Joe's Pizza, Inc. v. Aetna Life and Cas. Co.

• Decision Date: 07 May 1996
• Docket Number: No. 15164,15164
• Court: Connecticut Supreme Court
• Parties: JOE'S PIZZA, INC. v. AETNA LIFE AND CASUALTY COMPANY.

Page 441

675 A.2d 441

236 Conn. 863

JOE'S PIZZA, INC. v. AETNA LIFE AND CASUALTY COMPANY.

No. 15164.

Supreme Court of Connecticut.

Argued Dec. 7, 1995.

Decided May 7, 1996.

Louis W. Flynn, Hartford, for appellant (plaintiff).

Joel J. Rottner, with whom was Robyn L. Sondak, West Hartford, for appellee (defendant).

Before CALLAHAN, BORDEN, BERDON, KATZ and PALMER, JJ.

PALMER, Associate Justice.

The sole issue presented by this appeal is whether the trial court properly rendered summary judgment against the plaintiff, Joe's Pizza, Inc. (Joe's Pizza), on the ground that its claim against the defendant, Aetna Life and Casualty Company (Aetna), is barred by principles of res judicata. We affirm the summary judgment of the trial court.

The pertinent facts and procedural history are not in dispute. At all times relevant to this appeal, Joe's Pizza was a closely held corporation owned and operated as a restaurant in Windsor by its sole shareholders, Giuseppe and Tina Cappello, who are husband and wife. On November 28, 1991, the restaurant was severely damaged by fire. Prior thereto, the Cappellos, acting on behalf of Joe's Pizza, had purchased a fire insurance policy from Aetna. ¹ Following the fire, the Cappellos filed a claim with Aetna seeking payment for the fire damage sustained by Joe's Pizza. Shortly thereafter, Aetna notified the Cappellos that it intended to question them about the claim at an examination under oath scheduled for January 17, 1992. In its notice, Aetna also requested that the Cappellos provide it with certain documents, including copies of the books and records of Joe's Pizza. ² At the time the Cappellos received this notice, however, Giuseppe Cappello was the subject of a criminal investigation for setting the fire that had damaged the restaurant. On the advice of counsel, therefore, both he and Tina Cappello, asserted their constitutional privilege against self-incrimination and refused either to submit to an examination under oath or to produce the books and records of Joe's Pizza. Aetna twice rescheduled the examination under oath, but on each occasion the Cappellos failed to appear. ³

Following these unsuccessful attempts by Aetna to obtain the information that it sought from Joe's Pizza pursuant to the policy provision, Giuseppe Cappello was arrested and charged with arson in the first degree for his alleged role in the fire at the restaurant. ⁴ After the filing of the criminal charges, the Cappellos, claiming that they were entitled to invoke their constitutional privilege against self-incrimination in response to Aetna's request for information, initiated an action in the Superior Court, Cappello v. Aetna Life & Casualty Co., Superior Court, judicial district of Hartford-New Britain at Hartford, Docket No. CV92-0510478S, 1993 WL 119691 (April 5, 1993), seeking a "declaratory judgment adjudicating [their] rights and obligations ... with respect to [Aetna's] request for the production of [Joe's Pizza's] documents and an examination under oath and that [Aetna] be restrained and enjoined from attempting such examination or request for production prior to a final ruling of [the] court."

Aetna moved for summary judgment on the ground that it had been relieved of its obligation to pay the fire damage claim under the policy because of the Cappellos' refusal to submit to an examination under oath. The Cappellos, in response, did not address this claim. They argued, rather, that their constitutional right to remain silent took precedence over Aetna's contractual right to obtain the information it had sought under the policy and, accordingly, that they were entitled to a postponement of the examination pending a resolution of the criminal case against Giuseppe Cappello. On April 5, 1993, the trial court, Aurigemma, J., granted Aetna's motion for summary judgment, concluding that the Cappellos' refusal to submit to an examination under oath constituted a material breach of the insurance contract that relieved Aetna of its payment obligation under the policy. The Cappellos neither sought an articulation under Practice Book § 4051 nor took an appeal from the judgment of the trial court.

On May 17, 1993, the Cappellos notified Aetna that they were willing to submit to an examination under oath at a mutually agreeable date and time. Aetna, however, informed the Cappellos that it did not intend to proceed with the examination in light of Judge Aurigemma's determination that it had no payment obligation to Joe's Pizza due to the Cappellos' breach of the insurance contract. ⁵ Thereafter, on July 28, 1993, Joe's Pizza brought this action, seeking payment under the policy for its losses from the fire, as well as interest and attorney's fees. Aetna moved for summary judgment, claiming that the judgment rendered by Judge Aurigemma in its favor in Cappello v. Aetna Life & Casualty Co., supra, barred this action under principles of res judicata. The trial court, Hale, J., granted Aetna's motion without opinion, ⁶ and this appeal followed. ⁷

On appeal, Joe's Pizza makes two claims. First, it contends that it is not bound by the summary judgment rendered by Judge Aurigemma in Cappello v. Aetna Life & Casualty Co., supra, because it was not a party to that action. Second, it claims that the summary judgment rendered in that case does not bar it from proceeding with this action because Judge Aurigemma improperly exceeded the scope of the Cappellos' declaratory judgment action in concluding that the Cappellos' refusal to answer questions under oath relieved Aetna of any liability under the policy. ⁸ We reject both of these arguments and conclude that principles of res judicata bar Joe's Pizza from relitigating the breach of contract issue decided by Judge Aurigemma. ⁹

I

Joe's Pizza first claims that this action is not barred by the summary judgment rendered in Cappello v. Aetna Life & Casualty Co., supra, because it was not a party to that litigation. ¹⁰ Aetna, on the other hand, contends that Joe's Pizza is bound by the judgment rendered therein because the Cappellos, as the owners, operators and sole shareholders of Joe's Pizza, are in privity with Joe's Pizza for purposes of res judicata. We agree with Aetna.

"While it is commonly recognized that privity is difficult to define, the concept exists to ensure that the interests of the party against whom collateral estoppel [or res judicata] is being asserted have been adequately represented because of his purported privity with a party at the initial proceeding.... A key consideration in determining the existence of privity is the sharing of the same legal right by the parties allegedly in privity." (Citation omitted; internal quotation marks omitted.) Aetna Casualty & Surety Co. v. Jones, 220 Conn. 285, 304, 596 A.2d 414 (1991). "Although 'there is no bright line rule as to whether or not [corporate officers or] shareholders are in privity with their corporation for res judicata purposes'; Amalgamated Sugar Co. v. NL Industries, Inc., 825 F.2d 634, 640 (2d Cir.), cert. denied, 484 U.S. 992, 108 S.Ct. 511, 98 L.Ed.2d 511 (1987); the Restatement (Second) of Judgments provides useful guidance." Commissioner of Environmental Protection v. Connecticut Building Wrecking Co., 227 Conn. 175, 194, 629 A.2d 1116 (1993).

The Restatement (Second) of Judgments, § 59, sets forth the general rule that "a judgment in an action involving a party who is an officer, director, stockholder, or member of a non-stock corporation [does not] have preclusive effects on the corporation itself." This rule of general applicability, however, is subject to an exception for corporations that are closely held: "If the corporation is closely held, in that one or a few persons hold substantially the entire ownership in it, the judgment in an action by ... the holder of ownership in it is conclusive upon the [corporation] as to issues determined therein ... except when relitigation of the issue is justified in order to protect the interest of another owner or a creditor of the corporation." 2 Restatement (Second), Judgments § 59(3)(b) (1982).

The comments to § 59 of the Restatement (Second) of Judgments explain why a judgment rendered against the shareholders of a closely held corporation may be binding on the corporation. "When the corporation is closely held ... interests of the corporation's management and stockholders and the corporation itself generally fully coincide.... For the purpose of affording opportunity for a day in court on issues contested in litigation ... there is no good reason why a closely held corporation and its owners should be ordinarily regarded as legally distinct. On the contrary, it may be presumed that [the interests of the shareholders and the closely held corporation itself] coincide and that one opportunity to litigate issues that concern them in common should sufficiently protect both." ¹¹ Id., comment (e), p. 99. These principles have been accepted by other courts; see, e.g., Aetna Casualty & Surety Co. of Hartford v. Kerr-McGee Chemical Corp., 875 F.2d 1252, 1258-59 (7th Cir.1989); Red Carpet Corp. v. Roberts, 443 So.2d 377, 380 (Fla.App.1983), rev. denied sub nom. Hatcher v. Roberts, 488 So.2d 68 (Fla.1986); Spickler v. Dube, 644 A.2d 465, 468 (Me.1994); Missouri Mexican Products, Inc. v. Dunafon, 873 S.W.2d 282, 286 (Mo.App.1994); and Joe's Pizza has failed to advance any reason why we should not follow them in this case.

It is undisputed that Giuseppe and Tina Cappello were the sole owners and shareholders of Joe's Pizza and that they exercised complete control over the management and operation of the restaurant. In effect, therefore, the enterprise was a proprietorship or partnership conducted in corporate form. See 2 Restatement, supra. In such circumstances the commonality of interest between the Cappellos and Joe's Pizza is sufficient to give rise to a presumption that the Cappellos' opportunity "to litigate issues that...