Metcoff v. Lebovics

• Decision Date: 07 September 2010
• Docket Number: No. 30954.,30954.
• Citation: 2 A.3d 942,123 Conn.App. 512
• Court: Connecticut Court of Appeals
• Parties: Jerrold M. METCOFF et al. v. Irene LEBOVICS et al.

123 Conn.App. 512

2 A.3d 942

Jerrold M. METCOFF et al.

v.Irene LEBOVICS et al.

No. 30954.

Appellate Court of Connecticut.

Argued April 15, 2010.

Decided Sept. 7, 2010.

COPYRIGHT MATERIAL OMITTED.

Suzanne LaPlante, with whom was Michael P. Berman, Hartford, for the appellants (plaintiffs).

Edward T. Krumeich, Greenwich, for the appellees (defendants).

ALVORD, FLYNN and LAVERY, Js.

ALVORD, J.

The plaintiffs, Jerrold M. Metcoff and David B. Wilson, appeal from the judgment of the trial court rendered in favor of the defendants, Irene Lebovics, Cy E. Hammond, John J. McCloy II, Sam Oolie and Michael J. Parrella, Sr., granting their motions to strike count two of the plaintiffs' revised complaint and count one of the plaintiffs' second substitute complaint. On appeal, the plaintiffs claim that the court improperly struck both counts, which alleged a violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq., and tortious interference with contractual relations, on the ground that the counts failed to state a legally sufficient cause of action. We affirm the judgment of the trial court.

The following procedural history and facts, as alleged in the plaintiffs' revised complaint and second substitute complaint, are relevant to our resolution of the issues on appeal. The plaintiffs were majority shareholders of Midcore Software Incorporated. In August, 2000, NCT Group, Inc. (NCT Group), and NCT Midcore, Inc., ¹ a wholly owned subsidiary of NCT Group, entered into an “agreement and plan of merger” (agreement) with the plaintiffs and the remaining minority shareholder of Midcore Software Incorporated. The agreement provided for a merger between Midcore Software Incorporated and NCT Midcore, Inc., with NCT Midcore, Inc., being the surviving corporation. As part of the merger, the agreement provided that the plaintiffs were to receive shares of NCT Group stock and certain royalties on the third anniversary date of the merger.

NCT Group failed to deliver the shares of stock and royalties at the designated time in 2003. The defendants were the executive officers and directors of NCT Group when NCT Group allegedly breached its agreement with the plaintiffs. The plaintiffs claim that NCT Group has been insolvent since 2002 and that, despite the plaintiffs' status as creditors of NCT Group, the defendants have “caused NCT Group to be unable to perform or refrain from performing its obligations to [the] [p]laintiffs under the [a]greement in 2003.” Instead, as part of an alleged scheme to further their own interests, the plaintiffs claim that the defendants authorized fraudulent transfers of NCT Group assets, received exorbitant compensation, including bonuses and stock options, and engaged in self-dealing.

On November 25, 2005, the plaintiffs filed a two count complaint against the defendants, claiming that they breached their fiduciary duties to the plaintiffs, as creditors of NCT Group, and that their actions violated CUTPA. Neither NCT Group nor NCT Midcore, Inc., were named as defendants in the action. ² On December 21, 2006, the plaintiffs filed a revised complaint, again alleging breach of fiduciary duties in count one and CUTPA violations in count two. The defendants filed a motion to strike both counts of the revised complaint, which the court granted, and the plaintiffs then filed a substitute complaint in which they repleaded count one of the revised complaint and “reserve[ed] their right to appeal the decision to strike [the] second [CUTPA] count.”

The substituted first count in the substitute complaint alleged that the defendants' actions constituted a tortious interference with the plaintiffs' rights under their agreement with NCT Group. The plaintiffs claimed that the defendants, as officers and directors of NCT Group, were aware of the corporation's obligations to the plaintiffs under the agreement and that they “intentionally refused to cause delivery to [the plaintiffs] of the requisite number of shares of NCT Group stock due and owing to them under the [a]greement.” The defendants filed a motion to strike the count, and the court granted the motion in a memorandum of decision filed February 14, 2008.

On February 29, 2008, the plaintiffs filed their second substitute complaint. Again, they reserved their right to appeal from the court's decision that struck the CUTPA count in their revised complaint. The repleaded count in the second substitute complaint, alleging tortious interference with contractual relations, added allegations that the defendants' actions were outside the scope of their authority as officers and directors of NCT Group and that the failure to cause the issuance of the shares of NCT Group stock to the plaintiffs was part of a scheme to undermine the corporation for their own self-interests. The defendants filed a motion to strike the repleaded count of the second substitute complaint, and the court granted that motion in a memorandum of decision filed November 26, 2008. The court subsequently granted the defendants' motion for entry of judgment in favor of the defendants and rendered judgment thereon. This appeal followed.

The standard of review in an appeal from the granting of a motion to strike is well established. “Because a motion to strike challenges the legal sufficiency of a pleading and, consequently, requires no factual findings by the trial court, our review of the court's ruling ... is plenary.... It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted.” (Citations omitted; internal quotation marks omitted.) Doe v. Yale University, 252 Conn. 641, 667, 748 A.2d 834 (2000). “For the purpose of ruling upon a motion to strike, the facts alleged in a complaint, though not the legal conclusions it may contain, are deemed to be admitted.” (Internal quotation marks omitted.) Murillo v. Seymour Ambulance Assn., Inc., 264 Conn. 474, 476, 823 A.2d 1202 (2003). “A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged.” (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).

I

The plaintiffs claim that the court improperly struck count two of their revised complaint which alleged that the defendants engaged in conduct that violated CUTPA. Specifically, the plaintiffs argue that CUTPA should be interpreted to permit a cause of action against individuals acting in a corporate or agent capacity, provided the cause of action otherwise satisfies the criteria for a cognizable CUTPA claim. We conclude that the plaintiffs failed to state a legally sufficient cause of action under CUTPA.

“[General Statutes §] 42-110b(a) provides that [n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce. It is well settled that in determining whether a practice violates CUTPA we have adopted the criteria set out in the cigarette rule by the federal trade commission for determining when a practice is unfair: (1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise-in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other businesspersons].... All three criteria do not need to be satisfied to support a finding of unfairness.” (Emphasis added; internal quotation marks omitted.) Harris v. Bradley Memorial Hospital & Health Center, Inc., 296 Conn. 315, 350, 994 A.2d 153 (2010).

In the CUTPA count of their revised complaint, the plaintiffs alleged that they were creditors of NCT Group, that the defendants owed a fiduciary duty to them as creditors of NCT Group, ³ that the defendants preferred themselves in the form of large salaries and benefits to the detriment of the plaintiffs, that the defendants acted out of self-interest and in bad faith, and have engaged in self-dealing as the directors and officers of NCT Group when NCT Group was insolvent. The plaintiffs also alleged that the defendants have refused to deliver the shares of stock due and owing to them under the agreement with NCT Group, that the conduct of the defendants occurred in their primary business, trade or commerce and that the aforesaid conduct was unfair, deceptive and unscrupulous. The gravamen of the plaintiffs' CUTPA claim is that the defendants refused to cause NCT Group to fulfill its obligations under the agreement for personal and wrongful reasons.

In its memorandum of decision filed August 16, 2007, the court concluded that the plaintiffs' revised complaint, contrary to the legal conclusions stated therein, failed to allege any facts to support the claim that the defendants' conduct involved trade or commerce as defined in CUTPA. The plaintiffs had argued that the alleged conduct impacted trade or commerce because it concerned NCT Group's relationship with its creditors and, in particular, NCT Group's ability to pay the plaintiffs. The court disagreed and noted that the plaintiffs had failed to distinguish between the corporate acts of NCT Group and the decisions of the individual defendants that caused those acts: “[T]he plaintiffs' argument ... obliterates the corporate shield so that any act of the corporation may be attributed to its directors or officers so that the latter may be held liable under CUTPA.” ⁴ The court recognized that there are circumstances under which the individual acts of a corporate officer or director may form the basis of a CUTPA claim, but it...