Herbert v. Pitchell

• Decision Date: 04 February 2020
• Docket Number: HHDCV176077641S
• Parties: Todd C. Herbert, Individually et al. v. John J. Pitchell aka Jay Pitchell et al.
• Court: Connecticut Superior Court

Todd C. Herbert, Individually et al. v. John J. Pitchell aka Jay Pitchell et al.

No. HHDCV176077641S

Superior Court of Connecticut, Judicial District of Hartford, Hartford

February 4, 2020

UNPUBLISHED OPINION

Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Shapiro, Robert B., J.T.R.

MEMORANDUM OF DECISION

ROBERT A. SHAPIRO JUDGE TRIAL REFEREE

On November 18, 2019, the court heard argument on the plaintiff’s motion to dismiss the defendants’ counterclaims (#199). Pursuant to an agreed briefing schedule the last submission was filed on December 4, 2019 (#208).

I Background

This action concerns a former limited liability company, T&T Automotive Repair, LLC (T&T), of which the plaintiff, Todd Hebert, and the defendant, John Pitchell, were the sole members. The plaintiff’s twenty-count complaint, dated April 24, 2017, includes both direct causes of action and derivative causes of action brought on behalf of T&T. In his answer, the defendant brought seven counterclaims against the plaintiff, similarly alleging both direct and derivative claims.^[1]

The plaintiff moves to dismiss counts two through six of the defendant’s counterclaims on the ground that the defendant lacks standing to bring either a direct or derivative claim. The plaintiff argues that the defendant cannot bring a derivative claim because he cannot demonstrate that a demand for T&T to bring the claim would be futile and that the defendant’s direct claims belong to T&T. The defendant argues in opposition that the motion to dismiss is procedurally defective, and that the defendant has standing to bring both direct and derivative actions on behalf of T&T.

II Discussion

A Practice Book § 10-6

The defendant argues that the motion to dismiss should be denied because it fails to comply with the order of pleadings as required under Practice Book § 10-6. The defendant’s argument that the motion to dismiss should be denied on procedural grounds is unavailing. The plaintiff moves to dismiss the defendant’s counterclaims on the ground that he lacks standing. "[B]ecause the issue of standing implicates subject matter jurisdiction, it may be a proper basis for granting a motion to dismiss." Electrical Contractors, Inc. v. Dept. of Education, 303 Conn. 402 413, 35 A.3d 188 (2012). "Subject matter jurisdiction involves the authority of the court to adjudicate the type of controversy presented by the action before it ... [A] court lacks discretion to consider the merits of a case over which it is without jurisdiction ... The subject matter jurisdiction requirement may not be waived by any party, and also may be raised by a party, or by the court sua sponte, at any stage of the proceedings ..." (Internal quotation marks omitted.) Keller v. Beckenstein, 305 Conn. 523, 531-32, 46 A.3d 102 (2012). Accordingly, because the issue of subject matter jurisdiction may be raised at any time and may not be waived under any circumstances, a motion to dismiss for lack of standing may not be denied for failure to comply with Practice Book § 10-6.

B Derivative Standing

The plaintiff argues that the defendant lacks standing to bring a derivative claim on behalf of T&T because, as the majority member, ^[2] the defendant cannot demonstrate that a demand to T&T to bring those claims would be futile, as required under General Statutes § 52-572j. The defendant argues that General Statutes § 34-271a applies to his derivative claims, which does not specify whether a presuit demand is necessary for a counterclaim. The defendant further argues that, even if a presuit demand is necessary for a counterclaim, a demand is futile when the only other member of the company is the target of a lawsuit. The defendant also argues that both parties, as members of T&T, should be held to the same standards and therefore, if the plaintiff’s derivative claims are allowed to stand then so too should the defendant’s.

As a preliminary matter, the applicable law as to both parties’ derivative claims is neither § 34-271a nor § 52-572j. Section 34-271a was enacted on July 1, 2017, as part of the Connecticut Uniform Limited Liability Company Act (CULLCA), General Statutes § 34-243 et seq. The CULLCA repealed and replaced the Connecticut Limited Liability Company Act (CLLCA), General Statutes § 34-100 et seq. Section 34-283b of the CULLCA specifically indicates that the CULLCA "[does] not affect an action commenced, proceeding brought or right accrued before July 1, 2017." See also Saunders v. Briner, 334 Conn. 135, 161-62 n.27, 221 A.3d 1 (2019) (indicating that "the legislature did not intend for the CULLCA to apply retroactively ... [b]ecause the CULLCA expressly provides that it applies prospectively"). Therefore, the CLLCA applies to actions commenced, proceedings brought, and rights accrued before July 1, 2017. Additionally, § 52-572j does not apply to limited liability companies. See id., 161 n.27 (noting that "[n]ot only did our legislature decline to provide for a derivative cause of action in the CLLCA but, when it enacted the CLLCA, it also did not modify our derivative action statute, General Statutes § 52-572j, to include limited liability companies"). Accordingly, the CLLCA applies to this action, which was commenced in April 2017, and concerns rights accrued prior to the dissolution of T&T in September 2016.

In the absence of express authorization in an LLC’s operating agreement to file derivative actions, "the CLLCA does not permit members or managers to file derivative actions but, rather, authorizes them to collectively commence an action in the name of the limited liability company upon a requisite vote of disinterested members or managers (member initiated action). The CLLCA recognizes the right of the limited liability company to ... sue and be sued ... General Statutes (Rev. to 2017) § 34-186 generally authorizes [s]uits ... brought by or against a limited liability company in its own name ... Section 34-187 provides the procedure that members or managers must follow if they wish to file a lawsuit in the name of the company. Section 34-187(a)(1) and (b) authorizes any member of a limited liability company, regardless of whether that company vests management responsibilities in its members or managers, to bring an action in the name of the company upon the vote of a majority of disinterested members. Likewise, § 34-187(a)(2) authorizes any manager of a manager-managed limited liability company to bring an action in the name of that company upon the vote necessary under General Statutes (Rev. to 2017) § 34-142(a), which requires more than one-half by number of [disinterested] managers ..." (Citations omitted; emphasis in original; footnote omitted; internal quotation marks omitted.) Id., 158-59. Section 34-187(b) provides that, "[i]n determining the vote required under section 34-142 for purposes of this section, the vote of any member or manager who has an interest in the outcome of the suit that is adverse to the interest of the limited liability company shall be excluded."

In Saunders v. Briner, the Supreme Court recognized that "because of the closely held nature of many [limited liability companies] there may be little difference between the derivative remedy and the one proposed in this section ... Practically, the two types of actions- member-initiated and derivative- differ in that, in a derivative action, the parties litigate whether demand was made or whether it was futile and, in a member-initiated action, the parties litigate whether a given member’s or manager’s interest was adverse to the company." (Citation omitted; internal quotation marks omitted.) Saunders v. Briner, supra, 334 Conn. 162 n.28. "Simply put, the term ‘adverse’ in § 34-187(b) encompasses any interest of a member that is contrary or opposed to the limited liability company’s interest in the outcome of the litigation." 418 Meadow Street Associates, LLC v. Clean Air Partners, LLC, 304 Conn. 820, 832, 43 A.3d 607 (2012); see also Scarfo v. Snow, 168 Conn.App. 482, 503 n.10, 146 A.3d 1006 (2016) (positing that "the plaintiff may have had the ability to bring suit in the name of [the LLC] without the need for a vote of members ... because the only other member was [the defendant], who, obviously would have an interest in the outcome of the suit that is likely adverse to the interest of [the LLC]"). If there are no other disinterested members, the member seeking to initiate an action on behalf of the LLC must allege that it was not necessary to request a vote of those members whose interests were adverse to the LLC. See Saunders v. Briner, supra, 162 n.28.

Here, neither party has alleged that the other party’s interests were adverse to T&T. Furthermore, even if it can be assumed that the other party’s interests are adverse to the LLC when there are only two members, neither party has alleged that they did not need to request a vote from the other. Accordingly, both the plaintiff and defendant lack standing to bring a member-initiated action on behalf of T&T.

C Direct Standing

Generally "[a] member or manager [of an LLC] ... may not sue in an individual capacity to...