Sojitz Am. Capital Corp. v. Kaufman

• Citation: 61 A.3d 566,141 Conn.App. 486
• Decision Date: 26 March 2013
• Docket Number: No. 33735.,33735.
• Court: Appellate Court of Connecticut
• Parties: SOJITZ AMERICA CAPITAL CORPORATION v. Todd A. KAUFMAN et al.

141 Conn.App. 486

61 A.3d 566

SOJITZ AMERICA CAPITAL CORPORATION

v.Todd A. KAUFMAN et al.

No. 33735.

Appellate Court of Connecticut.

Argued Sept. 6, 2012.

Decided March 26, 2013.

Mark S. Gregory, for the appellant (plaintiff).

Lawrence G. Rosenthal, with whom were Benjamin Engel and, on the brief, Fletcher C. Thomson, Hartford, for the appellees (defendants).

BEACH, ALVORD and SCHALLER, Js.

SCHALLER, J.

The plaintiff, Sojitz America Capital Corporation, appeals from the judgment of the trial court dismissing its shareholder derivative complaint against the named defendant, Todd A. Kaufman, on behalf of the nominal defendant, Keystone Equipment Finance Corporation (Keystone).¹ On appeal, the plaintiff claims that the trial court erred when it granted the defendants' motion to dismiss pursuant to General Statutes § 33–724. Specifically, the plaintiff claims that the court erred in concluding that a majority of qualified directors determined in good faith, after conducting a reasonable inquiry, that the maintenance of the plaintiff's action was not in the best interests of the corporation. We affirm the judgment of the trial court.

The record reveals the following facts and procedural history.² It is undisputed that the plaintiff entered into a stock purchase agreement with Keystone, wherein the plaintiff became a minority shareholder of Keystone, and that Keystone is engaged in the business of providing commercial equipment financing to its clients.

On January 14, 2011, the plaintiff commenced the shareholder derivative action. In its complaint, the plaintiff alleged the following facts. During the relevant times, Keystone's board of directors consisted of the defendant, the defendant's father, Alan Kaufman, Paula J. Amazeen and William Hammock. In the course of business, the defendant provided certifications to various financial lending institutions on which Keystone depended to meet its financing needs. The plaintiff argued that these certifications falsely attested that the Keystone board of directors met, adopted resolutions and empowered Keystone's officers to enter into lending agreements on behalf of Keystone. The plaintiff specifically alleged that by submitting these false certifications, the defendant exposed Keystone to potential liability in the form of bank fraud, common-law fraud and rescission of existing credit lines; that the defendant's actions constituted a breach of the fiduciaryduties he owed to Keystone; and that Keystone had sustained damages as a result of this breach. The plaintiff finally asserted that the defendant, Alan Kaufman and Amazeen either knew or acted in reckless disregard of the defendant's actions and, therefore, were not in a position to determine objectively whether the shareholder derivative litigation was in the best interests of the corporation.

The plaintiff argues that in response to the defendant's breaches, it sent a demand letter to the Keystone board of directors. In its letter, the plaintiff demanded that Keystone take appropriate action against the defendant for his breaches of the fiduciary duties of loyalty and care he owed to the corporation, including terminating his employment for cause, removing him from Keystone's board of directors and filing a civil action against him. The plaintiff further demanded that the board appoint an independent committee to investigate these issues and to determine the extent of the defendant's breaches. In subsequent correspondence to the plaintiff, the board of directors rejected the plaintiff's demand, concluding that pursuing litigation against the defendant was not in the best interests of the corporation.

On April 5, 2011, the defendants filed a motion to dismiss the action pursuant to § 33–724. The defendants argued that because the statutory elements had been satisfied, the court must dismiss this action. Specifically, the defendants asserted that a quorum of qualified directors determined, after a thorough inquiry, that maintaining a derivative action was not in the best interests of the corporation. The defendants further argued that the plaintiff failed to meet its burden of proof because it failed to allege particularized and well pleaded facts to establish that the directors did not comply with the statute and also failed to allege any specific damages suffered by Keystone.

In support of the motion to dismiss, the defendant submitted his affidavit and several appendices referenced therein. The documents appended included Keystone's certificate of incorporation, Keystone's bylaws and the board of directors' meeting minutes from March 15, 2011. According to the defendants, the foregoing documents demonstrated that Keystone's directors were qualified, and that they concluded in good faith after a reasonable inquiry that pursuing the shareholder derivative action was not in the corporation's best interests, thereby satisfying § 33–724.

The plaintiff opposed the defendants' motion to dismiss, arguing that the directors making the determination were neither independent nor disinterested and, therefore, were not qualified as required by the statute. The plaintiff further argued that the directors failed to conduct a reasonable investigation, and instead relied on and adopted the findings and determination prepared by the defendant's own attorney. The court granted the defendants' motion to dismiss. This appeal followed. Additional facts will be set forth as necessary.

On appeal, the plaintiff claims that the court improperly granted the defendants' motion to dismiss pursuant to § 33–724. Specifically, the plaintiff argues that the court erred in concluding that a majority of qualified directors determined in good faith, after conducting a reasonable inquiry, that maintaining the plaintiff's derivative proceeding was not in the best interests of the corporation. We are not persuaded.

I

We note at the outset that our appellate courts have not previously applied § 33–724 and, therefore, resolving the question raised on appeal presents an issue of first impression. Section 33–724³ provides for a statutory dismissal derived from, and substantially similar to, § 7.44 of the Model Business Corporation Act (model act).⁴ Model Business Corporation Act, § 7.44, p. 7–72. We look to our legislative history, not to interpret the meaning of our statute, but for guidance in determining the appropriate standard of review that should govern the substantive challenges to its application.⁵ See Stone v. R.E.A.L. Health, P.C., Superior Court, judicial district of New Haven, Docket No. CV–98–414972, 2000 WL 33158565 (November 15, 2000) ( 29 Conn. L. Rptr. 219) (due to undeveloped case law, Superior Court turned to legislative history for guidance regarding application of statutory provisions within Connecticut Business Corporation Act, General Statutes §§ 33–600 through 33–998).

The recorded legislative history sheds light on the motivations for deriving our statute from the model act.⁶ In addition to achieving uniformity with other jurisdictions, the legislative history indicates that our jurisdiction's case law on corporate law is sparse, suggesting that courts, attorneys and corporations would benefit from the guidance provided by the model act's official comments as well as the case law of jurisdictions that have similarly codified the model act.⁷ Accordingly, in resolving these issues, we will also consider the statutory language, the model act's official comments and the case law of jurisdictions with similar statutes.⁸

As a preliminary matter, we set forth the appropriate standard of review that our appellate courts should apply when reviewing the trial court's judgment dismissing a shareholder derivative action pursuant to § 33–724. The plaintiff argues that our standard of review is plenary while the defendant asserts that this issue constitutes a purely factual determination and, thus, our review must comport with the clearly erroneous standard. We conclude that the issue of whether the trial court erred in dismissing the action presents a mixed question of fact and law.

In so holding, we depart from the well settled standard of review typically applied to motions to dismiss. Generally, in reviewing a motion to dismiss “a court must take the facts to be those alleged in the complaint ... construing them in a manner most favorable to the pleader.” (Internal quotation marks omitted.) Cogswell v. American Transit Ins. Co., 282 Conn. 505, 516, 923 A.2d 638 (2007). The court may supplement the complaint with undisputed facts, but “[w]hen issues of fact are necessary to the determination of a court's jurisdiction ... due process requires that a trial-like hearing be held, in which an opportunity is provided to present evidence....” (Internal quotation marks omitted.) Gordon v. H.N.S. Management Co., 272 Conn. 81, 92, 861 A.2d 1160 (2004). This standard, however, is not attuned to the unique circumstances presented when considering the dismissal of a shareholder derivative action pursuant to § 33–724. Section 33–724 is distinguishable from other motions to dismiss, as it sets forth a unique, heightened pleading standard and elements that must be either proven or disproven.⁹General Statutes § 33–724. In light of these substantive requirements, other jurisdictions have similarly concluded that dismissals pursuant to § 7.44 of the model act are unique. See, e.g., Halebian v. Berv, 644 F.3d 122, 130 (2d Cir.2011) ( “[t]he procedure contemplated by section 7.44 ... does not easily fit within the constraints of Rule 12[b][6]” of the Federal Rules of Civil Procedure); Frank v. LoVetere, 363 F.Supp.2d 327, 332–33 (D.Conn.2005) (setting forth different standards of review for defendants' motions to dismiss pursuant to Fed.R.Civ.P. 12[b] and § 33–724, respectively); Zapata Corp. v. Maldonado, 430 A.2d 779, 787 (Del.1981) (classifying these motions as “a hybrid summary judgment motion for dismissal”); Thompson v. Scientific...