Seldom Used Holiday Rule Will Not Save Your Lawsuit Filing Deadline

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Ahhhhhhh!!Our court system is based upon a series of deadlines.  There are deadlines for everything from starting a lawsuit (statute of limitations) to returning the lawsuit papers to court (6 or 12 days before the return date) to filing an appearance (2 days after the return date).  There are deadlines for every aspect of a case and litigation attorneys live by deadlines.  However, the fact is, some deadlines are more meaningful than others.  Unfortunately, it takes attorneys years of practice to figure out the different treatment by judges for different deadlines.  More importantly, there are some deadlines that hurt your case if missed, and others that kill your case.  The statute of limitations will kill your case if missed.

But, what happens if you need to serve your lawsuit on a defendant but it is a legal holiday?  Or, what if the deadline to pay a promissory note falls on Christmas and you fail to pay?  Or, what if the day you are supposed to file something in court, the court is closed?

There are all kinds of rules and grace periods that apply in various cases.  In law school, students learn about the mailbox rule which means the papers are delivered on the date they are put in the mail, not the date received.  Some states will count business days and not weekend or holidays at all.  Other states will provide different methods of counting days for legal papers and build in grace periods.  And, to add to the confusion, federal courts and state courts have different time deadlines on legal filings.

Recently, the Connecticut Appellate Court issued a ruling in case dealing with the “Holiday Rule.”  The Holiday Rule is a common law rule (it is not in any statutes) dating back to at least 1816 in Connecticut.  Its stands for the proposition that if the final day of a deadline falls on a legal holiday, the real deadline is the next day.  In Connecticut, the Holiday Rule has been used to extend the deadline one day for promissory notes and service of papers on a municipality.

In Kim v. Stephen EMT, the Appellate Court refused to permit the Holiday Rule to apply to the statute of limitations.  In Kim, the statute of limitations for bringing the relevant cause of action fell on Memorial Day.  The plaintiff failed to serve the lawsuit papers on that date, but instead served the papers the next day.  The defendant raised the statute of limitations for negligence cases as a defense at the trial court level.  The trial court granted summary judgment to the defendant.  On appeal, the plaintiff raised the Holiday Rule as a defense.

Although the Appellate Court noted some instances where the rule could apply, the court declined to extend the rule to the statute of limitations. The court noted that courts are closed on Memorial Day, but that should not necessarily matter for state marshals.  State marshals can and do serve serve subpoenas and lawsuit papers on holidays.  This fact appeared to influence the judges in declining to extend the Holiday Rule for the statute of limitations. The court was not persuaded that it was impossible to act because of the holiday.  The takeaway here is that while many deadlines in litigation can be extended or missed without serious consequences, the same cannot be said for the statute of limitations.

 

Lost Profits Must Be Reasonably Certain for Breach of Contract Claims

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The burden to prove damages is always on the Plaintiff, or the party that brings the lawsuit.  Many times I receive calls from prospective clients who believe they have significant amount of damages.  However, under Connecticut law damages are only recoverable to the extent that the evidence affords a sufficient basis for estimating their amount in money with “reasonable certainty.”  Proving damages in a business lawsuit does not require exactitude but a litigant cannot base a claim solely on subjective opinion.

Although there is no precise formula to prove the amount of damages, a court will not permit an award of damages based on speculation or conjecture.  In certain cases, assumptions are permitted, but the assumptions must be reasonable and relate to the facts of the case.  As a result, before proceeding with a breach of contract case, an attorney will want to explore if the prospective client can prove damages.  Without provable damages, there is likely no case worthy to pursue if money damages are at issue.

The damages also must relate to the specific cause of action in the case.  There are different elements of recoverable damages for different types of cases.  Some cases carry with it statutory damages, and other cases are governed by Connecticut’s common law or history of court decisions.

One category of frequently claimed damage for breach of contract is loss of future profits or loss of anticipated profits.  Generally, in a breach of contract case, you seek to put the injured party in the same financial position they would have been but for the breach.  In a lost profit case, a party in litigation will claim that “but for” the breach of contract, the party would have earned a projected amount of money.

Connecticut case law clearly provides for the availability of an award of lost profits in general breach of contract cases.  Courts construe lost profits as an element of available compensatory damages.  The mere fact, however, that lost profit damages are available generally, does not mean lost profit damages are recoverable in all cases. To determine whether lost profits are available, the parties will need to look to the terms of the contract and whether lost profits were reasonably contemplated by the parties.  Contracts also frequently contain disclaimers or exclusions of lost profit damages even if the parties contemplated that such damages might occur.

Additionally, although lost profit damages are potentially available, it does not necessarily follow that sufficient evidence exists to reliably prove anticipated profits from a business deal gone bad.  Courts will sometimes permit owners of a business to testify as to anticipated profits, but usually only when the owner has knowledge and familiarity with an established history of profits sufficient to project anticipated future profits.  In most cases, the parties need to retain experts to review relevant financial data and to provide an opinion on lost profits.

Litigants and their attorneys typically use economists or accountants as experts to prove lost profits in business cases.  Expert fees can add considerable expense to a case as the expert will likely have to review significant amounts of financial data and the factual details concerning the business deal.  The expert expense may be necessary to incur in many cases to successfully prove damages.  An expert’s opinion on lost profits must also pass a reliability test.  If challenged by an opponent, the expert will have to establish that the method of establishing a damages figure was reliable.  Courts will use a series of factors to consider the reliability of methods and the arguments raised by lawyers to exclude such opinions from trial.

In conclusion, readers should understand that lost profits are available as a potential element of damages in most breach of contract cases in Connecticut.  However, the fact that such damages are potentially available does not establish a right to recover.  The burden to prove lost profit damages remains with the Plaintiff, and must be shown with reasonable certainty and not subjective opinion, conjecture or surmise.

Are Breach of Contract Disputes Governed by Terms of Contract Alone?

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You might think so, but generally whether the terms alone govern a dispute depends on the language in the contract.  When a contractual relationship breaks down, parties that previously agreed to terms of a contract suddenly no longer agree on the meaning of key terms. Many times parties to a contract have evidence that supports one meaning versus another.  The question becomes whether any of the evidence is relevant or if the court will simply interpret the terms as written.

I have posted before on the implications of the parol evidence rule in Connecticut.  A recent Appellate Court case serves to highlight some important aspects of the rule.  The case is Sullo Investments LLC v Marci Moreau and will be released for official publication on July 1, 2014.  In Sullo, the defendant signed a guaranty agreement for a commercial note.  The defendant lost at trial.  On appeal, the defendant claimed that the trial court erred because the court went beyond the four corners of the guaranty agreement and considered extrinsic evidence in violation of the parole evidence rule.

The Appellate Court disagreed and pointed out that the parole evidence rule is only implicated where the evidence serves to contradict or vary terms that are actually in the contract.  The rule:

“does not of itself, therefore, forbid the presentation of parol evidence, that is, evidence outside the four corners of the contract concerning matters governed by an integrated contract, but forbids on the use of such evidence to vary or contradict the terms of such a contract.”

The rule of evidence that applies to bar the evidence is relevance.   If the court cannot use the evidence to alter the terms of a complete and clear contract, then the evidence becomes irrelevant.  However, the evidence may be relevant for another purpose or the rule may not apply to the terms of the contract.  For example, extrinsic evidence may be admissible:

  • To explain an ambiguity in the contract
  • To prove a collateral agreement that does not vary the terms of the written
  • To add missing terms to a contract that does not state it is complete
  • To show mistake or fraud

These are all examples where the evidence would not alter the terms of a complete, written contract in clear terms.  As such, to determine whether evidence outside the contract is relevant, you have to consider the nature of the evidence, its purpose, and whether it contradicts the clear terms of a complete contract.  The parol evidence rule also highlights the need to draft clear contracts with clauses that make it clear the contract alone will govern the dispute.  Otherwise, the court will permit each party to introduce evidence outside the four corners of the contract.  This could include conversations, emails, and other documents.

Can a Lawsuit Help Mitigate the Risks of Trade Secret Theft?

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Trade secret law is constantly evolving as technologies in the workplace change.  Staying up to date is critical.   Recently, I attended an online seminar focused on theft of trade secrets in the workplace. The presenters included private practice attorneys from a national firm and in-house IP counsel from two large companies.

There was a consensus that you cannot prevent an employee from stealing trade secrets in all cases. This is especially so with the advent of cloud computing and bring your own device policies in the workplace. The focus should be on mitigation of risk before the theft, and implementation of an action plan after the theft.  I have commented on these same issues several times on this blog.

With respect to action plans after theft, I was interested in the insights of the in-house IP attorney. The attorney stressed the importance of having a team assembled to address trade secret theft to include security, technology, and legal.  When making a decision on pursuing an injunction in court, the assembled team will need to identify objectives based on a series of factors including the value of the intellectual property at issue and the business issues implicated.

I agree with these points.  Having a team in place, with written documentation of it, not only will help a business act quickly, but will also serve as evidence of the reasonable measures taken to protect the trade secrets.  A dedicated team will also facilitate regular communication between departments to stay on top of changing technologies and workforce demographics.

The pros and cons of litigation were also discussed.  The cons are understandable and include costs of litigation.  One presenter mentioned that litigation should be a last resort.  That might be agreeable as a general policy provided other measures are utilized to consistently address the issue via other means.  However, there are some upsides to pursuing litigation that may not be readily apparent.

Litigation serves as a reminder to others of the personal financial risks of misusing confidential information or trade secrets.  If employees understand that a business will not hesitate to file a lawsuit to protect its valuable information, the employees are less inclined to engage in misconduct.  In addition, a good attorney advising an employee on exit strategy will always ask about a company’s policy on enforcing non-compete or non-disclosure agreements.  Thus, the enforcement policy impacts the strategy of the departing employee.  

To illustrate the point, consider the NFL.   I know of an author who wanted to publish a book that arguably (but unlikely) used intellectual property of the NFL.  The author’s attorney advised against using the material despite the fact that the material was unlikely to infringe as a matter of law.  Why not use it? Simple. The NFL will crush you and they have a track record of doing it.  

There are many instances where the NFL took immediate action to shut down a potential infringer.  A quick Google search turned up a law review article and numerous stories of enforcement.  The word gets out.  The NFL will enforce its intellectual property rights.  The NFL does so in a broad and sweeping manner.   

The NFL’s policy is certainly not going to mesh well with every corporate culture, and I do not intend to advocate for litigation in all circumstances.  However, strategic use of litigation for the right case can go a long way toward protecting a business in the future.  Litigation can address an immediate risk, but also serves as a reminder to others about the risks of misuse of intellectual property.

Prevention of Performance and Breach of Contract

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 A recent Connecticut Supreme Court case (Blumberg Associates Worldwide, Inc. v Brown & Brown of CT)  addressed the prevention doctrine in breach of contract cases.  Under the prevention doctrine if a party to a contract

prevents, hinders, or renders impossible the occurrence of a condition precedent to his or her promise to perform, or to the performance of a return promise, that party is not relieved of the obligation to perform, and may not legally terminate the contract for nonperformance.

In addition, if one party hinders, the other party’s performance will be excused.  The other party will not be permitted to recover damages for breach of contract.  In sum, when one party causes the failure of performance under a contract, the party cannot take advantage of it legally in court. 

The prevention doctrine is part of the application of the implied covenant of good faith and fair dealing that is part of every contract.  Essentially, it is part of an obligation to proceed under a contract in good faith.  The issue in the Blumberg case was whether the prevention doctrine could apply to conduct that occurred before the contract was executed by the parties.  

The court held that it could not.  So, the prevention doctrine only applies if a contract already exists.  The reason is because the duty not to prevent or hinder arises only from implied contractual duties.  Therefore, if there is no contract, there is no duty.

Whether particular conduct constitutes wrongful prevention is decided by a jury or judge.  In Connecticut, prevention can be raised by the attorney in the breach of contract case in defense or prosecution of a claim.

Can You Be Personally Responsible When You Sign A Contract As President Of A Corporation?

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Ordinarily, the answer is no.  However, you must carefully read contract terms before assuming you will not be personally liable for company debts.  The Connecticut Supreme Court recently addressed an example where the terms of the contract created personally liability for the president of a company.  Yellow Book decisionThe case is Yellow Book Sales v. Valle.  images(3)[1]

When a corporation is the primary party to and signer of a contract, and the signature is by an officer of the corporation, the generally held rule is that the corporation is responsible and not the individual officer.  This is a rule of construction or interpretation for contracts.  Generally, this rule will apply if the contract is between a corporation and another party, and there is no indication of personal liability in the terms of the contract or on the signature line.  

However, there are circumstances where the general rule does not apply.  In Yellow Book, the Supreme Court of Connecticut found that there were terms in the contract clearly indicating an intent to bind the individual signer as well as the company.  In this particular case, the president of the company signed his name and added the terms "president" to his signature.  Adding the term "president" did not prevent personal liability in this case because the contract terms were clear that there was a personal obligation.

The language in the contract read "[t]he signer of this agreement does, by his execution personally and individually undertake and assume full performance . . ."  As such, it was not ambiguous to the court when the signer added the term "president."  Instead, the court found that the contract, by its clear terms, bound the the signer as an individual and the company.  When the company ceased operations, the president was stuck with the obligation.  

If you want to avoid personal liability for corporate debts, make sure you  read the contract terms closely and not only the signature line.  The signature line may not govern the outcome. The terms of the contract, the party to the contract, and the signature should only be on behalf of the corporate entity.   If there is any confusion based on the terms of the contract, seek legal counsel.  

Are You Covered? CT Businesses Should Double Check Insurance Coverage for Data Loss

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The Connecticut Appellate Court recently decided a case involving damages from loss ofAhhhhhhh!! data related to 500,000 IBM employees.  The case is entitled IMB caseRecall Total Information Management v. Federal Insurance Company.  The loss of data included social security numbers and birth dates. The data was lost in the process of transport for storage.  Some 4 years later after the loss, there has been no reported identity theft. 

As I have mentioned on this blog many times, data loss events can cause significant damages to a business.  In this case, IBM incurred 6 million in expenses to provide identify protection to its employees and to address the breach.  The data storage company paid IBM the full amount of its loss.  The storage company, and its subcontractor, tried to get insurance coverage for the IBM claim under a commercial general liability policy.  Obtaining coverage for a data loss breach under the terms of a commercial general liability could pose several challenges and the results have been inconsistent across difference courts and cases.  In this case, the insured party tried the most likely arguments to obtain coverage, but the insurance company denied it.

The litigation that ensured concerned whether the insurance company properly denied coverage.  The trial court agreed that it was proper to deny coverage. On appeal, one of the issues concerned the nature of data loss and whether it triggered coverage under the policy for a personal injury.  The Appellate Court found that the policy did not provide coverage under the personal injury provisions of the policy.  One of the reasons related to the fact that the data was never published to or accessed by anyone. This suggests that the results might have been different had there been dissemination of the data by a thief.  

 

The take away here is that businesses need an annual review of their insurance policies to specifically address the types of exposure they face.  A commercial general liability policy may not cover every circumstance.  In the case of data loss, security breaches, or technology errors, there are specific policies designed to cover these risks.  Seeking coverage for data loss claims under a standard commercial liability policy likely will be problematic, and may result in no coverage as highlighted by this recent case. 

Member Rights For Connecticut Limited Liability Company

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Generally, there are two sources to determine the rights and duties of members of a Connecticutmembers(1)[1] limited liability company (“LLC”).  The first source is an operating agreement.  The ability to form a limited liability company (“LLC”) as a legal entity in Connecticut derives from legislative enactment.  Title 34 of Connecticut General Statutes covers LLC’s.  Title 34 gives great deference to the members of an LLC in forming an agreement on governance of the LLC.  Statutory deference creates flexibility and is one of the biggest advantages when choosing a LLC as an entity for a business.

The members’ agreements on governance of the LLC are typically documented in a written agreement known as an operating agreement.  These agreements are typically drafting by a business attorney.  The operating agreement for a LLC will typically document the rights and duties of members and managers for LLC’s.  An operating agreement is similar to a partnership agreement.    An operating agreement can be simple or complex depending on the needs of the members.

Operating agreements can alter or change the statutory rights of members or managers.  Members by agreement can define the voting rights of members, the number of votes required to decide matters, and the manner in which managers can be appointed or removed.  Members can also agree upon limitations on ownership interests such as transfer of ownership or withdrawal of members.  Members further can agree upon duties of managers and members.

Unexpected problems sometimes arise when an operating agreement is silent on rights and duties. When an operating agreement is silent, the second source to determine rights and duties of members is Title 34.  You might consider Title 34 to govern by default unless otherwise agreed upon by the members.

Connecticut General Statutes 34-140 to 34-144 covers the rights and duties of members and managers.  If the operating agreement of a Connecticut LLC is silent on the issue, the following is an example of governance rules:

  • If the LLC is governed by managers, the vote of more than one-half the number of managers will decide most matters with the LLC
  • If the LLC is governed by members, the majority vote of the members in interest will decide most matters with the LLC
  • Majority of members in interest can vote and designate a manager
  • Any and all managers may be removed with or without cause by vote of a majority of the members in interest
  • Absent proper consent, every member and manager must account to the LLC and hold as trustee for it any profit or benefit derived by that person from transactions connected with the LLC or through use of confidential or proprietary information of the LLC
  • The vote of two-thirds of the members in interest is sufficient to amend the operating agreement

·         The vote of two-thirds of the members in interest is sufficient to amend the operating agreement

The take away here is to use the operating agreement to document how you want to run the LLC.  Consult an attorney to help draft the operating agreement.   If you fail to do it, the Connecticut legislature will decide how to run the business for you.  This may have unintended consequences.

Parol Evidence Rule Can Sting In Court

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 Parties to contracts frequently argue over contract terms and the intent behind certain provisions ofbee-sting a contract.  However, if the matter goes to court, these arguments can become meaningless if the contract is clear because of the parol evidence rule.  A recent appellate court case, Connecticut Bank and Trust Co. v. Munsill-Borden Mansion, LLC, serves to highlight how the rule could impact the evidence in a breach of contract case at trial in Connecticut.

In the CT Bank and Trust case, the parties were arguing over whether an individual had personally guaranteed a promissory note.  The individual’s attorney wanted to ask a witness questions concerning the intent behind signing the note.  However, the trial judge sustained objections to all of the questions that strayed from the actual note. The reason cited was the parol evidence rule.

In summary, the parol evidence rule prohibits the use of extrinsic evidence (off the contract) to vary or contradict the terms of an integrated (complete) contract.  There are exceptions.  Exceptions include evidence to explain ambiguity, prove a collateral oral agreement that does not vary the contract, add a missing term that does not set forth the complete agreement, or to show mistake or fraud. 

In this case, application of the rule barred all of the questions that were not related to the note itself.  Therefore, any arguments over terms or intent were irrelevant.  Simply put, the parties were confined to the contract itself.

The take away here is to make sure any specific terms you want in a contract are reduced to writing in the contract, and not in a separate document or conversation.  For example, emails or verbal agreements that alter the terms of a clear and integrated contract may become irrelevant and unenforceable in court. 

Old Judgments Can Come Back to Bite You – Hazards of Defaulting on Promissory Notes

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A recent case from the Connecticut Supreme Court serves as a reminder that civil judgments are good for 20 or 25 years in Connecticut depending on how you seek to enforce the judgment.  The decision was in the case of Investment Associates v. Summit Associates, et al.  In this case, a debtor failed to pay on a promissory note and left a balance of about $272,000.00. The note holder sued in state court to collect on the note.  The debtor defended the case but moved to another state.  However, the plaintiff note holder ultimately prevailed obtaining a judgment in the outstanding amount.

The plaintiff brought the lawsuit in 1991 and obtained judgment in 1994.  The defendant left the state in 1992.  15 years after obtaining the judgment, the plaintiff moved to revive the old judgment in Connecticut.  Under Connecticut General Statutes 52-598 (c), the judgment remained valid.  The Court noted that the Connecticut legislature wanted to address situations where a defendant could avoid a Connecticut judgment by moving to a state that had a shorter time period for enforcing judgments.  In this case, the defendant left to South Carolina which had a ten year statute. 

Many business owners believe that if they have no assets and no cash they are "judgment proof." This means that even if they lose a lawsuit, there will be no cash or assets available to pay the judgment.   The old saying goes that you cannot get blood from a stone.  However, this case serves as a reminder that to remain judgment proof in Connecticut, your stone cannot have blood for 20 to 25 years.