Elm City Food Cooperative, Inc. v. McElroy, Deutsch, Mulvaney & Carpenter, LLP
| Decision Date | 27 January 2020 |
| Docket Number | X06UWYCV176042388 |
| Court | Connecticut Superior Court |
| Parties | Elm City Food Cooperative, Inc. v. McElroy, Deutsch, Mulvaney & Carpenter, LLP et al. |
UNPUBLISHED OPINION
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Bellis, Barbara N., J.
The plaintiff, Elm City Food Cooperative, Inc., brings the present matter against Kristin B. Mayhew, an attorney formerly hired to represent the plaintiff in its financial restructuring; Mayhew’s law firm, McElroy, Deutsch, Mulvaney & Carpenter, LLP (law firm); and the plaintiff’s former chief financial officer, Douglas Berson, alleging various wrongdoings in Mayhew’s and the law firm’s representation of the plaintiff as well as in Berson’s actions as an officer. Mayhew and the law firm now move to strike the majority of the plaintiff’s claims against them, [1] arguing that the plaintiff’s claims for breach of fiduciary duty; violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq.; tortious interference with business expectancies; fraudulent nondisclosure; and civil conspiracy are insufficient as a matter of law. For the reasons discussed herein, the defendants’ motion to strike is denied in its entirety.
The following relevant facts are set forth in the plaintiff’s second revised amended complaint and are incorporated into all of the counts presently at issue. The plaintiff avers that it is a retail food market organized as a cooperative under Connecticut law and managed by a board of directors (board). The plaintiff further avers that, pursuant to its bylaws, only the president of the board is empowered to "execute all instruments and writings on behalf of [the plaintiff], including leases."
In May 2011, the plaintiff allegedly obtained a loan from Webster Bank N.A. (bank), secured by a first security interest in the plaintiff’s business assets, in order to obtain the funds necessary to commence operation. Also in May 2011, the plaintiff allegedly entered into a lease agreement with MEPT Chapel Street QALICB, LLC (landlord) through which it would rent the premises where it intended to operate the food market. On November 2, 2011, the plaintiff alleges, it opened to the public for business.
The plaintiff avers that in July 2013, it sought additional credit from the bank. The bank purportedly conditioned its provision of any additional credit on 1) the plaintiff’s hiring of a "turnaround" management consultant, and 2) the plaintiff’s renegotiation of its lease to secure more favorable rent deferral provisions and forgiveness of past due rent from its landlord. The plaintiff avers that the bank recommended Phoenix Management Services, LLC (Phoenix), to offer restructuring advice and that the plaintiff subsequently consulted with Phoenix’s employee James Fleet concerning said restructuring. That same month, the plaintiff alleges, Berson, who was neither the president of the plaintiff’s board nor a member of the board in any capacity hired the defendants to provide "general corporate counsel, corporate finance and restructuring advice" to the plaintiff, but did not involve the plaintiff or its board in the hiring decision. The plaintiff further avers that Mayhew’s and the law firm’s legal representation was subject to a conflict of interest by way of the law firm’s having previously provided legal services to the bank and that neither Mayhew nor the law firm advised the board of this conflict or sought a waiver for it.
The plaintiff alleges that Mayhew, pursuant to her representation of the plaintiff, reviewed the plaintiff’s bylaws in August 2013. Notwithstanding the fact that Mayhew had been hired to represent the plaintiff, the plaintiff avers that Mayhew never introduced herself to the board or made timely efforts to meet with or otherwise communicate with the board. Rather Mayhew allegedly began to discuss the lease amendment demanded by the bank with Fleet and a representative of the landlord, and ultimately advised Berson on or about December 23, 2013, to sign an amendment to the lease. The plaintiff alleges that Mayhew advised Berson to sign this amendment without having discussed it with the board[2] or having obtained authorization from the board or its president for Berson to take such an action.
The plaintiff avers that the lease amendment contained various provisions that threatened the continued viability of the plaintiff’s business, including elimination of the plaintiff’s ability to defer payment of rent in case of financial hardship and a requirement that the plaintiff pay half of its available cash each month, net of that month’s rent payment, toward reducing its accrued balance of deferred rent. The plaintiff alleges that Mayhew never informed the board of these provisions, thereby preventing it from making plans to address these new financial obligations and/or seeking out additional sources of financing. Ultimately, the plaintiff alleges, it defaulted on its obligations under the amended lease and was informed of that fact, as well as the previously unknown terms of the lease amendment, by way of a notice of default from the landlord on April 23, 2014. As a result of its default on the lease, the plaintiff allegedly entered into default status on its loan from the bank as well.
The plaintiff alleges that in June 2014, after it had become aware of the notice of lease default, it developed a financial restructuring plan that would utilize funding from the National Cooperative Grocers Association (association). Berson and Fleet purportedly disagreed with this approach and wished to liquidate the plaintiff’s business instead. Nevertheless, the plaintiff alleges, Berson sent a written communication to Mayhew on or about July 1, 2014, indicating that the board wanted to work with the association toward a financial restructuring and a resolution of the plaintiff’s financial problems.
The plaintiff avers that Mayhew failed to advocate to the bank in favor of the plaintiff’s desired financial restructuring through the association, and instead worked with Berson to prepare for a liquidation of the plaintiff’s business through the bank’s foreclosure on and subsequent sale of the plaintiff’s assets under Article 9 of the Uniform Commercial Code (Article 9 sale). Specifically, Mayhew allegedly referred Berson to an attorney who would assist in establishing a new business entity, Elm City Community Market, that would purchase the plaintiff’s assets in the Article 9 sale, worked with this attorney in some capacity to facilitate the new entity’s business purposes, and provided term sheets to a potential investor in the new entity. The plaintiff further avers that the defendants billed the plaintiff for these services, notwithstanding the fact that they were adverse to the plaintiff’s desired course of action.
Simultaneously with Mayhew’s purported efforts to facilitate the Article 9 sale, the plaintiff alleges that its board began to engage with the association concerning the plaintiff’s preferred restructuring plan, ultimately receiving a letter of engagement from the association on August 15, 2014. The plaintiff alleges that it became aware of the bank’s plan to carry out the Article 9 sale after it had engaged the association, and that the board communicated to Mayhew in that same month that it did not wish to proceed with an Article 9 sale, that it was pursuing a restructuring plan with the association, and that Mayhew and any other involved parties should discontinue any work they were doing toward facilitating the Article 9 sale.
The plaintiff avers that, despite the plaintiff’s desire to restructure through the association, the bank informed it on September 17, 2014, that the bank planned to proceed with the Article 9 sale and that such sale would occur on October 1, 2014. The plaintiff further alleges that Elm City Community Market came into existence on September 23, 2014, with Berson responsible for its management, and that it acquired the plaintiff’s assets as the only bidder at the October 1, 2014, Article 9 sale. Moreover, the plaintiff alleges, the Article 9 sale brought to an end the plaintiff’s "business relationships with its customers, vendors, Landlord, and Webster [Bank]" and that the defendants were aware of these relationships at all times relevant to the present matter.
The plaintiff filed a seventeen-count complaint against on January 10, 2017, claiming, against Mayhew individually and against the law firm under the doctrine of respondeat superior: 1) legal malpractice (counts one and two), 2) breach of fiduciary duty (counts three and four), 3) violation of CUTPA (counts five and six), 4) tortious interference with business expectancies (counts seven and eight), 5) fraudulent nondisclosure (counts nine and ten), and 6) civil conspiracy (counts ten and eleven). The plaintiff also claimed 1) breach of fiduciary duty, 2) violation of CUTPA, 3) fraudulent nondisclosure, 4) tortious interference with business expectancies, and 5) civil conspiracy against Berson. Following various amendments and revisions to the factual portions of the plaintiff’s complaint, the plaintiff filed the operative second revised amended complaint on July 17, 2019, asserting the same claims as the original complaint against the same parties.
The defendants filed the present motion to strike on July 29 2019, arguing 1) that counts three and four of the second revised amended complaint, claiming breach of fiduciary duty, must fail because they do not contain any allegations that the defendants advanced their own interests to the plaintiff’s detriment and the...
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