The Standard of Proof in Connecticut for Civil Theft

In Stuart v. Stuart, to be officially released on June 22, 2010, the Connecticut Supreme Court clarified the standard of proof for civil theft cases in Connecticut (download decision here).  Prior to this ruling, there was some confusion amongst attorneys and trial courts as to the appropriate standard of proof for a civil theft claim under Connecticut General Statutes section 52-564.  

Connecticut’s civil theft statute states, in pertinent part:

Treble damages for theft. Any person who steals any property of another, or knowingly receives and conceals stolen property, shall pay the owner treble his damages.
 

To successfully allege civil theft, an attorney must plead and prove the elements of larceny under Connecticut General Statutes section 53a-119.  The key element that must be established is the taking or withholding of property with the intent  to deprive another person of the property.  Some examples of successful use of Connecticut’s civil theft statute:

  • Overdrawing on bank accounts
  • Theft of business or corporate property
  • Accepting insurance premium payments in excess of required amounts
  • Defrauding another of bank funds
  • Refusal to return deposit on purchase and sale agreement
  • Wrongful seizure of personal or business property
  • Stealing utilities
  • Depleting business accounts
  • Diverting account receivables

The takeaway from the Stuart case is that the cause of action for civil theft remains the same.  However, the Connecticut Supreme Court has clarified that an attorney only needs to establish proof of civil theft by a preponderance of the evidence.

Breach of Fiduciary Duty In Connecticut

Here is a quick summary of another of the so called "business torts" in Connecticut known as breach of fiduciary duty.  A fiduciary duty can arise in a number of contexts in business including relationships with partners, lawyers, accountants, trustees, investment advisers, brokers and employees.  When one party in a relationship is a fiduciary, it requires the party to act with the utmost good faith, fair dealing and loyalty. 

Many times, breach of fiduciary lawsuits are filed in Connecticut when the relationship breaks down over lost or mismanaged money.  Frequently, business partners are also found to be fiduciaries with respect to each other.  A fiduciary relationship may be formed when the following factors exist:

  • unique degree of trust and confidence between the parties
  • one party has superior knowledge and skill
  • the party with superior knowledge has a duty to represent the interests of the other part

Connecticut’s common law on breach of fiduciary duty law is flexible in that it will not exclude new situations, but is also clear that not all business relationships are fiduciary relationships. For example, courts will not recognize a fiduciary relationship for parties that are dealing at arm’s length for transactions.  This is because the relationship lacks a dominance by one party or dependence by the other, or the lack of a special relationship.

The legal recognition of a fiduciary relationship is very significant in a lawsuit in Connecticut.  If a plaintiff proves that a fiduciary relationship exists, the standard and burden of proof changes.  A plaintiff has to prove that a fiduciary duty exists by a preponderance of the evidence. Once established, the burden shifts to the fiduciary as a defendant to prove good faith and fair dealing.  Further, the fiduciary must prove good faith by clear and convincing evidence.

Because of the burden shifting and higher standard, fiduciary cases are often won or lost on the legal characterization of the relationship. 

Do You Need A Contract To Stop A Former Employee From Competing?

The short answer is yes, a business does need a contract, also known as a "non-compete agreement," to prevent a former employee from fairly competing in business once the employee resigns.  Even with a written agreement, there are limitations on non-compete agreements because they are viewed as a restraint of trade.  To be enforceable, the restrictions in the agreement must be reasonable in time, scope, and geography. The restrictions also must be reasonable in relation to legitimate business interests you are seeking to protect.   

A poorly drafted agreement, or no agreement at all, can leave a business with little legal recourse to stop a former employee from fair competition once the employee resigns.  Simply put, the law in Connecticut permits fair competition upon resignation.  However, the lack of a written agreement does not give free license to employees to unfairly compete in all circumstances. 

For example, what about an employee that starts competing against your business without your knowledge while continuing to work for you?  Is this fair competition that should be freely permitted?  Depending on the circumstances, this type of conduct can be actionable in a civil case for damages.  The actionable conduct is breach of the employee’s common law duty of loyalty, which exists without a written agreement in certain circumstances.  There are also statutes in Connecticut that can protect businesses in certain situations that do not require contracts such as unauthorized computer access or misappropriation of trade secrets.   

I just read a story about a recent case that demonstrated some of the legal issues involved when there are no contracts in place with former employees.  According to the small business report by Carlye Adler of CNN, Charter Oak Lending, located in in Danbury Connecticut, lost a trial against several former employees who allegedly left to work for a larger company, CTX Mortgage.  Charter Oak alleged it lost more than a third of its business and a million dollars in fees after a sudden departure of 10 employees to CTX. The litigation lasted four years and ended with a defense verdict for the former employees. Charter Oak is appealing the decision. 

It appears that the decision against Charter Oak was based in part on the lack of contracts and the categorization of the defendants as independent contractors rather than employees.   The Trade Secrets Blog by Womble Carlyle picked up the story and had an interesting take focused on pure versus unfair competition.  The blog post supports the legal concept that a line can be crossed turning pure competition into unfair business. 

Charter Oak’s appeal of this case will be interesting to follow.  The outcome will likely depend on what evidence existed at trial to demonstrate unfair competition prior to the employees’ departure along with consideration of the duty of loyalty.  The takeaway is that it is always better to have written agreements to protect your business’ customers, client lists, and confidential information.  However, the lack of such an agreement will not always give free license to former employees to unfairly compete in all circumstances.   A close examination of the facts of each case must be undertaken to consider common law and statutory remedies that do not necessarily require agreements. 

Connecticut Defamation Law, The Internet, And Social Networking

In the Business Torts category of this blog, I recently covered the basic law in Connecticut concerning interference with business relationships.  Today’s post concerns another business tort known as "defamation" and how it intersects with the growing use of social networking sites.

There already have been several lawsuits for defamation arising out of use of social networking sites, such as Twitter and Facebook. For example,  The California Defamation Blog lists several celebrities involved in defamation cases, including Courtney Love who was sued by a fashion designer for defamation after a series of derogatory Twitter posts by Love.  Craig Kanalley of Chicagonow.com reported that a property owner sued a tenant for disparaging Twitter comments. The Chicago Tribune recently reported on a defamation lawsuit brought by a mother and her son after a phony Facebook profile was created showing the son was a racist.   

Should Connecticut businesses be concerned?  Clearly, the type and variety of these suits are on the rise. In legal circles, these type of claims have a category of their own called "cyber slander" or "internet defamation."  Given the popularity in use of social networking sites, and the ease in which statements can be broadcast to millions, it is safe to  predict that more defamation cases will be filed in the future. 

Connecticut businesses can be affected by defamation suits involving social networking sites and the internet in a number of ways, such as:

  • Employees making comments about a competitor
  • Employees making comments about supervisors or co-employees
  • Employees making comments about the company’s products
  • Competitors making derogatory comments about the company
  • Phony Facebook or Twitter profiles
  • Derogatory comments about the company 

In Connecticut, defamation encompasses defamation by spoken (slander) and written (libel) words. In general, to raise a proper claim for basic defamation, a plaintiff must show that:

  1. A defamatory statement was made
  2. The statement identified the plaintiff to a third person
  3. The statement was published to a third person
  4. The plaintiff’s reputation suffered injury as a result of the defamatory statement

In regards to businesses, there is also a defamation claim sometimes referred to as "commercial disparagement" or "trade libel."  For this type of claim, a plaintiff must prove disparagement of a business’ goods or services by falsehoods published or communicated to a third person.

With the ease of publication to millions over the internet, it is easy to see how someone might publish a defamatory comment whether it be on a blog, social networking site, or website.   Chances are, if you are in business, either you, someone who works for you, or a competitor has commented about the business in cyberspace.

For a business, the best way to avoid a lawsuit for defamation as a result of employee use of sites such as Twitter and Facebook is to have a written policy that governs employee use.  The details of each policy will differ depending on your business, but clearly the policy should prohibit any defamatory or derogatory comments about the business, employees, or competitors.

In situations where a competitor or customer disparaged your business’ products or services, a business may want to consider legal action and determine if grounds exist to issue a cease and desist letter, a take down letter, or initiate a lawsuit.  Internet defamation can ruin a business’ reputation overnight and should be addressed immediately regardless of whether the business pursues legal action.   

For a business, whether legal action is taken may depend on the severity of the disparagement and the damage done.  In some cases, a cease and desist or retraction is a practical solution especially when a defamation suit would bring added attention to the matter.  In other cases, legal action, such as a defamation lawsuit, may be required to stop ongoing damage or serious problems.

Regardless of the situation, Connecticut businesses should, at a minimum, monitor cyberspace for defamatory comments.  Comments that might lead to a lawsuit could come from your own employees, a competitor, or a disgruntled customer.  A written policy is a good way to minimize risks of employee comments.  As for competitors and customers, Google alerts is a good way to monitor use of a business’ name on the Internet. The alert will send you an email every time your business name is found on the internet. 

Will Connecticut’s Win In Second Round Of Public Nuisance Lawsuit Open Floodgates For Global Warming Claims?

Connecticut has taken center stage as lead plaintiff in round two against six power companies for public nuisance over global warming.  In Connecticut v. American Electrical Power Co., eight States brought a lawsuit to stop ongoing contributions to global warming.  The States brought the suit under a theory of common law nuisance.  Although the case was dismissed at the trial level, the Second Circuit Court of Appeals overturned the decision and held that the States can pursue their claims for federal common law nuisance.

This case has been watched closely ever since it was filed in 2004 and argued in 2006.  The court of appeals decision allowing the case to proceed now has caused some very different reactions amongst attorneys, environmentalists and business leaders.   

The Global Climate Law Blog offered its comments on the decision noting that the case is long from over and future battles in the case will likely involve causation.  Hannah McCrea of The Grist noted  in a very detailed review of the case that it was a historic ruling to "be celebrated and utilized by environmentalists."  

Lisa Rickard, president of the U.S. Chamber Institute for Legal Reform (representing 3 million businesses) issued this statement claiming the decision will "further line the pockets of trial lawyers."  She opined that the decision to permit public nuisance claims to go forward could lead to mass tort claims against businesses for contributions to global warming.  Seth Jaffe an environmental attorney with Foley Hoag offered a good legal review concluding that a number of defenses remain in the case for the power companies but environmental plaintiffs relying on nuisance claims may get new life from the decision.

My own take is that the case represents a fascinating intersection of law, politics, and activism surrounding the global climate change debate.   The case is being dissected all over the country with predictions of mass tort actions against businesses, congressional legislation, and new EPA regulations.  My own prediction is that the litigation appears far from over and an appeal to the United States Supreme Court is likely.  Any adverse impact to Connecticut businesses for nuisance claims is not at all clear at this point.  

 

Connecticut Business Litigation And Improper Interference With A Business Contract

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.