Connecticut Business Litigation Blog : Connecticut Business Lawyer & Attorney : N. Kane Bennett : Raymond & Bennett Law Firm : Hartford, Middletown, Glastonbury

After 5 years of litigation, two appeals, and one trial, the answer is.......Yes, that statement can constitute a valid offer to end a Connecticut partnership between two feuding sisters who had agreed in writing to split lottery winnings.  The story of the feuding sisters has been covered by Alaine Griffin at the Hartford Courant and the local news stations (NBC CT;   CBS NEWS).

According to yesterday's ruling by Connecticut Superior Court Judge Cynthia Swienton, when one sister said "I don't want to be your partner anymore" and the other said "okay," the partnership was over and the contract rescinded. 

The case involved a dispute between two sisters, Terry and Rose,  over a written contract that dated back to 1995.  Terry split some poker winnings ($165,000) with her sister Rose and decided they needed a contract to make sure there would be a split for any future winnings.  You might call the contract a  paper napkin partnership agreement, but it was notarized and drafted by an accountant.  It was simple and straightforward.  The relevant part of the contract read:

We are partners in any winning we shall receive, to be shared equally.

Fast forward to 2004 and a fight over $250.  The Court found that Terry said during the fight "I don't want to be your partner anymore."  Rose replied "okay."  Rose then went and became partners with her brother, Joe.  Of course, Joe then went out and bought a $500,000 winning Powerball ticket.  Terry found out, Rose refused to pay Terry, and finally a lawsuit was filed for breach of contract.   

After going through the history of the relationship and finding credibility in favor of Rose, the Court found that Terry and Rose mutually agreed to rescind or cancel the contract on the basis of that exchange of words and the conduct of the sisters after the exchange.  Case closed, at least for now.  It is unclear if there will be any appeal.   

In reading the decision, I found it interesting that there was no mention of Connecticut's partnership statute.  It is not clear if either party raised the statute in the case.  The case was decided on pure contractual grounds based on an agreement to rescind the contract.  Nevertheless, it also appears to me that the Court was swayed by more than just the exchange of words, but the actual conduct of the parties after the exchange.  In other words, you could say that they stopped acting like partners, they agreed not to be partners, and therefore, no partnership continued to exist.  

Interesting case, but also sad to see.  In the end, Terry's frustration over $250 might have cost her not only a share of the $500,000 winning ticket, but the good relationship she had with her sister. 

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When I started this blog, I decided I would keep an eye on lawsuits related to social networking websites as it seems this type of evidence will soon take the place of the smoking gun email of the last ten years.  The impact of social networking evidence in Connecticut business litigation will continue to grow.

My interest in social networking cases started with a Facebook lawsuit so I made a Facebook category on this blog and discussed some concerns for individuals and Connecticut businesses.  Then Twitter exploded to growth of 1000% last year, so I added a Twitter defamation case and a new category.  And now, its finally here ... I need a  LinkedIn category for LinkedIn lawsuits. 

I do not claim to know about all of the social networking lawsuits out there.  There are also some social networking sites that I ignore, like the dying MySpace.  Nevertheless, I do track cases of interest in this area.  You might also check out Megan Erickson's Social Networking blog as a resource to check on these type of claims or visit Dan Schwartz's Connecticut Employment Law Blog for resources and tips on policies for employers related to social networking.  

The LinkedIn lawsuit involves a non-compete agreement and solicitation of employees by a former employee. Molly DiBianca with The Delaware Employment Law Blog detailed the case in a post about the lawsuit filed by TEKSystems against its former employees.  Nothing strange about this type of lawsuit, only in this case, TEKSystems claims it has evidence of breach of the employment contract arising from post-termination solicitation of its employees through the LinkedIn connections of one of the defendants.  Here is a copy of the lawsuit (go to paragraph 37). 

Molly DiBianca states it is the first lawsuit she is aware of using an employee's LinkedIn account.  She may be right, as I am not aware of another case like it.  Nevertheless, I certainly expect this type of social networking evidence to be the focus of more lawsuits and it was only a matter of time for LinkedIn to be involved in a case with media attention.  In Connecticut, we had our own social networking evidence case with Facebook.  In a bullying case involving Miss Porter's School, Judge Arterton ruled that the plaintiff's postings in an expired account were relevant.   

The way I see it, this is only the beginning.  Soon enough, social networking evidence will be as significant and commonplace as email evidence.  At that point, I'll have to find something else to blog about ....

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Recently, I received a call from an attorney trying to figure a way out of a Master Services Agreement for his client.  His client, the purchaser, was stuck owing a lot of money to a technology vendor under a Master Services Agreement that was not working for the client.  The problem - - there was no protection under the contract for the purchaser and no clear way out without owing money to the vendor. 

The problem is not unique to technology purchasers.  Bad contracts also can hurt technology providers.   Take for example a recent case involving a technology company in a lawsuit over installation of new software for a small business.  The business claimed loss of profits due to extended down time as a result of a claimed breach of warranty.  The problem for the technology vendor - -  no protection in the contract with a limitation of remedy provision or disclaimer of warranty.  This opened up a claim for consequential damages that neither party contemplated.

In these cases, whether you are the attorney for the customer or the vendor, many times you are left saying "I wish you called me when you negotiated this contract."   In most instances, when a large or significant service and technology purchase is involved, the relationship between customer and vendor is set forth in a Master Services Agreement.  Master Services Agreements are typically contracts in information technology or professional services that govern a long term vendor-client relationship.  The contract includes general provisions on price, payment terms, and project scope.  The contracts usually include a Statement of Work. The Statement of Work will define the project specifics, services, or deliverables.

While the negotiation of a Master Services Agreement can be quite complex depending on the scope of the project, there are some general terms and clauses that should be considered or included in each agreement to avoid mutual misunderstandings, bad financial decisions, and unnecessary business litigation.  This applies to both sides of the negotiation whether you represent the customer or the vendor.  

There are some standard clauses and considerations in Master Services Agreements that can help the parties reach a true meeting of the minds as to the scope, risks, and obligations. Here is a checklist of some topics and questions that should be discussed as part of the negotiation of a Master Services Agreement:

• Price.  Very important to remember that the sticker price or price on the contract is many times not as important as the soft costs and expenses.  It benefits both sides of the deal to make sure the price and payment terms (including add on fees like renewals, maintenance and service) are clear and understood.
• Payment.  Is the agreement going to call for payment by time and materials?  A fixed fee?  A hybrid of both?  Will the payments be tied to meeting milestones on deliverables?  Penalty or late fees? Any retained amounts until completion?  For both sides of any deal, it is better to work out the details on payment ahead of time and avoid problems before they arise.
• Intellectual Property.  Who is going to own the intellectual property rights to the new software or work performed?  If this is not addressed in the contract, unintended results may occur where the vendor has future property rights for a project paid for by the customer. 
• Warranty.  What is the scope of the warranty of the work? Will the warranty be limited to the vendor's performance in a workmanlike manner or is greater warranty protection needed for a new product installation?  Does the vendor warrant the software or other products? The warranty many times provides the basis of the claim for damages against the vendor.  By limiting or expanding the warranty, the scope of liability is understood by both parties at the outset. 
•  Statement of Work.  This is the document that will provide the specifics on the deliverables under the agreement.  Will it be a separate document?  How much detail will be included?  What assumptions are made?  How can the scope of the project increase?  What are the due dates and deadlines?  An overly broad Statement of Work can be a problem for both a vendor and customer. 
• Confidentiality Agreement.  Typically, the parties to a Master Services Agreement will want a mutual confidentiality agreement or non-disclosure agreement to prevent disclosure of proprietary information and company trade secrets.  How will you define proprietary information and trade secrets?  How long will the agreement last?  What are the penalties for violation?
• Indemnification.  These clauses typically shift the risk associated with a loss or a claim from one party to another.  For example, what happens if the customer gets sued for patent infringement for work product of the vendor?  Should the vendor have to defend and indemnify the customer for the lawsuit?
• Attorneys fees and Alternative Dispute Resolution (ADR).  How will disputes under the contract be resolved?  ADR clauses in the contract can provide for the award of attorney's fees to the prevailing party and force all disputes to be resolved in a binding arbitration as opposed to a typical lawsuit in court.   More and more, both customer and vendor are seeking to avoid costly litigation by electing for a streamlined dispute resolution process.
• Insurance.  Does the vendor have errors and omissions insurance?  Should it be required in the contract?
• Termination.  What terms will govern when one party is unhappy or if a party is in breach?  How do you get out of the contract?  30 days notice?  10 days notice?  Is there any payment for at will termination?  Does work stop upon notice?

These are just a few of the major considerations at play for both a purchaser and vendor under a Masters Services Agreement.  For any significant transaction,  it is advisable for a technology lawyer to negotiate the contract.  Early involvement of a technology attorney can save time and expense later and help each party understand the risks of any particular project. 

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As we head to the new year, here is a round up from some fellow bloggers on contracts, cobra, wage disputes, patents, and oral agreements for limited liability companies. 

The California Business Lawyer Blog offers a very detailed post about contractual relationships  between manufacturers and suppliers.  The focus is on well drafted agreements eliminating the fears and concerns of both sides.

A lot of talk about the AT&T suits in different states for $1 billion dollars for unpaid overtime.  The suits picked up a lot of steam with a recent employee favorable ruling from the federal court in Connecticut allowing the claim to proceed as a class action. Rush on Business covers some tips for businesses to avoid these suits.

Just in time for Christmas, President Obama has extended the COBRA subsidy.  Dan Schwartz's Connecticut Employment Law Blog covers this topic in detail for employers.

Twin Cities Business Litigation Blog has an interesting post on concerns you might have as a shareholder of corporation that fails to follow corporate formalities.  Gavin Craig gives examples of how a shareholder could be exposed to liability.

Anyone who frequently litigates matters involving limited liability companies will tell you that there is not much case law out there in Connecticut.  It is still a developing area of the common law.  Delaware law is often a good option for law in this area because these issues are more frequently litigated by volume in Delaware.  A good resource is the Delaware Corporate and Commercial Litigation Blog.   Two recent posts concerning oral partnerships and LLC agreements are just an example.

PatentlyO hits on some themes for 2010, including an expected increase in patent prosecution and litigation.    They also have a cool picture of heat miser, a childhood classic.

Jeff Mehalic, author of the West Virginia Business Litigation Blog, writes a detailed follow up post to his coverage of the Connecticut dispute between Charter Oak Lending and CTX Mortgage.  Jeff also comments about a post I wrote on the same case.  The case remains significant as it is an example of what can go wrong when a business grows too fast and no written agreements are in place with employees.

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The short answer is that it depends.  Settlement agreements are generally enforceable if the terms of the agreement are clear and authorized by the litigants or parties to the litigation.  In Gengaro v. City of New Haven (to be officially released December 29th), the Appellate Court had another opportunity to comment on the long standing law in Connecticut that "a compromise agreement . . . if free from fraud, mistake or undue influence . . . is conclusive between the parties." 

In Gengaro, a trial court granted summary judgment in favor of the City concerning employment claims because Gengaro had signed a confidential settlement agreement prior to the lawsuit.  Gengaro claimed he was forced to so sign the agreement because of threats of losing his job.  He claimed undue influence to attempt to invalidate the settlement agreement.   Gengaro claimed that he had serious financial and medical problems.  Coupled with the threat  of job loss, he claimed that he had no reasonable alternative but to agree to the settlement.  

The trial court granted summary judgment finding insufficient issues of fact concerning undue influence.  Essentially, the court concluded that the threat of losing his job was not sufficient for the exercise of undue influence.  The Appellate Court agreed.  For a good analysis of what employers should to to avoid these type of claims check of the Connecticut Employment Law Blog post on the case.

To establish undue influence in Connecticut, four elements must be established:

• a person is who is subject to influence
• an opportunity to exert undue influence
• a disposition to exert undue influence; and
• a result indicating undue influence

Relevant factors in the inquiry include age, physical and mental condition, whether the person had disinterested or legal advice, the consideration of value of the contracted for exchange, and active solicitations and persuasions by the other party.

In summary, undue influence is the exercise of control by one person over another in an attempt to destroy the person's free agency and "constrain him to do something other than he would do under normal control..."  Undue influence, if demonstrated, may invalidate a contract because the free assent of one party to the contract is lacking.

Settlements agreements are enforceable in court if the terms are clear and authorized by the parties.  Attempting to invalidate the agreement by showing undue influence, fraud, or mistake are difficult claims to make.  The take away here is to carefully review your settlement agreements with counsel because once you sign an agreement, it is likely to be enforced absent special factors.

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Unfortunately, all too often business competitors resort to unfair and improper tactics to gain an advantage in business.  A common example occurs when a competitor maliciously or intentionally interferes with a company's contracts or business relationships.   When this occurs, businesses have to consider whether a legal remedy is available.

In Connecticut, courts have long recognized the business litigation claim of tortious interference with contractual relations as an available remedy for this type of conduct.  To be successful against a competitor in a lawsuit for this claim, a business must prove three essential elements:

• Existence of a contract or beneficial business relationship
• Knowledge of the relationship
• Intentional interference with the contract or business relationship
• Actual loss or damage 

Upon first consideration, tortious interference with a contract might seem to apply to many business competitors.  However, Connecticut courts require more than mere interference for a successful lawsuit.  In particular, not every act of interference is actionable in court. 

In Connecticut, a business must also prove that the interference was "improper" or with an "improper motive."   A business can prove that interference with a contract was improper by demonstrating any of the following:

• Fraud or misrepresentation
• Intimidation
• Malice
• Other improper motive or means

Although the improper motive element is harder to prove, a successful claim could also result in an award of punitive damages.  Additionally, a business does not have to prove that the interference actually resulted in a breach of the contract or business relationship.

As such, if your business is dealing with a competitor that has crossed the line and resorted to fraud or unfair practices to harm your business, a lawsuit for tortious interference with contractual relationship is one of the available remedies in Connecticut.   

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One of the first things lawyers check for when contesting an oral contract is the statute of frauds.  The statute of frauds comes from an English rule dating back to the 1600's.  At its most basic level, the statute of frauds requires certain types of contracts to be in writing or else they are not enforceable in court actions.  However, sometimes, even when a contract is in writing, it still will not satisfy the statute of frauds.

That is what happened in SS-II, LLC v. Bridge Street Associates, an advanced opinion released today by the Connecticut Supreme Court.  The dispute involved an option to purchase property pursuant to a commercial lease that was in writing.  The tenant wanted to exercise the option and the seller did not want to close on the sale. 

When the tenant brought a lawsuit for specific performance trying to force the sale, the owner raised the Connecticut Statute of Frauds as a defense and won in court.  In Connecticut, the agreements that must be in writing under the statute of frauds include the following:

• any agreement by any executor promising to answer damages out of his own property
• any promise to answer for the debt, default or miscarriage of another
• any agreement made upon consideration of marriage
• any agreement for the sale of real property or any interest in or concerning real property
• any agreement that is not to be performed within one year 
• any agreement for a loan in an amount which exceeds fifty thousand dollars.

Not only do these agreements have to be in writing, but they also have to contain the contract's essential terms.  In a contract to sell land, the terms must describe a certain price, the parties to the contract, and the land.  In the SS-II case, the contract did not comply with the statute of frauds because the purchase price was not certain and was subject to some conditions.  Although there are counter defenses to the statute of frauds, such as partial performance, the court deemed that they did not apply. 

The takeaway from this case is to be cautious with oral contacts and do not assume a writing alone will make the agreement enforceable.  A contract has to be in writing, signed, and have the proper terms in it or else you may not have an enforceable agreement if the statute of frauds applies.  

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Connecticut's Home Improvement Act requires contractors performing home improvement services to register and to comply with it provisions concerning contracts with homeowners. The Act has a series of requirements for contracts as follows:

• Contract must be in writing;
• Contract must include the contractors registration number;
• Contract must include four dates: date of signing, date work will begin, date of completion, and date by which the homeowner may cancel the contract; and
• Contract must contain specific notice provision of the homeowner's right to cancel the contract within three business days after signing.

If a contractor fails to comply with these contractual requirements, the contractor risks non-payment by the homeowner.  If a homeowner refuses to pay, the contractor likely will not be able to recover payment with a lawsuit in court absent some showing that the homeowner acted in bad faith.  This can bring about a harsh and inequitable result in some cases.   

In Drain Doctor, Inc. v . Jason Lyman, the Appellate Court recently had to consider the potential harsh consequences of failing to comply with the Home Improvement Act.  The contractor at issue in the case had to perform plumbing work below the surface of the home and driveway in order to make the home habitable.  The contract was oral.

The contractor repaired a sewer a line under the home and a storm drain under the driveway.  The contractor finished the job and then restored the driveway and grass.  The homeowner refused to pay.  The contractor brought a lawsuit, but had it stricken by the trial court because the homeowner alleged that the oral contract did not comply with the Home Improvement Act.

The contractor was a licensed plumber and tried to rely on the exemption in the Home Improvement Act at Connecticut General Statutes 20-248.  The exemption provides that the Act does not apply to:

any person holding a current professional or occupational license issued pursuant to the general statutes, and any person registered pursuant to sections 25-126 to 25-137, inclusive, provided such person engages only in that work for which such person is licensed or registered.
 

The trial court found that the work on the driveway and lawn was outside the scope of the work for licensed plumbers and the exemption did not apply.  This ruling produced a potentially unfair result.  The contractor did the work requested.  The only apparent reason for non-payment was the homeowner's technical reliance on the Home Improvement Act requirements for contracts.  

The Appellate Court overruled the trial court and found that the driveway and grass work was "ancillary" to the work for licensed plumbers.  The Appellate Court looked at the licensing statute to determine the different types of work that plumbers engage in, and then determined that the driveway and lawn restoration was incidental to work directly listed for licensed plumbers.  Therefore, the licensed plumber did not have to comply with the Home Improvement Act.

Although the Drain Doctor decision provides some clarity for contractors on when they need to comply with the Home Improvement Act,  questions will continue as to the scope of the exemption and "ancillary" work.  What should contractors do when faced with a similar situation?  Here are a few tips:

1.  Determine the scope of each project you are estimating.

2.  Consult the licensing provisions for your trade, whether it be electrical, plumbing, heating and cooling, or other trade.  The licensing statute defines the scope of work for the particular trade.  For example, plumbing and piping work is listed and defined here.  If  the work is listed in the definition, and you hold that license, then you likely will not have to comply with the contractual provisions of the Home Improvement Act.

3.  If the scope of the project is outside of the definitions of work for the particular license, you must then consider whether the work is "ancillary" to work that is listed in the definition.  If it is clearly outside the scope of work defined for the license, a contractor should seek to comply with the Home Improvement Act. 

A good starting point for a "how to" on complying with the Home Improvement Act is the Department of Consumer Protection's handbook and guide for contractors. When in doubt, a contractor should consider complying with the Act.  If not, the contractor risks not getting paid even if the work was done properly.

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