Clinton v. Aspinwall

• Court: Connecticut Court of Appeals
• Writing for the Court: LAVINE, J.
• Citation: Clinton v. Aspinwall, 200 Conn.App. 205, 238 A.3d 763 (Conn. App. 2020)
• Decision Date: 22 September 2020
• Docket Number: AC 41568, (AC 42396)
• Parties: John B. CLINTON v. Michael E. ASPINWALL et al.

200 Conn.App. 205

238 A.3d 763

John B. CLINTON

v.Michael E. ASPINWALL et al.

AC 41568, (AC 42396)

Appellate Court of Connecticut.

Argued February 10, 2020

Officially released September 22, 2020

Barbara M. Schellenberg, Orange, with whom was Garrett S. Flynn, West Hartford, for the appellants (defendants).

Glenn W. Dowd, Hartford, with whom was Howard Fetner, New Haven, for the appellee (plaintiff).

Lavine, Alvord and Harper, Js.

LAVINE, J.

In this breach of contract and fiduciary duty case, the defendants, Michael E. Aspinwall, Steven F. Piaker, and David W. Young, appeal from the judgment of the trial court, rendered after a trial to the jury, in favor of the plaintiff, John B. Clinton. The parties’ dispute arises out of their ownership and operation of CCP Equity Partners, LLC (CCP). The defendants’ principal claim on appeal is that the court erred in its construction of the operating agreement that governed CCP, resulting in multiple erroneous rulings throughout the course of the litigation. The defendants specifically claim that the court improperly (1) denied their motion to strike, (2) denied their motion for summary judgment, (3) denied their motion in limine, (4) charged the jury, (5) denied their motion for judgment notwithstanding the verdict and motion to set aside the verdict (posttrial motions), and (6) awarded the plaintiff attorney's fees and costs. We agree that the court improperly construed portions of the agreement and reverse the judgment in part and affirm it in part, and remand the case for a new hearing on the issue of attorney's fees and costs.¹

The parties, Gerard Vecchio, and Preston Kavanagh organized CCP in accordance with the Delaware Limited Liability Company Act (act), Del. Code Ann. tit. 6, § 18-101 et seq. (2005 & Supp. 2012). CCP was to operate pursuant to an amended and restated limited liability company operating agreement (agreement) that was executed by the members on December 29, 2003. CCP was founded to provide management services to, and serve as the general partner of, certain private equity funds. Pursuant to the agreement, each member was

to serve as a manager and on the board of managers (board).² CCP, therefore, was manager-managed. See Del. Code Ann. tit. 6, § 18-402 (2005) ("Unless otherwise provided in a limited liability company agreement, the management of a limited liability company shall be vested in its members ...."). The plaintiff was the managing partner³ of CCP from its formation in 2003 until March 11, 2008.

On June 30, 2004, Vecchio left CCP. On August 11, 2005, the managers of CCP created a capital reserve of $3 million.⁴ CCP managed two private equity funds. In 2006, the members decided not to raise investor capital to create another private equity fund. The members expected all CCP operations to close and that substantially all portfolio companies would be liquidated by the end of 2012. On March 11, 2008, the defendants, who controlled 61 percent of the interests of CCP, voted to amend § 8.1 of the agreement, over the objections of the plaintiff and Kavanagh. Before the amendment, § 8.1 provided that general distributions shall be made pro rata among the members, in proportion to their capital accounts. The amendment added language to the section, providing that distributions could otherwise be determined by the consent of all members.⁵

The

defendants made this amendment pursuant to § 2.5 of the agreement.⁶

On September 8, 2008, Kavanagh commenced a lawsuit against CCP and the remaining members of the company. At a meeting of the members on October 31, 2008, the defendants voted to remove Kavanagh as a member of the company. Also at that meeting, the plaintiff challenged the necessity of CCP's $3 million capital reserve. The defendants explained that the reserve was necessary to meet CCP's obligations to investors for several more years, to defend against Kavanagh's lawsuit, and for the possibility that the plaintiff may take legal action against CCP.

On February 20, 2013, the defendants voted to remove the plaintiff as a member of CCP, also pursuant to § 2.5 of the agreement.⁷ The plaintiff does not dispute that he was removed as a member by the consent of members holding 60 percent or more of the percentage interests.

The plaintiff commenced the present action against the defendants on June 13, 2013. His third amended complaint, filed on October 15, 2014, is the operative complaint. In this complaint, the plaintiff alleged that the defendants breached their contractual and fiduciary duties in three specific ways, by (1) amending the operating agreement in 2008,⁸ (2) removing the plaintiff as a member of CCP, and (3) maintaining a capital reserve of $3 million.⁹ The plaintiff alleged that by virtue of their acts, the defendants breached the fiduciary duties they owed him under Connecticut law and, alternatively, the fiduciary duties they owed him under Delaware law. The plaintiff also alleged that, by virtue of their acts, the defendants breached § 3.4 of the agreement¹⁰ because they "did not exercise their best judgment; did not act in good faith; did not act in a manner

they reasonably believed to be in, or not opposed to, the best interests of the Company; committed gross negligence or wilful misconduct ...."

On December 15, 2014, the defendants moved to strike the entire complaint, arguing in part that they did not breach the agreement by (1) amending it in 2008 and (2) removing the plaintiff as a member, because they took both actions as members pursuant to § 2.5, and § 3.4 only governs the acts of managers. The court denied the defendants’ motion to strike because the plaintiff pleaded facts sufficient to state a claim for breach of contract.¹¹ The defendants also filed a motion for summary judgment on December 21, 2016, which the court denied on July 21, 2017.

On February 14, 2018, the defendants filed a motion in limine, seeking to preclude the plaintiff from introducing parole evidence at trial to vary the meaning of the unambiguous contract language in §§ 3.4 and 8.1 and also from introducing evidence or making arguments based on such provisions. The defendants submitted that the court was "obligated to perform an independent pretrial analysis of the [agreement's] plain meaning and not to compound the effect of rulings, reached in settings deferential to the plaintiff that cannot yet be appealed, that are contrary to the law cited herein." The defendants requested that the court rule, as a matter of law, that

the second sentence of § 3.4 cannot form a basis of a breach of contract. The motion in limine was heard by the court on March 6, 2018. The court ruled on the motion in limine on March 8, 2018, and stated in part: "The defendants’ arguments regarding [§§] 3.4 and 8.1 as amended of the LLC agreement at issue were previously the subject of other decisions in this case by other judges. The motion in limine, in essence, seeks reargument as to certain aspects of those decisions. ... The court declines to categorically exclude the general subject matter alluded to in the defendants’ motion. What evidence is admitted at trial remains to be determined. The motion is denied."

The plaintiff's case was tried to the jury over the course of ten days. The jury verdict form¹² first asked

the jury to decide the three breach of contract counts. Only if the jury found in favor of the defendants on those counts, was it then asked to address the two breach of fiduciary duty counts, related to the member removal and the capital reserve.¹³ On March 28, 2018,

the jury returned its verdict in favor of the plaintiff on the three breach of contract counts. The jury, therefore, did not reach the two breach of fiduciary duty counts. The jury awarded the plaintiff $146,901 for the breach of contract related to the 2008 amendment, $672,208 for the breach of contract related to the member removal, and $303,426 for the breach of contract related to the capital reserve.

On April 9, 2018, the defendants filed both a motion for judgment notwithstanding the verdict and a motion to set aside the verdict, which were denied by the court. On July 11, 2018, the plaintiff filed a motion for attorney's fees and costs, pursuant to § 15.7 of the agreement.¹⁴ Following an evidentiary hearing on the motion, the court issued a memorandum of decision, in which it awarded the plaintiff $716,200 for attorney's fees and $6118.75 for costs.

These consolidated appeals followed.

I

On appeal, the defendants claim that the court misconstrued the agreement and, therefore, erred when it denied their motion to strike, motion for summary judgment, motion in limine, and posttrial motions, and when it instructed the jury. Specifically, the defendants claim that the trial court "erroneously construed the second sentence of [§] 3.4 as imposing affirmative contractual duties, rather than as an exculpatory clause that creates potential immunity." We agree, pursuant to our plenary review, that the trial court misconstrued

the agreement and, therefore, erred in denying the defendants’ posttrial motions with respect to the breach of contract counts related to the amendment and member removal, and erred in instructing the jury on the breach of contract count related to the capital reserve.

We begin by setting forth the provisions of the agreement, which, we conclude, the trial court erred in interpreting. Section 2.5 of the agreement provides: "In addition to the other matters specified hereunder, subject to the prior approval by the Board of Managers, the consent of Members holding 60% or more of the Percentage Interests shall be required for: (i) the admission of a new Member, (ii) the removal of a Member other than on account of death or voluntary resignation , (iii) the determination that a Member is disabled, (iv) the Sale of the Company, (v) the dissolution of the Company, (vi) any change in the Subscription or Percentage Interest of any Member, and (vii) any amendment to this Agreement ." (...