutes § 51-199 (c) and Practice Book § 65-2, we granted the attorney general's motion to transfer the appeal to this court. We now affirm the judgment of the trial court.
The following facts and procedural history are relevant to this appeal. The academy was a Connecticut nonstock corporation with federal tax exempt status under § 501 (c) (3) of the Internal Revenue Code. See 26 U.S.C. § 501 (c) (3) (1994). In 1997, the state department of education (department) granted the academy a charter to operate a state charter school,2 which the academy operated at 95 Fitch Street in New Haven. The academy opened its doors at that location in August, 1997, and remained there until the department revoked its charter in September, 1999. Although the academy received a small amount of charitable contributions,3 it derived most of its operating revenue in the form of state funded tuition payments pursuant to General Statutes (Rev. to 1997) § 10-66ee, Public Acts 1997, No. 97-290, § 9, and Public Acts 1998, No. 98-168, § 24.4 Accordingly, for the 1997-98 academic year, the academy received approximately $490,000 in tuition payments from the state on behalf of students enrolled in the academy. It received a similar amount in tuition payments during the 1998-99 academic year. In 1997, the academy also obtained a loan from the Connecticut health and educational facilities authority in the amount of $140,000. All of these funds, regardless of their source, were intended to enable the academy to carry out its educational objectives.
The defendant was the president and treasurer of the academy. She also served as a member of the academy's board of directors. In May, 1997, the defendant purchased property located at 95 Fitch Street in New Haven and an adjacent parcel of land for $110,000.5 Thereafter, the defendant entered into a renewable five year lease agreement with the academy under which the academy agreed to lease the premises at 95 Fitch Street and the adjacent parcel (leased premises) at an annual base rent of $54,999.96.6 The defendant also entered into two separate employment agreements with the academy in August, 1998. Pursuant to the terms of the first agreement, the defendant agreed to devote an average of forty hours per month as the academy's administrative director from September, 1998, to May, 1999, in exchange for a salary of $38,000. The agreement further provided that the defendant would be paid a salary of $39,900 for the same services to be rendered between September, 1999, and May, 2000, and a salary of $41,895 for services to be rendered between September, 2000, and May, 2001. Under the second employment agreement, the defendant was hired as a consultant to act as a school superintendent from August 1 through August 31, 1998, at a salary of $30,000, from June 1, 1999, through August 31, 1999, at a salary of $33,000, and from June 1, 2000, through August 31, 2000, at a salary of $36,300. Additionally, the defendant had been paid $55,666 for services rendered to the academy between May, 1997, and May, 1998.
The attorney general alleged in his complaint that the defendant had breached her fiduciary duties to the academy by entering into the foregoing lease and employment agreements, which he further claimed were self-enriching and unfair to the academy. He also alleged that the defendant had breached her fiduciary duties to the academy when she had failed to meet the payment schedule on the promissory note that was secured by a mortgage on the leased premises and when she had failed to prevent the mortgagees from instituting foreclosure proceedings. See footnote 5 of this opinion. The attorney general cited § 3-125 and the common law as authority for maintaining an action against the defendant.
In a memorandum of decision on the defendant's motion to dismiss, the trial court concluded that the attorney general did not have standing under common law to pursue his claims against the defendant and that his statutory authority to maintain an action against the defendant was limited, pursuant to § 3-125, to the protection of gifts intended for public or charitable purposes. Thereafter, the trial court denied the attorney general's motion to reargue the motion to dismiss and, upon motion of the attorney general,7 rendered judgment in favor of the defendant. This appeal followed.
The attorney general claims that the trial court improperly concluded that he does not possess common-law authority to maintain an action against the defendant. He asserts that the trial court's conclusion renders the state without an effective remedy for addressing the defendant's self-dealing of academy assets. He further maintains that he has common-law authority to bring an action seeking to remedy breaches of fiduciary duties by those individuals entrusted with charitable funds, and that, pursuant to such authority, he may reach all of the misappropriated assets of the not-for-profit organization regardless of their source. The attorney general identifies the former common-law authority of the state's attorneys to protect the integrity of charitable gifts as the source of his common-law authority. Specifically, the attorney general claims that the common-law authority over civil matters, including those matters involving the protection of public and charitable gifts, which formerly was vested in the state's attorneys, devolved to the office of the attorney general upon its establishment in 1897. He further contends that this court and the legislature have recognized and affirmed his common-law authority through decisional law and statutory enactments. We address the attorney general's arguments seriatim.
Before turning to the merits of the attorney general's arguments, we are compelled to underscore what is at issue in this appeal. This appeal does not address whether the attorney general has statutory authority to protect the integrity of charitable gifts or whether he has statutory authority to bring an action against a fiduciary of a not-for-profit organization to recover misappropriated charitable funds. Indeed, after the trial court concluded that the attorney general did have such authority, the attorney general abandoned his claim insofar as it was based on his statutory authority. See footnote 7 of this opinion. Rather, the issue before us is whether the attorney general has standing under common law to bring an action for breach of fiduciary duties by officers of a not-for-profit organization in order to remedy the misappropriation of the organization's noncharitable receipts.
(Citation omitted; internal quotation marks omitted.) Briggs v. McWeeny, 260 Conn. 296, 308-309, 796 A.2d 516 (2002).
As a preliminary matter, we set forth the standard under which we review the trial court's granting of a motion to dismiss...
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