Matthews v. SBA, Inc.

• Decision Date: 22 April 2014
• Docket Number: AC 34673
• Court: Connecticut Court of Appeals
• Parties: MICHAEL MATTHEWS ET AL. v. SBA, INC., ET AL.

MICHAEL MATTHEWS ET AL. v. SBA, INC., ET AL.

AC 34673

COURT OF APPEALS OF THE STATE OF CONNECTICUT

Argued September 11, 2013

Officially released April 22, 2014

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(Appeal from Superior Court, judicial district of

Waterbury, Complex Litigation Docket, Shaban, J.)

Justin R. Clark, with whom, on the brief, was Wendell G. Davis, Jr., for the appellants (plaintiffs).

John F. Farraher, Jr., pro hac vice, with whom were David B. Zabel and, on the brief, Barbara M. Schellenberg, for the appellees (named defendant et al.).

Daniel J. Finnegan, for the appellee (defendant James H. Ross).

Michael D. Blanchard, with whom was Christopher M. Wasil, for the appellees (defendant Village Ventures, Inc., et al.).

Opinion

KELLER, J. The plaintiffs, Michael Matthews and Stephen Kotfila, appeal from the judgment of the trial court granting the defendants' motions to dismiss. The plaintiffs, Massachusetts residents, brought the underlying action against twenty-one defendants seeking damages sounding in a number of legal theories for the alleged dilution of their stock ownership interests in the early stages of a wireless telecommunications company called Optasite, Inc. (New Optasite).¹ The twenty-one defendants,² all of which are foreign business entities and nonresident individuals, are, for the purpose of clarity, best organized into four categories: (1) the SBA defendants; (2) the Investment Company defendants; (3) the Employee defendants; and (4) James H. Ross. In total, three motions to dismiss were filed: one on behalf of the SBA defendants; one on behalf of the Investment Company defendants and Employee defendants; and one on behalf of Ross. The court granted the motions to dismiss on various grounds as to each defendant and thereupon rendered judgment in favor of the defendants, from which the plaintiffs appealed. The plaintiffs claim that the court improperly granted the defendants' motions to dismiss because it erred in finding that (1) there was insufficient service of process pursuant to General Statutes §§ 52-59b (c), 34-225 (b), and 33-929 (b); (2) it lacked personal jurisdiction under the applicable long arm provisions, General Statutes §§ 52-59b (a) and 33-929 (f), and as a violation of constitutional due process; and (3) venue was improper pursuant to General Statutes § 51-345. We affirm the judgment of the court.

IBACKGROUND

This case arises out of underlying events in which the plaintiffs allege they were injured by misrepresentations and other misconduct that occurred in connection with the merger of two companies in which they held stock, Pinnacle Site Development, Inc., and Optasite, Inc. On September 20, 2011, the plaintiffs filed a fifteen-count³ complaint on the basis of a common set of factual allegations to recover damages from the four groups of defendants: the SBA defendants, the Investment Company defendants, the Employee defendants, and Ross. At all times relevant to the allegations of the complaint, as well as at the time this action commenced, the plaintiffs were residents of Massachusetts. They are also the sole members of four Connecticut limited liability companies, each of which maintains a business address in Massachusetts.⁴

The court's memorandum of decision adequately sets forth the undisputed facts contained in the complaint and the parties' affidavits in support of and in opposition to the motions to dismiss. "In the 1990s, the plaintiffswere affiliated with a company named Berkshire Wireless Incorporated (BWI). Some assets of BWI were purchased by a newly formed company named Optasite, of which the plaintiffs were founding members and shareholders. At that time, Optasite was a Massachusetts company with a principal place of business in Glastonbury, Connecticut. Village Ventures, Inc., and Worcester Venture Fund, L.P., were early stage, minority interest investors in Optasite. Both plaintiffs left Optasite in 2001 to take positions at a company named Pinnacle Site Development, Inc. (Pinnacle), a Connecticut corporation doing business in Glastonbury, Connecticut.

"In August of 2002, Optasite agreed to merge with Pinnacle, the latter being the surviving company (New Pinnacle). New Pinnacle was, itself, incorporated in Delaware with its principal place of business in Glastonbury, Connecticut. Negotiations over the merger, which included telephone calls and in-person meetings by all parties involved, were done substantially in Glastonbury, Connecticut. The merger was closed on September 5, 2002, in New York, New York, and Matthews became chief executive officer of New Pinnacle. The plaintiffs allege that all the defendants represented to the plaintiffs that their fully vested interest in New Pinnacle was and would always be on equal footing with that of other shareholders. In the beginning of 2003, New Pinnacle was renamed Optasite, Inc. (New Optasite).

"In accordance with New Optasite's business model, the plaintiffs thereafter brought business deals to the company and otherwise tried to advance the company's interests. Despite this, the defendants thereafter criticized the plaintiffs and otherwise frustrated their attempts to act upon the business model. All the defendants brought concerns in general in regard to both the business model and New Optasite that ran counter to repeated representations made to the plaintiffs during the merger and formation of New Optasite. The defendants attempted to force the plaintiffs from New Optasite so a new management team could be brought in. In doing so, they concealed from the plaintiffs material facts, conditions, and circumstances regarding New Optasite and conspired to create an environment in which [the plaintiffs] would leave New Optasite and forfeit their interest in the company. More specifically, the defendants unreasonably rejected business deals brought by the plaintiffs only to accept the same deals after the plaintiffs were forced out of New Optasite.

"Despite the plaintiffs' efforts, New Optasite claimed poor performance on their part and sought their resignation. Although denying the claim of poor performance, given his frustration with the situation, Matthews resigned as chief executive officer on or about April 30, 2003. In connection with his resignation, Matthewsand New Optasite executed a separation contract that, among other things, bound New Optasite to limit its response to third party requests for information concerning Matthews. This contract was drafted and executed in Connecticut. In June, 2003, Kotfila also resigned from New Optasite. In further reliance on representations allegedly made by all of the defendants, Matthews failed to exercise stock options that he had in New Optasite and which expired at the end of August, 2003. After the expiration of the stock options, the board of directors of New Optasite represented to the plaintiffs, who were still shareholders, that it had a new plan for reorganization of New Optasite. The board of directors noted that the reorganization would dilute the plaintiffs' shares but nonetheless assured the plaintiffs that the future benefit of the diluted shares would far outweigh the initial loss. Allegedly, all the defendants and the board of directors knew or should have known that this representation was false and that the dilution was for their own benefit. The effect of the alleged misrepresentation was to 'wash out' the plaintiffs' shares and interest in New Optasite and caused them to suffer losses and other financial injury. According to the plaintiffs, the defendants had conspired to make these false representations and injure the plaintiffs' monetary and professional interests, and [the alleged conspiracy] was predominately effectuated in Glastonbury, Connecticut, during this time.

"In 2004, New Optasite resumed being headquartered in Massachusetts. The defendants Sean M. Marsh . . . and Word D. Peake III . attended board meetings in both Glastonbury, Connecticut, and Worcester, Massachusetts. In April of 2004, [the defendant] Point Judith Capital Partners, LLC, caused the fund for which it served as general partner to make its first investment in New Optasite.

"In 2006, well after the plaintiffs had left New Optasite, Ross, then chief executive officer of New Optasite, served as an expert against Matthews in a Massachusetts court case that involved the valuation of various business interests. There, detrimental to Matthews' claims, he placed the value of a Colorado company at far less than what Matthews had placed it at. In his role in the court case, Ross attended meetings, reviewed documents, and wrote a report...