Scarfo v. Snow

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NEIL SCARFO v. PATRICK SNOW ET AL.
(AC 37794)
Alvord, Prescott and Mullins, Js.
Argued March 2—officially released September 27, 2016
(Appeal from Superior Court, judicial district of
Middlesex, Epstein, J.)
Michael F. Dowley, with whom, on the brief, was
Melissa S. Harris, for the appellant (plaintiff).
John C. Leary, for the appellees (named defendant
et al.).
Opinion
MULLINS, J. The plaintiff, Neil Scarfo, appeals from
the judgment of the trial court, rendered in favor of the
defendants, Patrick Snow, Cider Hill Associates, LLC
(Cider Hill),1 Premier Building & Development, Inc.,
Kane Street Associates, LLC, Cobblestone Associates,
LLC, Premier Financial, Inc., Sydney Property Manage-
ment, LLC, and Premier Development, Inc.2 On appeal,
the plaintiff claims that the court erred in concluding
that he did not establish his claims of spoliation of
evidence, breach of contract, and breach of fiduciary
duty against Snow. Although the trial court authored a
well written and thorough memorandum of decision,
we, nevertheless, conclude that the form of judgment
was improper because the plaintiff lacked standing to
assert these claims in his individual capacity, and we
reverse the judgment and remand the matter with direc-
tion to dismiss the case.
The following extensive facts, as specifically found
by the trial court, inform our review. Scarfo ‘‘has been
a licensed realtor in the State of Connecticut for almost
twenty-eight years and works with the Century 21
agency. . . . Snow . . . has been engaged in con-
struction and real estate development for more than
twenty years. The parties had known one another for a
period of time before [they entered into] the December,
2004 contract . . . . [Scarfo] had an office across the
hall from [Snow] at the time of the contract, and the
parties continued to have their business offices in the
same building, on the same floor, across from one
another, for the entire period of time at issue. . . .
‘‘Sometime in 2002 or 2003, Snow saw a Century 21
ad for a ‘raw’ piece of land for sale in Cromwell. The
owner was Evergreen Realty [(Evergreen)]. Snow con-
sulted with a local planning and zoning attorney with
regard to a possible project, but there were difficulties
with initial proposals. In the spring of 2004, Snow sub-
mitted to the Connecticut Secretary of [the] State
papers for registering Cider Hill Associates as a limited
liability company, partially for insurance and liability
reasons, with the intent of development of the property.
One of Snow’s companies, Premier Development,
entered into a purchase agreement for the land from
Evergreen in April, 2004. Scarfo had discussed with
Snow the possibility of buying a lot in the planned
subdivision, but instead decided to become a partner
in the project.
‘‘On December 17, 2004, [Cider Hill] filed with the
Secretary of [the] State its Articles of Organization.3 As
memorialized in their agreement dated December 30,
2004, Scarfo presented Snow with a cashier’s check in
the amount of $262,500 on December 17, 2004, and, on
December 20, 2004, the closing took place in which
[Cider Hill] purchased the property at issue from Ever-
green. As listing agent, Scarfo took a $25,000 commis-
sion on the sale of the property, which Snow admits
was a reduced commission. . . . Scarfo contends that
Snow never contributed his $262,500 share of the initial
investment. Snow claims that his work in making all
of the arrangements to procure the land, investigation,
hiring engineers and soil scientists, planning, and incur-
ring other professional fees before the December, 2004
agreement, amount to costs in the range of $250,000,
plus he contributed the option moneys from the Novem-
ber, 2004 agreements.4 . . .
‘‘On December 30, 2004, [Scarfo] and [Snow] signed
a written [operating] agreement [(agreement)], calling
themselves ‘members,’ with each to have a 50 percent
interest in Cider Hill . . . . They further agreed that,
as of the date of the agreement, the value to each mem-
ber was one half of the unpaid obligations of the com-
pany plus $262,500.
‘‘The agreement obligated each of the members, at
the end of each fiscal year, to ascertain a valuation
based primarily upon the opinion of the [certified public
accountant] retained by the company, and further pro-
vided that, if the members could not agree on the valua-
tion, another certified public accountant was to
determine the value of the interest. Neither member to
the agreement ever provided an accounting and neither
member submitted an inquiry for an accounting to a
specially nominated accountant during the pendency
of the agreement. However, Snow arranged for the
accounting firm of Guilmartin, DiPiro & Sokolowski5
for [Cider Hill] and Michael DiPiro of that firm prepared
all of [Cider Hill’s] tax returns and [schedule K-1 tax
forms]. One might find that this revealed Snow’s compli-
ance with the ‘accounting’ portion of the agreement
mentioned . . . .
‘‘In an ‘Amendment’ to the agreement, also dated
December 30, 2004, the parties stated that each of them
was contributing ‘real property to [Cider Hill] with an
agreed upon value of $262,500.’ [Scarfo] and [Snow]
further agreed that they would obtain financing to com-
plete the acquisition of real property to develop a proj-
ect in the estimate amount of $1,500,000, and they
further agreed to divide equally the costs associated
with debt service, taxes, and other expenses. The only
specific delineation of responsibilities to either of the
partners was that . . . Snow was to be responsible to
‘obtain all required approvals, including but not limited
to subdivision approvals, planning and zoning approval,
permitting, Cromwell approvals, Department of Trans-
portation approvals, architectural rendering.’ . . .
‘‘There has been no allegation that Snow did not
perform these duties. Instead, [Scarfo] has alleged in his
amended complaint . . . that Snow was the ‘managing
partner’ and [and that he] failed to value the member-
ship annually, failed to notify [Scarfo] of the value of
his membership interest, failed to obtain bids, and failed
to distribute profits from the sale of the lots on the
development property [in breach of the amended
agreement].
‘‘Neither the agreement, nor the [December 30, 2004]
amendment . . . renders [Snow] the ‘manager’ of the
property. Nor does the agreement require [Snow] to
determine a value of the membership and provide it to
[Scarfo]. Indeed, each partner had that responsibility
to the other. Except for the annual tax returns and K-
1s provided by the [Cider Hill] accountant, neither party
did so and neither inquired of the other.
‘‘Two other provisions of this agreement specifically
applicable to this litigation are paragraphs 7 and 8,
which provide:
‘‘7. All aspects of the construction of the housing units
and related structures shall be performed by PREMIER
BUILDING & DEVELOPMENT, INC., at a cost plus 5
[percent]. [Cider Hill] shall obtain [three] bids for this
work to estimate the fair market value of this work and
to agree on the cost of said work.
‘‘8. The cost of work performed by PREMIER BUILD-
ING & DEVELOPMENT, INC., or its affiliates or assigns,
and PATRICK SNOW, or his affiliates or assigns, shall
be paid from the proceeds of the construction loan as
customary . . . .
‘‘Scarfo contends that he entered the agreement
because he relied on a preliminary budget prepared by
Snow, which reflected expenditures of $1,727,100. The
agreement does not make any mention of budgets or
reliance thereon. In addition, neither the agreement nor
any other document provides any guarantee of profit
nor pay-back to an investor in the event of going over
budget. Nor does the agreement provide that lots should
sell at a certain price or that the partner who actually
was negotiating the sale of the lots could not exercise
discretion in the sale, depending on the benefit to [Cider
Hill] or the difficulty in selling any particular lot on
the property.
‘‘Snow devoted full-time effort to the development
of the [Cider Hill] subdivision and sale of the properties.
While he was not designated by the parties in their
agreement as the ‘managing partner,’ he was the only
one of the two equal partners who worked on devel-
oping the property, engaging engineers, pavers, land-
scapers, etc.; procuring estimates; considering the
contractors and providers to be hired and used, etc.;
negotiating the necessary arrangements and business
transactions, as well as the loans; and, preparing for
and procuring necessary approvals from appropriate
authorities. In essence, he was the ‘de facto’ managing
member, or the operation would never have even begun
to get under way. Snow never received any salary or
compensation for his efforts.
‘‘In November, 2005, the Town of Cromwell Planning
and Zoning Commission approved the subdivision, with
special and general conditions. In 2006, lots began to
be sold; indeed approximately twelve of the twenty-
three lots were sold in that year. The number decreased
in 2007 and 2008. The real estate market, which had
been ‘on a roll,’ began the tumultuous decline from
which we are only now beginning to recover, just as is
the general economy. As Snow testified, he had high
hopes in 2004, and before 2008, he never expected a
loss. In an undated supplementary budget, proposed
expenditures had increased to $2,979,050. This was pre-
pared by Snow, and Scarfo did not ask any questions
about it. Snow testified that the property proved to be
a very difficult site on which to work. Among other
things, trees had to be cleared, there were inclines and
declines, a hill, the necessity of the construction of a
retaining wall, the soil was a type that was difficult to
control and had to be moved.
‘‘The income tax returns for [Cider Hill] reflect the
following: 2004—no gross receipts or sales; 2005—loss
of $455; 2006—profit of $166,705; 2007—loss of $98,501;
2008—loss of $230,048; 2009—loss of $13,845; 2010—
loss of $157,472, and, 2011—loss of $20.
‘‘Snow’s ‘bookkeeping’ and ‘records’ keeping in this
project [were] unique. According to Kathy Lehman, the
woman who was his bookkeeper, customer service rep-
resentative and office manager for seven years until
2010, each lot in the twenty-three lot [Cider Hill] subdivi-
sion had its own folder, containing the plot plan and
closing documents. The records produced at trial cer-
tainly confirm that. Invoices from subcontractors were
placed in a ‘to be paid’ pile and she never paid any bill
without an invoice. Thereafter, the payment set-up got
confusing. [Cider Hill] did not have a credit card and
had little in the way of equity at its commencement.
In order to benefit from the delay of having to pay
immediately, Snow took advantage of the sixty day pay-
ment plan for vendors [and] on various of the other
entities’ and Snow’s credit cards, and those cards were
used to pay [Cider Hill] bills. Snow would then later
make the credit card payments. Whenever Snow needed
to be reimbursed for an expenditure, he would give
Ms. Lehman the receipt. According to Ms. Lehman, the
credit card statements were at the office when she left.
‘‘In the early portion of its existence, [Cider Hill] used
a [particular] software package . . . [but], by the time
of the commencement of this litigation, it was no longer
accessible. [Cider Hill] then changed to Quick Books.
‘‘Neither Scarfo nor any of his Century 21 colleagues
assisted in the sale of any of the lots in the development.
In late 2008, or early in 2009, Snow advised Scarfo
that he thought that they would come in under budget.
Subsequently, however, when Snow advised Scarfo that
such was not the case and that there would not be a
profit, Scarfo initiated this lawsuit.
‘‘According to Ms. Lehman, Scarfo never asked her
for any documents or made any inquiries about [Cider
Hill] or Snow until 2009, when she provided Scarfo
documents in response to a request he made to her.
‘‘[Scarfo] alleges that the equities favor him because
of numerous discrepancies [that] he and his experts
are unable to resolve at this time and because of his
belief that the defendant was self-dealing. There is no
question in this court’s mind that the evidence in this
case presents examples of what one might consider
unorthodox ways of making and keeping records. It
may go beyond ‘sloppy,’ however, the evidence does
not reveal that there was an intent to deceive or hide
or self-deal.
‘‘One of the major complaints raised by Scarfo is that
Snow authorized ‘credits’ on the sale of lots in the
subdivision without authorization.6 Scarfo does not
point to any portion of the agreement, however, that
requires the partner working on the project to not be
able to exercise discretion in his attempts to move
the property.
‘‘Scarfo also complains that he only signed one of
the ‘consent’ forms for the sale of the properties and
that was at a fax request of the closing attorney when
Scarfo was in Florida. These forms listed the sales price
terms, including credits, for each lot in the subdivision.
Scarfo contends that he did not sign the other forms
[that] appear to have his signature. Snow denies that
he affixed that signature. No handwriting expert testi-
fied, and the court has no idea as to how these consent
forms were signed. Scarfo contends that he would never
have approved these credits had he known about them.
These forms, however, together with all of the other
closing documents . . . were all available to Scarfo
at any time during the course of the tenure of the con-
tract. In addition, Scarfo, having been in the real estate
business for more than twenty-five years, knew of the
necessity of such documents, and if he did not, he
certainly was alerted to that when he was asked to
fax his signature by the [Cider Hill] attorney at one of
the closings.
‘‘Scarfo also contends that the agreement was
breached because three written bids were not procured
for each phase of the project. The agreement does not
call for bids to be ‘written.’ In addition, the credible
testimony reveals that the [three bid] rule was usually
abided by and that, in his many years of experience,
Snow had established relationships with vendors and
subcontractors who were reliable, competent, and pro-
vided work and goods at competitive prices.
‘‘[Scarfo’s] expert, [certified public accountant]
Michael Sobol, was retained in 2013. At trial, he testified
that ‘his firm’ reviewed every item in the five boxes of
documents produced in discovery in this case, delivered
to [Scarfo’s] counsel in 2011 or 2012. Mr. Sobol
explained that, with regard to the documents which
were ‘some eight years after the events took place,’
he and his office tried to ‘get our heads around what
transpired from an accounting perspective.’ He
expected to find matching invoices or similar docu-
ments and accounts for all transfers and expenditures
made, but was not able to do so. As an example, Mr.
Sobol stated that, while he saw disbursements to [Con-
necticut Light and Power], he would find it an unsup-
ported disbursement unless he could find an invoice.
As another example, Mr. Sobol could not match expen-
ditures for General Paving, but a document shown to
him in court revealed a good portion of the amount
paid was indeed for that entity. There were, however,
many other discrepancies for which there was no identi-
fiable vendor or service provider.
‘‘Mr. Sobol testified that all of the credit card state-
ments were not in the materials delivered from [Snow],
but he also admitted that, even if he had all of the credit
card statements, he might not be able to identify the
vendor or service provider. Mr. Sobol concluded that
the fact that disbursements were unsupported did not
mean that they were inappropriate or unauthorized.
Clearly, Mr. Sobol found, and this court cannot disagree,
that as of the time of the delivery of these documents,
they did not reveal the pristine accounting or documen-
tation that was desired, nor did the document produc-
tion even come close to it. The records at this point in
time were certainly not in good order or well main-
tained. However, Mr. Sobol, [Scarfo’s] own expert, testi-
fied that he could not say that there was unrealized
profit for which Scarfo was entitled to payment.
‘‘In 2011, the town of Cromwell brought a civil action
against [Cider Hill] and General Paving and Construc-
tion Corp[oration (General Paving)], alleging that [they]
failed to construct properly certain public improve-
ments within the subdivision in accordance with the
plans that had been filed and approved [(Cromwell
action)]. There is dispute about how and when Scarfo
learned about [the Cromwell action]. Scarfo testified
that [he first learned of that action when he read] about
it in the newspaper. Snow contends that he approached
Scarfo, advising him not only of the suit, but also asking
him to advance his share of the funds necessary to
defend [that action] and proceed against General Pav-
ing. It was Snow’s belief that [Cider Hill] could prevail
in its claim that General Paving was responsible to the
town of Cromwell and to [Cider Hill]. Because neither
he nor [Cider Hill] had the financial resources to hire
counsel, Snow asked Scarfo to contribute to legal repre-
sentation costs. By this time, the [present] litigation
had commenced and, on the advice of counsel, Scarfo
refused to contribute and also refused the choice of
[Snow’s] counsel in the [present] lawsuit as counsel to
represent [Cider Hill] in the Cromwell [action] and the
proposed claims against General Paving. The town of
Cromwell was requiring the repair to the roads; [Cider
Hill] could not do it; and General Paving refused to do
it. Snow agreed to forfeit the bond and have the town
correct the problem, and a default judgment entered
against [Cider Hill]. In his counterclaim, Snow asserts
breach of contract, breach of fiduciary duty and negli-
gence claims against Scarfo for refusing to contribute
to legal costs [arising out of the Cromwell action].’’
(Footnotes altered.)
The court also found that there remained many unan-
swered questions after the close of evidence, and it
stated that it had ‘‘much doubt about the veracity of’’
either Scarfo or Snow. Furthermore, the court opined:
‘‘The complexity of the issues in this case arise from
the various allegations the parties have made, the very
confusing and manipulative way in which [Snow] con-
ducts his business(es), and the complete lack of any
attention whatsoever by [Scarfo] to the subdivision
development [that] is the subject of this lawsuit, as well
as a complete lack of any attention at all by [Scarfo]
to the partnership or the business on which he premises
his contentions that he is now entitled to damages and
other relief.’’
On the basis of these findings and astute observa-
tions, the court concluded that the plaintiff had failed
to establish any of his causes of action, and it rendered
judgment in favor of the defendants.7 This appeal
followed.8
Following appellate briefing and oral argument, we,
sua sponte, issued the following supplemental briefing
order: ‘‘The parties are hereby ordered to file simultane-
ous supplemental briefs of no more than ten pages
within ten days of issuance of notice of this order to
address the following issue:
‘‘1. Whether the plaintiff has standing to maintain this
suit in his individual capacity. See Smith v. Snyder, 267
Conn. 456, 460–63, 839 A.2d 589 (2004); Padawer v.
Yur, 142 Conn. App. 812, 66 A.3d 931 [cert. denied, 310
Conn. 927, 78 A.3d 146] (2013); see also Calpitano v.
Rotundo, Superior Court, judicial district of New Britain
Docket No. CV-11-6008972 (August 3, 2011) (52 Conn.
L. Rptr. 464); Ward v. Gamble, Superior Court, judicial
district of Hartford, Docket No. CV-08-5017829 (July 23,
2009) (48 Conn. L. Rptr. 286).
‘‘The parties are further ordered to include in their
supplemental briefs an analysis of the following
matters:
‘‘A. Based on the allegations throughout the com-
plaint that the defendant Snow breached the operating
agreement and amendment thereto of Cider Hill . . .
which documents were signed and entered into by
Scarfo and Snow as duly authorized members of Cider
Hill, what, if any, injury has the plaintiff incurred indi-
vidually that is distinct and separate from the alleged
injury to Cider Hill.
‘‘B. What is the basis for the plaintiff’s standing to
raise a claim that Snow breached his alleged fiduciary
duty to Cider Hill and to the individual plaintiff by
breaching the operating agreement of Cider Hill, and
the amendment thereto, and by self-dealing.
‘‘C. Whether the plaintiff has standing to raise a claim
of spoliation of evidence, which specifically alleges as
its basis, that Snow failed to preserve evidence despite
knowing that he had ‘obligations to the plaintiff and
[Cider Hill] under the December 30, 2004 [operating]
agreement and amendment dated December 30, 2004.’ ’’
The parties, thereafter, submitted their supplemen-
tal briefs.
In his supplemental brief, the plaintiff contends that
he has standing, individually, to maintain his direct
causes of action because he is claiming a direct rather
than a derivative injury. The plaintiff then specifies the
particular parts of the amended operating agreement
he alleges Snow violated and how he sustained direct
injury, separate and apart from any injury to Cider Hill.
For example, the plaintiff argues: ‘‘The [amended]
agreement between [the] plaintiff and . . . Snow
regarding capital contributions created personal duties
and obligations under the operating agreement to each
other. The claim is direct because it arises from a special
relationship, [namely,] the contractual relationship
between [the] plaintiff and . . . Snow. . . . The
agreement between [the] plaintiff and . . . Snow to
divide equally the costs and expenses of the company
created a joint duty and obligation wherein [the] plain-
tiff has a right to contribution/damages.’’ Specifically
as to his breach of fiduciary duty claim, the plaintiff
argues that he has standing to raise a direct claim
because his ‘‘claim is for express and continuing
breaches of personal duties and obligations under the
[amended] agreement by . . . Snow and not general
fiduciary duties and obligations to the company . . . .’’
He also contends that he has ‘‘standing to raise [a] claim
that . . . Snow breached his fiduciary duty to defen-
dant [Cider Hill] and [to the] plaintiff, individually, by
breaching the operating agreement and [the] amend-
ment [thereto] by self-dealing.’’ We disagree that these
are direct injuries, and we conclude that the plaintiff
did not have standing in his individual capacity to main-
tain his various causes of action and that the trial court
should have dismissed his case.
‘‘It is axiomatic that a party must have standing to
assert a claim in order for the court to have subject
matter jurisdiction over the claim. . . . Standing is the
legal right to set judicial machinery in motion. . . .
Standing requires no more than a colorable claim of
injury; a [party] ordinarily establishes . . . standing by
allegations of injury. . . . [I]f the injuries claimed by
the plaintiff are remote, indirect or derivative with
respect to the defendant’s conduct, the plaintiff is not
the proper party to assert them and lacks standing to
do so. [When], for example, the harms asserted to have
been suffered directly by a plaintiff are in reality deriva-
tive of injuries to a third party, the injuries are not
direct but are indirect, and the plaintiff has no standing
to assert them. . . .
‘‘A limited liability company is a distinct legal entity
whose existence is separate from its members. . . .
[It] has the power to sue or to be sued in its own name;
see General Statutes §§ 34-124 (b) and 34-186; or may
be a party to an action brought in its name by a member
or manager. . . . A member or manager, however, may
not sue in an individual capacity to recover for an injury
based on a wrong to the limited liability company. . . .
[A] member or manager of a limited liability company
is not a proper party to a proceeding by or against a
limited liability company solely by reason of being a
member or manager of the limited liability company,
except where the object of the proceeding is to enforce
a member’s or manager’s right against or liability to the
limited liability company or as otherwise provided in an
operating agreement . . . .’’ (Internal quotation marks
omitted.) Padawer v. Yur, supra, 142 Conn. App.
817–18.
In the present case, Snow filed articles of organiza-
tion for Cider Hill with the Secretary of the State’s
Office on December 17, 2004, listing himself as the agent
for service of process and listing his title as ‘‘Mem/Mgr.’’
Snow also listed Scarfo as a ‘‘Member’’ of Cider Hill.
The nature of the business to be transacted by Cider Hill
is listed as ‘‘[a]ny lawful business that may be carried on
under the Limited Liability Act.’’ Question five of the
articles of organization form provides:
‘‘MANAGEMENT
‘‘(Place a check mark next to the following statement
only if it applies.)
‘‘ The management of the limited liability com-
pany shall be vested in one or more managers.’’ (Empha-
sis in original.) There is no check mark in question five.
On December 30, 2004, Scarfo and Snow then entered
into a written operating agreement for Cider Hill and
an amendment thereto. The agreement provides that
Scarfo and Snow each were 50 percent members of
Cider Hill. The amendment specifically states that it
was drafted for the purpose of ‘‘memorializ[ing] their
agreement regarding the division of labor and expenses
regarding the development of the property on Ever-
green Road in Cromwell . . . .’’ Both Scarfo and Snow
each signed the original operating agreement as a
‘‘Member’’ of Cider Hill. They each then signed the
amendment to the Cider Hill operating agreement as
‘‘Its Member, Duly Authorized.’’
On October 27, 2009, Scarfo brought a six count
amended complaint against Snow and Cider Hill alleg-
ing damages, breach of fiduciary duty, and spoliation
of evidence, as well as requesting an accounting and an
opportunity to pierce the corporate veil of the various
defendant companies in which Snow was a participant,
including Cider Hill. The complaint was based upon
Snow’s alleged breaches of the amended agreement
regarding the Evergreen Road development (Evergreen
Project). The court found that Scarfo had failed to prove
his causes of action, and it rendered judgment in favor
of the defendants. Although neither the trial court nor
the parties questioned the issue of the plaintiff’s stand-
ing in this case, we requested supplemental briefing on
that issue, and we now conclude that the plaintiff did
not have standing in his individual capacity to maintain
this suit.
‘‘Our common law does not recognize [limited liabil-
ity companies], which were first created by statute in
Connecticut in 1993. Public Acts 1993, No. 93-267. [A
limited liability company] is a distinct type of business
entity that allows its owners to take advantage of the
pass-through tax treatment afforded to partnerships
while also providing them with limited liability protec-
tions common to corporations. . . . The [Limited Lia-
bility Company Act, General Statutes § 34-100 et seq.]
establishes the right to form [a limited liability com-
pany] and all of the rights and duties of the [limited
liability company], as well as all of the rights and duties
of members and assignees. It permits the members to
supplement these statutory provisions by adopting an
operating agreement to govern the [limited liability
company’s] affairs.’’ (Citations omitted.) Styslinger v.
Brewster Park, LLC, 321 Conn. 312, 317, A.3d.
(2016). ‘‘A limited liability company . . . is a hybrid
business entity that offers all of its members limited
liability as if they were shareholders of a corporation,
but treats the entity and its members as a partnership
for tax purposes. All [fifty] states and the District of
Colombia have enacted [limited liability company] legis-
lation, and every state has adopted or is considering
its own distinct [limited liability company] act.’’9 (Foot-
notes omitted.) Annot. 48 A.L.R. 6th 1, § 2 (2009 and
Supp. 2016); see General Statutes § 34-100 et seq.
‘‘A limited liability company is a distinct legal entity
whose existence is separate from its members. . . . A
limited liability company has the power to sue or be
sued in its own name . . . or may be a party to an
action through a suit brought in its name by a member.
. . . A member may not sue in an individual capacity
to recover for an injury the basis of which is a wrong
to the limited liability company.’’ (Citations omitted.)
Wasko v. Farley, 108 Conn. App. 156, 170, 947 A.2d 978,
cert. denied, 289 Conn. 922, 958 A.2d 155 (2008).
‘‘A corporation is a separate legal entity, separate and
apart from its stockholders. . . . It is an elementary
principle of corporate law that . . . corporate property
is vested in the corporation and not in the owner of
the corporate stock. . . . That principle also is applica-
ble to limited liability companies and their members.’’
(Citation omitted; emphasis omitted; internal quotation
marks omitted.) Litchfield Asset Management Corp. v.
Howell, 70 Conn. App. 133, 147, 799 A.2d 298, cert.
denied, 261 Conn. 911, 806 A.2d 49 (2002).
‘‘[T]he law [permits] shareholders to sue derivatively
on their corporation’s behalf under appropriate condi-
tions. . . . [I]t is axiomatic that a claim of injury, the
basis of which is a wrong to the corporation, must be
brought in a derivative suit, with the plaintiff proceeding
secondarily, deriving his rights from the corporation
which is alleged to have been wronged. . . . [I]n order
for a shareholder to bring a direct or personal action
against the corporation or other shareholders, that
shareholder must show an injury that is separate and
distinct from that suffered by any other shareholder or
by the corporation. . . . It is commonly understood
that [a] shareholder—even the sole shareholder—does
not have standing to assert claims alleging wrongs to
the corporation.’’ (Citations omitted; internal quotation
marks omitted.) Smith v. Snyder, 267 Conn. 456, 461,
839 A.2d 589 (2004).
‘‘[A] derivative suit is an action brought on behalf of
a corporation by some percentage of its shareholders.
. . . [In many of these actions, the] corporation is in
an anomalous position of being both a defendant and
a plaintiff in the same action. This unusual posture for
the corporation is the result of the historical evolution
of the derivative suit. At common law, there was no
action in law permitting a shareholder to call corporate
managers to account. . . . In equity, there were two
actions that evolved into a single derivative action: in
one action the corporation was named as a defendant in
order to compel it to take action against its controlling
officers; in the second, the shareholder maintained an
action against the officers and directors of the corpora-
tion, on behalf of the corporation. The dual actions
were cumbersome and evolved into the present day
unitary derivative action. . . . A shareholder’s deriva-
tive suit is an equitable action by the corporation as
the real party in interest with a stockholder as a nominal
plaintiff representing the corporation. . . . It is
designed to facilitate holding wrongdoing directors and
majority shareholders to account and also to enforce
corporate claims against third persons. . . .
‘‘The use of a nominal plaintiff in a derivative action
makes it an unusual procedural device by reason of its
dual nature in that it consists of the basic cause of
action, which pertains to the corporation and on which
the corporation might have sued, and the derivative
cause of action, based upon the fact that the corporation
will not or cannot sue for its own protection. . . . Thus
the dual nature of the stockholder’s action: first, the
plaintiff’s right to sue on behalf of the corporation, and,
second, the merits of the corporation’s claim itself.’’
(Citations omitted; internal quotation marks omitted.)
Ma’Ayergi & Associates, LLC v. Pro Search, Inc., 115
Conn. App. 662, 668–69, 974 A.2d 724 (2009).
Pursuant to General Statutes § 34-187: ‘‘(a) Except
as otherwise provided in an operating agreement, suit
on behalf of the limited liability company may be
brought in the name of the limited liability company
by: (1) Any member or members of a limited liability
company, whether or not the articles of organization
vest management of the limited liability company in
one or more managers, who are authorized to sue by
the vote of a majority in interest of the members, unless
the vote of all members shall be required pursuant to
subsection (b) of section 34-142; or (2) any manager or
managers of a limited liability company, if the articles
of organization vest management of the limited liability
company in one or more managers, who are authorized
to sue by the vote required pursuant to section 34-142.
‘‘(b) In determining the vote required under section
34-142 for purposes of this section, the vote of any
member or manager who has an interest in the outcome
of the suit that is adverse to the interest of the limited
liability company shall be excluded.’’10
‘‘[Section] 34-187 applies to all limited liability compa-
nies unless the operating agreement provides for a dif-
ferent rule that conflicts with the statute or provides
that the statute does not apply at all. That is the plain
meaning of the statutory language, ‘‘[e]xcept as other-
wise provided . . . . Thus, if the operating agreement
is silent as to the applicability of the statute, the statute
controls. . . . In other words . . . the statutory
scheme controls and provides for the default method
of operation, unless the organizers or members of the
limited liability company contract, through the
operating agreement, for another method of operation.
Indeed, this is one of the foundational principles of the
law governing limited liability companies.’’ (Citations
omitted; emphasis omitted; footnote omitted; internal
quotation marks omitted.) 418 Meadow Street Associ-
ates, LLC v. Clean Air Partners, LLC, 304 Conn. 820,
836–37, 43 A.3d 607 (2012).
In the present case, the plaintiff brought a direct
action against the only other member of Cider Hill,
against Cider Hill itself, and against other companies
in which Snow had an interest. He alleges various
causes of action flowing from an alleged breach of a
fiduciary type duty and a breach of the amended
operating agreement, which was signed by the plaintiff
and Snow, specifically as agents for Cider Hill. See
Chila v. Stuart, 81 Conn. App. 458, 464, 840 A.2d 1176
(‘‘[i]t is axiomatic that an action upon a contract or for
breach of a contract can be brought and maintained by
one who is a party to the contract sued upon’’ [internal
quotation marks omitted]), cert. denied, 268 Conn. 917,
847 A.2d 311 (2004). Indeed, neither the plaintiff nor
Snow were parties to the agreement in their individ-
ual capacities.
The plaintiff contends that Snow essentially misman-
aged the Evergreen Project. Although the plaintiff con-
tends that he suffered direct injury by the alleged action
or inaction of Snow, any benefit he would have received
from the Evergreen Project, were it not for the alleged
improprieties of Snow, would have flowed to him only
through Cider Hill, first benefiting Cider Hill. Accord-
ingly, if there was an injury, that injury was sustained
by Cider Hill and then sustained by the plaintiff. Thus,
the plaintiff’s injury is not direct, and he has no standing
to sue in his individual capacity. See Padawer v. Yur,
supra, 142 Conn. App. 817 (member or manager may
not sue in individual capacity to recover for injury based
on wrong to limited liability company); O’Reilly v.
Valletta, 139 Conn. App. 208, 216, 55 A.3d 583 (2012)
(same), cert. denied, 308 Conn. 914, 61 A.3d 1101 (2013);
Wasko v. Farley, supra, 108 Conn. App. 170 (same).
The form of the judgment is improper, the judgment
is reversed, and the case is remanded with direction to
dismiss the case for lack of subject matter jurisdiction.
In this opinion the other judges concurred.
1
Cider Hill is owned by both the plaintiff and Snow. After Snow’s attorney
filed an appearance with the trial court on behalf of all defendants, the
plaintiff filed a motion to disqualify counsel from representing Cider Hill
on the ground that, as a 50 percent owner of the company, he had not
agreed to counsel’s representation. On May 5, 2010, the trial court granted
that motion, and Cider Hill was no longer represented. Cider Hill is listed
on the trial court docket as ‘‘nonappearing.’’ It also has not participated in
this appeal.
2
Snow is a participant in each of the defendant companies.
3
The articles of organization were executed by Snow, who was listed as
the statutory agent for service of process. The document listed Snow’s title
as ‘‘Mem/Mgr’’ and Scarfo’s title as ‘‘Member.’’ The document also contained
a box that the preparer was to check if management of the company was
vested in a manager or managers. That box was not checked.
4
The court stated the following: ‘‘For example, in November, 2004, in
option agreements with three tile vendors with whom Snow had had previous
dealings, Snow agreed to provide them with reduced lot purchase prices
for payment of $50,000 each at the time of the making of the agreement.
Two of those were later returned by [Cider Hill].’’
5
According to the trial court: ‘‘Snow engaged this particular [accounting]
firm because it was Scarfo’s accounting firm, and Scarfo had asked Snow
to retain that firm for [Cider Hill].’’
6
The trial court stated: ‘‘For example, in November, 2004, in option
agreements with three tile vendors with whom Snow had had previous
dealings, Snow agreed to provide them with reduced lot purchase prices
for payment of $50,000 each at the time of the making of the agreement.
Two of those were later returned by [Cider Hill].’’
7
Snow also had filed counterclaims in this case, upon which the court
found in favor of Scarfo. This aspect of the judgment is not relevant to
this appeal.
8
In this appeal, the plaintiff’s claims are twofold. First, the plaintiff claims:
‘‘The trial court erred in failing to apply the appropriate standard with regard
to the spoliation of evidence, [and it] erred in failing to find that [the] plaintiff
established a rebuttable presumption that but for the fact of spoliation of
evidence, [the] plaintiff would have recovered [on his claims].’’ Second, the
plaintiff claims that ‘‘the trial court erred in failing to apply the appropriate
standard with regard to breach of fiduciary duty’’ in a limited liability com-
pany. He argues that ‘‘[t]he court failed to recognize that, by the very nature
of a limited liability company, a fiduciary duty between members exists.’’
He argues: ‘‘Where there is no dispute that Scarfo and Snow were members,
Scarfo and Snow had a fiduciary relationship to one another, and the trial
court should have shifted the burden to Snow to prove fair dealing by clear
and convincing evidence.’’ The plaintiff’s claim of breach of fiduciary duty
was based on Snow’s alleged breach of the amended agreement.
As to the plaintiff’s claim of spoliation of evidence, the trial court specifi-
cally found: ‘‘While the evidence clearly reflects discrepancies and very poor
recordkeeping or retention many years after the inception of this project,
the credible evidence does not reveal any intentional destruction or hiding
of materials needed for litigation.’’ We note that during oral argument before
this court, the plaintiff clearly stated that he was not contesting the court’s
factual findings in this case, and that his appeal concerned only matters
of law.
As to the plaintiff’s claim of breach of fiduciary duty, the trial court
specifically found: ‘‘[T]hese partners were equal in every way whatsoever,
and Scarfo was not precluded in any way from avoiding the alleged difficul-
ties about which he is now complaining. There has not been any breach of
fiduciary duty by the defendant.’’
As to the plaintiff’s claim for breach of the amended agreement, the court
specifically found: ‘‘The court cannot find that Snow violated the terms of
the contract. Furthermore, while there has been a great deal of innuendo,
the evidence does not support the contention that Snow did not fulfill his
responsibilities . . . .’’
We reiterate that, during oral argument, the plaintiff clarified that he was
not challenging any of the trial court’s factual findings. He specifically stated
that his appeal is one of law and that he is not trying to relitigate the facts.
9
‘‘[A] number of states have adopted or substantially adopted the Uniform
Limited Liability Company Act (ULLCA) . . . . According to the ULLCA, a
member of a member-managed [limited liability company] owes to the com-
pany and the other members the fiduciary duties of loyalty and care, and
a member in a member-managed [limited liability company] or a manager-
managed [limited liability company] shall discharge the duties under the
ULLCA or under the operating agreement and exercise any rights consis-
tently with the contractual obligation of good faith and fair dealing.’’ (Foot-
notes omitted.) Annot. 48 A.L.R. 6th 1, § 2 (2009 and Supp. 2016).
Although Connecticut previously had not adopted the ULLCA, our gover-
nor, on June 2, 2016, signed into law Substitute House Bill No. 5259, 2016
Sess., codifying what will be known as the Connecticut Uniform Limited
Liability Company Act. Public Acts 2016, No. 16-97. This law will take effect
on July 1, 2017, and it makes substantial changes to our current law.
We also note the existence of the Prototype Limited Liability Company Act
(Prototype Act), which was drafted by the Working Group on the Prototype
Limited Liability Company Act, Subcommittee on Limited Liability Compa-
nies Committee on Partnerships and Unincorporated Business Organizations
Section of Business Law American Bar Association in 1992. See 3 L.
Ribstein & R. Keatinge, Ribstein and Keatinge on Limited Liability Companies
(June 2016 Ed.) Appendix C; see also J. Burkhard, ‘‘Resolving LLC Member
Disputes in Connecticut, Massachusetts, Pennsylvania, Wisconsin, and the
Other States that Enacted the Prototype LLC Act,’’ 67 Bus. Law. 405, 416–18
(2012) (explaining that Connecticut modeled its limited liability company
statutes on Prototype Act but that Connecticut courts have treated claims
as derivative actions, similar to claims by corporations, in apparent contra-
vention of Prototype Act). The parties do not rely on either the ULLCA or
the Prototype Act in their supplemental briefs, and we, accordingly, do not
discuss them directly in addressing the issue of standing.
10
Here, it appears that the plaintiff may have had the ability to bring suit
in the name of Cider Hill without the need for a vote of members to authorize
suit on behalf of Cider Hill; see General Statutes § 34-187 (b); because the
only other member was Snow, who, obviously would have an interest in
the outcome of the suit that is likely adverse to the interest of Cider Hill.
A thorough review of the operating agreement also reveals that there was
no part of that agreement that addressed § 34-187 or any procedure for filing
suit for alleged wrongdoing.