Galloway v. Ahamed

• Decision Date: 04 August 2022
• Docket Number: Civil Action 3:22-CV-979 (CSH)
• Parties: PETER GALLOWAY, individually and in the Right of and for the Benefit of Adherence Consulting Group, LLC, Plaintiff, v. SALEEMAH AHAMED, Defendant.
• Court: U.S. District Court — District of Connecticut

PETER GALLOWAY, individually and in the Right of and for the Benefit of Adherence Consulting Group, LLC, Plaintiff, v. SALEEMAH AHAMED, Defendant.

Civil Action No. 3:22-CV-979 (CSH)

United States District Court, D. Connecticut

August 4, 2022

ORDER RE: EXPEDITED STATUS CONFERENCE ON MOTION FOR TRO [DOC. 2]

CHARLES S. HAIGHT, JR., Senior United States District Judge.

I. INTRODUCTION

Plaintiff Peter Galloway commenced this action, individually and "in the Right of and for the Benefit of Adherence Counsulting Group, LLC" (herein "Adherence Consulting"), against Defendant Saleemah Ahamed for alleged breaches of her fiduciary duty with respect to both Galloway and Adherence Consulting. Doc. 1 ("Verified Complaint"), ¶ 1. In particular, Galloway asserts that Ahamed has "frozen" him out from all Adherence Consulting systems, removed his email account, and prohibited his access to prior emails. Id. ¶ 2. In addition, Ahamed "has attempted to freeze Galloway out of access to Adherence [Consulting] financial information and input into financial decisions and, in doing so, Ahamed has caused the financial operation of [that entity] to come to a virtual standstill." Id. ¶ 3.

In his "Verified Complaint," Plaintiff sets forth three causes of action: (1) breach of fiduciary duty, owed by Ahamed to Galloway, for "unqualified loyalty, fairness, in good faith, and without self-interest;" (2) breach of fiduciary duty, owed by Ahamed to Adherence Consulting, "to act at all times with undivided and unqualified loyalty, fairness, in good faith and without self-interest;" and (3) "temporary, preliminary, and permanent injunctions" to prevent Ahamed from "continu[ing] to hold Adherence [Consulting]'s financial business at a standstill" and "freez[ing] Galloway out of all financial information and approvals." Doc. 1, at 7-9.

In conjunction with his Complaint, Plaintiff has filed a contemporaneous "Motion for a Preliminary Injunction and Temporary Restraining Order." Doc. 2. In that motion, Galloway seeks injunctive relief to "redress" - on behalf of himself, individually and in the right and for the benefit of Adherence Consulting - Ahamed's alleged "breaches of fiduciary duty against both Galloway as a minority member of Adherence [Consulting] and against Adherence [Consulting]." Doc. 2, at 1. However, the Court cannot proceed to evaluate evidence or resolve the motion until it establishes that it has subject matter jurisdiction and may proceed without contravening or disrupting a pending state court action. Because Plaintiff appears to lack standing, has failed to allege sufficient facts to establish "diversity of citizenship," and has a concurrent state action which may implicate the Burford abstention doctrine, the Court enters the Order below.

II. DISCUSSION

In light of the urgent nature of Plaintiff's request for a temporary restraining order, the Court will hear from the parties in a status conference on Zoom. However, the parties are advised that there are a number of preliminary issues to be addressed before any resolution of the requested TRO. These issues include: standing, "diversity of citizenship" subject matter jurisdiction, and potential application of the Burford abstention doctrine.

A. Standing

The Court is required to address standing even if the issue has not been raised by the parties. See FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 230 (1990). "If plaintiffs lack Article III standing, a court has no subject matter jurisdiction to hear their claim." Mahon v. Ticor Title Ins. Co., 683 F.3d 59, 62 (2d Cir.2012) (citation omitted). See also Cacchillo v. Insmed, Inc., 638 F.3d 401, 404 (2d Cir. 2011) ("Generally, '[s]tanding is a federal jurisdictional question 'determining the power of the court to entertain the suit.' ") (quoting Carver v. City of New York, 621 F.3d 221, 225 (2d Cir.2010)). "[A] plaintiff must demonstrate standing for each claim" and form of relief sought. Mahon, 683 F.3d at 64 (citation omitted). "As with questions of jurisdiction generally, the party invoking the authority of the court bears the burden of proof on the issue of standing." Lee v. Bd. of Governors of the Fed. Rsrv. Sys., 118 F.3d 905, 910 (2d Cir. 1997) (citing Warth v. Seldin, 422 U.S. 490, 501-02 (1975)).

Given the substance of Plaintiff Galloway's claims at bar, he lacks standing to bring this action as a "derivative claim" under Connecticut law. In the Complaint, Plaintiff alleges that he sues to redress losses sustained by Adherence Consulting Group, LLC (herein "Adherence Consulting") due to breaches of fiduciary duty by Defendant Ahamed. In the case caption, Plaintiff indicates that he brings the action both "individually and in the Right of and for the Benefit of Adherence Consulting Group, LLC." Doc. 1, at 1. Galloway also includes and describes Adherence Consulting as an entity under the heading "Parties." Id. ¶ 4. Furthermore, in the "Second Cause of Action," entitled "Breach of Fiduciary Duty," Galloway alleges that Ahamed breached duties owed to Adherence Consulting. In particular, the Complaint states, in pertinent part: "Ahamed owes Adherence [Consulting] a fiduciary duty to act at all times with undivided and unqualified loyalty, fairness, in good faith and without self-interest;" "Ahamed has breached that duty;" "Ahamed has also been grossly negligent, reckless and has wholly disregarded her fiduciary duties to Adherence [Consulting];" and "Adherence [Consulting] has been damaged in an amount to be determined at trial in excess of the jurisdictional limitations of this Court." Id. ¶¶ 51-54. Lastly, the "Prayer for Relief" explicitly requests "damages in favor of Adherence [Consulting], as against Defendant, for breach of fiduciary duty." Id. at 9 ("Prayer for Relief," ¶ 2). In sum, the case caption, party description, second claim, and prayer for relief all suggest that Plaintiff Galloway brings this action on behalf of Adherence Consulting as a member of that limited liability company ("LLC"). Galloway must therefore address the question of whether he lacks standing to bring such an action.

Under Connecticut law, "[a] member or manager [of an LLC] may not sue in an individual capacity to recover for an injury based on a wrong to the limited liability company." Bernblum v. Grove Collaborative, LLC, 211 Conn.App. 742, 756 (2022), cert. denied, 343 Conn. 925 (2022). See also Channing Real Estate, LLC v. Gates, 326 Conn. 123, 138 (2017); O'Reilly v. Valletta, 139 Conn.App. 208, 214 (2012), cert. denied, 308 Conn. 914 (2013). Specifically, members of limited liability companies lack standing to bring derivative actions under Connecticut common law. Saunders v. Briner, 334 Conn. 135, 167 (2019). The Connecticut Supreme Court has carved out one exception in the "unique circumstance . . . in which the sole member of a limited liability company seeks to remedy a harm suffered by it." Id. (emphasis added). Only in that "narrowly tailored exception," may the trial court allow an action raising derivative claims to proceed as a direct action for individual recovery, and then only under set conditions.^[1] Id. 175-76.

Here, Adherence Consulting is an LLC, a distinct legal entity with a separate existence from its members. Plaintiff has indicated that he is not the sole member, but rather holds a thirty per cent (30%) interest in Adherence Consulting. Doc. 1, ¶ 5. His action does not, therefore, fall under the narrow exception carved out in Saunders, 334 Conn. at 176. Accordingly, Plaintiff lacks standing to bring the action on behalf of - "in the Right of and for the Benefit of" - Adherence Consulting.

In addition, it is unclear whether Galloway may proceed, in the alternative, with a "direct action" for individual recovery. To do so, he must allege that he personally suffered a "distinct and separate injury from the company." Saunders, 334 Conn. at 165. See also Bernblum v. Grove Collaborative, LLC, 211 Conn.App. 742, 756 (2022) ("[A]s a general rule, a plaintiff lacks standing unless the harm alleged is direct rather than derivative or indirect.... [I]f the injuries claimed by the plaintiff are remote, indirect or derivative with respect to the defendant's conduct, the plaintiff is not the proper party to assert them and lacks standing to do so."), cert. denied, 343 Conn. 925 (2022); Kelly v. Kurtz, 193 Conn.App. 507, 540 (2019) ("Where, for example, the harms asserted to have been suffered directly by a plaintiff are in reality derivative of injuries to a third party, the injuries are not direct but are indirect, and the plaintiff has no standing to assert them.").^[2]

Therefore in order to proceed, Galloway must specify how he was injured apart from the injuries allegedly inflicted on Adherence Consulting; and based on the present Complaint, his breach of fiduciary duty claim does not establish that he suffered an injury separate from Adherence Consulting's business restraints and financial losses. When Ahamed allegedly terminated Galloway's access to email, Microsoft "Teamwork," and Quickbooks, - thereby "freezing] Galloway out of all financial aspects of Adherence" Consulting - Ahamed allegedly rendered Adherence Consulting "unable to make any payments" and brought it "to a screeching halt." Doc. 1, ¶ 57. Moreover, in his request for a TRO, Galloway asks the Court to enjoin and restrain Ahamed from "halting Adherence [Consulting]'s financial disbursement approval process and from freezing Galloway out of all financial information and approvals pending the outcome of this action." Id. at 9 (¶ 3). All such requests relate to the running of Adherence Consulting's business, and specifically its ability to function financially. Moreover, all injuries allegedly result from constraints on Galloway's ability to function in...