Saunders v. Briner
| Decision Date | 17 December 2019 |
| Docket Number | SC 19940 |
| Citation | 221 A.3d 1,334 Conn. 135 |
| Court | Connecticut Supreme Court |
| Parties | Roger L. SAUNDERS v. Clark BRINER et al. |
334 Conn. 135
221 A.3d 1
Roger L. SAUNDERS
v.
Clark BRINER et al.
SC 19940
Supreme Court of Connecticut.
Argued December 20, 2018
Officially released December 17, 2019
David P. Friedman, Stamford, with whom were Proloy K. Das, Hartford, and, on the brief, Marilyn B. Fagelson, New Haven, Taruna Garg, Stamford, David S. Hoopes and Jay R. Lawlor, Hartford, for the appellants-cross appellees (named defendant et al.).
David Feureisen, pro hac vice, with whom were Edward N. Lerner and, on the brief, George Kent Guarino, Westport, for the appellee-cross appellant (plaintiff).
Robinson, C.J., and Palmer, McDonald, D'Auria, Mullins, Kahn and Ecker, Js.*
KAHN, J.
This appeal requires us to consider five issues: (1) whether, in the absence of authorization in a limited liability company's operating agreement, its members or managers lack standing to bring derivative claims on behalf of it under either the Connecticut Limited Liability Company Act (CLLCA), General Statutes
(Rev. to 2017) § 34-100 et seq.,1 or, in the alternative, the common law; (2) whether a trial court may exempt single member limited liability companies from the direct and separate injury requirement necessary to bring a direct action; (3) under what circumstances may a trial court admit opinion testimony of a joint, court-appointed fiduciary hired to wind up the companies at issue when the party who proffered the testimony of the fiduciary failed to disclose him as an expert witness under Practice Book § 13-4 ; (4) under what circumstances, if any, may the trial court apportion its award of attorney's fees under the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq., between the plaintiff's CUTPA claims and non-CUTPA claims; and (5) the parameters under which a trial court may order reimbursement for fees incurred by a joint, court-appointed fiduciary hired to wind up the companies at issue. The defendants, Clark Briner and two entities solely owned by Briner, a Connecticut limited liability company and a Texas limited liability company with the same name, Revere Capital, LLC (respectively, Revere Capital CT and Revere Capital TX),2 appeal,3 following a bench trial, from the trial court's judgment. The plaintiff, Roger L. Saunders, cross appeals from the trial court's judgment. We reverse the trial court's judgment rendered in favor of the plaintiff
as to his derivative claims because we conclude that the plaintiff lacked standing to bring them under the CLLCA or the common law. We, therefore, do not reach the issues of whether the trial court improperly admitted the testimony of a joint, court-appointed fiduciary or whether the trial court incorrectly apportioned the plaintiff's award of attorney's fees under CUTPA. We affirm the trial court's judgment rendered in favor of the plaintiff as to his direct claims and conclude that the trial court did not abuse its discretion in
refusing to order the defendants to reimburse the plaintiff for the fees incurred by the joint, court-appointed fiduciary and an accountant hired by him.
The present case arises from the deterioration of a business relationship between three individuals: Briner, the plaintiff, and the plaintiff's son, Sloan Saunders (Saunders). The trial court found the following facts that are relevant to our resolution of this appeal. In 2009, while working together at Deutsche Bank, Saunders and Briner decided to enter into the high interest, high yield commercial real estate lending business by setting up a limited liability company, Revere Investments, LLC (Revere Investments), to act as a servicer of the loans. Initially, Saunders and Revere Capital TX each owned 50 percent of Revere Investments and constituted its comanagers.4 Although Saunders and Briner chose to enter an industry in which they had little experience, Saunders introduced Briner to the plaintiff, Saunders' father, who had successfully navigated the "hard money lending business" for forty years. Briner and Saunders sought the plaintiff's help in two respects. First, they wanted the plaintiff, who had many contacts in that industry, to help them "establish the relationships necessary to create and maintain" the business.
Second, Briner and Saunders also needed access to the plaintiff's capital "to fund the high interest loans" before they secured investors to participate in them. The parties often did not secure all the investors necessary to fund a loan prior to closing the transaction with the borrower. Throughout their business relationship, therefore, the plaintiff helped Revere Investments succeed by lending it the capital necessary to close loans before the parties raised the necessary capital to finance it (bridge financing). After Revere Investments raised capital from investors to participate in the loan, it repaid the plaintiff the principal amount of his bridge loan with interest. The trial court found that, without the plaintiff's bridge financing, Revere Investments "would have had little or no business."
The plaintiff, who "desired to teach his son" the business, agreed to source loans, secure investors and financers, and provide bridge financing. Although the plaintiff agreed to provide assistance "to his economic detriment and for the equal and joint benefit" of Saunders and Briner, he "was not willing to forgo the ... profits on his investment or [on] the investment of [others] that he would have earned if he simply invested in hard money loans outside of [Revere Investments]." (Emphasis in original.) The plaintiff, Saunders, and Briner, therefore, created a business arrangement in which the plaintiff and his contacts sourced most of the loans and most of the financing, especially at the beginning of their relationship. Revere Investments would charge the borrower a high interest rate. The parties then found investors to purchase a "participation interest" in the loans on a deal specific basis (outside investors). Outside investors would provide capital in exchange for a return of the principal invested plus a negotiated interest rate.
Revere Investments profited from outside investors by offering them a lower interest rate than it received from the borrower on the underlying loan, which provided
Revere Investments with a profit equal to the difference between the two interest rates (interest rate spread
profit). Revere Investments also withheld from outside investors various fees that it charged the borrower, such as extension fees, late fees, and servicing fees. Revere Investments charged the borrower "points"5 "in connection with most of its loans," and, "[i]n all cases where points were charged, [they] were financed by Revere Investments as part of a loan, so that Revere Investments did not advance to the borrower the full principal amount of the loan, but advanced the principal amount less the points" (net funding). Revere Investments did not pass the points to outside investors, however, who received a return of principal and interest only on the amount they actually invested.
Saunders, Briner, the plaintiff, or their respective family members (inside investors) who participated in a loan, by contrast, did profit from points charged to borrowers. The advantageous treatment for inside investors derived from the fact that, unlike the outside investors, they received a return of principal plus interest on the face amount of their investment in the loan, despite the fact that they had not funded the full face amount.6 This technique of "grossing up" allowed inside investors to receive a higher return on their investment than an outside investor who participated equally in a loan.
As part of the parties' agreement7 to gross up inside investments, the parties additionally agreed that—in
exchange for his help—the plaintiff "would also keep both the ‘interest rate spread profit’ ... and the ‘fees’ earned on certain identified and agreed upon nonfamily [investments ]." (Emphasis added.) This allowed the plaintiff to earn profits that Revere Investments otherwise would have earned on the outside investors he sourced. The oral agreement, however, did not give Briner the same rights with respect to the outside investors he sourced.
By mid-2011, Briner had grown dissatisfied with the arrangement allowing the plaintiff but not Briner to profit from outside investors sourced by each of them respectively, because, by that time, Revere Investments' business model and the parties' respective responsibilities had changed. Saunders, Briner and the plaintiff had created—at the request of Briner—a second entity, Revere High Yield
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