Primer on Interpleader Actions Under Connecticut Law

The Connecticut Supreme Court (318CR76) recently issued a decision that provides a good overview of Connecticut’s interpleader law.  An action in interpleader is an equitable claim attorneys bring on behalf of clients to resolve ownership over disputed claims to property or money.  The typical case involves a situation where one party is the holder of money and there are two other parties fighting over ownership to the money.  Basically, the holder of funds is giving up the money to the court and throwing up his or her hands and saying “figure it out judge.” To avoid getting sued by either or both parties claiming ownership, the holder of the disputed funds files an interpleader action in state superior court.  The purpose of interpleader law is to avoid multiple lawsuits and to provide a more efficient means of resolving a dispute where the holder of money or property has no real interest in the outcome.

In its recent decision, the supreme court set forth the history of the interpleader action in Connecticut.  Initially, interpleader actions were based on Connecticut’s common law.  However, over 100 years ago, the Connecticut legislature specifically enacted a statutory cause of action for interpleader in section 52-484 of the General Statutes.

Section 52-484 states ‘‘[w]henever any person has, or is alleged to have, any money or other property in his possession which is claimed by two or more persons, either he, or any of the persons claiming the same, may bring a complaint in equity, in the nature of a bill of interpleader, to any court which by law has equitable jurisdiction of the parties and amount in controversy, making all persons parties who claim to be entitled to or interested in such money or other property. Such court shall hear and determine all questions which may arise in the case . . .”

In an interpleader case, the trial court will first determine if there exists legitimate adverse claims to the fund or property at issue and the property holder should be discharged.  Provided such legitimate claims exist, and interpleader is proper under the circumstances, the court will then decide by trial, if necessary, the outcome of the disputed claims.  Some examples where interpleader actions might apply include the following:

  • Life insurance disputes.  A life insurance company may know it has to pay out benefits, but there could be a dispute as to who is entitled to the funds.  For example, suppose a brother and sister dispute who is entitled to a life insurance pay out.  To avoid getting sued directly for improper distribution, the life insurance company brings an interpleader action and allows the brother and sister to fight it out in court.
  • Trust fund.  A trustee of a trust may not have a clear answer as to who to distribute funds to when a trust terminates.  This happens many times when a trust exists for generations and the terms of the trust are not clear.  To avoid trustee liability, the trust will bring an interpleader action if there are legitimate and competing claims to the trust property.
  • Real estate dispute.  In a case where a purchase and sales agreement breaks down, frequently there are issues over what to do with the deposit.  The purchaser’s funds are typically held in escrow by the real estate broker.  What happens when the purchaser demands the money back and the seller says no?  To avoid liability to either the purchaser or seller, the real estate broker might hire an attorney to file an interpleader action. The lawsuit would name both the purchaser and seller as defendants.

In each of these cases, an attorney drafting a lawsuit for interpleader will include all of the potentially interested parties.  The goal of interpleader law is to provide all interested parties an opportunity to resolve all questions of ownership in a single case.  The goal of the holder of funds is to avoid the costs and expense of litigation and a potential judgment for wrongful distribution of funds.  If you or your company is holding funds and multiple parties are claiming ownership, an interpleader action can be an effective means of resolving the dispute.

 

Dissolving A Corporation Under Connecticut Law

Under Connecticut law, there are various methods attorneys may use to dissolve or terminate a corporation.  It is referred to as dissolution of the corporation.  A dissolved corporation continues its corporate shell existence but stops carrying on business except where necessary to wind up the affairs of the company.  Winding up typically involves liquidation by collecting assets, disbursing assets, selling of assets and property, and discharging liabilities.

Corporate dissolution is governed by Connecticut General Statutes Chapter Title 33, Chapter 601, Part XIV.  Dissolution can be accomplished by any of the following:

  • Dissolution by the original incorporators or directors under Connecticut General  – voluntary
  • Dissolution by the board of directors and shareholders – voluntary
  • Dissolution by the Secretary of State – administrative
  • Dissolution by a shareholder proceeding in court – judicial
  • Dissolution by a creditor proceeding in court – judicial
  • Dissolution by a company proceeding in court – judicial

The first two methods are known as voluntary dissolution.  Typically, this means the company directors propose dissolution to the shareholders of the company.   The board typically notifies the shareholders of a meeting to address dissolution.  If the proposal passes, a certificate of dissolution is filed with the Secretary of State.  A company may elect to revoke the dissolution with 120 days by following the same procedure.  A company may have a transaction or business law attorney assist with the necessary documents and voting records.  The company may then proceed with winding up the affairs of the company which requires following the statutory requirements for effective dissolution.

Administrative dissolution typically occurs when the company has failed to maintain a registered agent or to file required reports with the Secretary of State.  For example, if the company fails to file an annual report for more than one year, the Secretary of State may take action and send notice to the company of the deficiency and potential for dissolution.  If there is no response or the deficiencies are not fixed, the Secretary of State of Connecticut may then prepare and file a certificate of dissolution.  Although these forms can be maintained without an attorney, some clients prefer to have a business attorney file the required reports.

Judicial dissolution is started with a lawsuit in court and typically involves litigation attorneys representing the shareholder or shareholders and the company.  Although an individual shareholder can bring an action in court by himself or herself (referred to as “pro se”), shareholders tend to hire attorneys based on the complexity of the proceeding.  Under court rules, the company must have an attorney.

The form of a judicial dissolution lawsuit is varied, but typically you have either a deadlock with management or a disgruntled or oppressed shareholder.  A deadlock occurs in cases of 50/50 control of a company and two groups of shareholders or directors are deadlocked in the management of corporate affairs.  The oppressed shareholder claims are based on a claim of unfairness with respect to ownership of shares in the company.  These cases are sometimes referred to as shareholder oppression actions, freeze out actions, or squeeze out actions.  These terms refer to a claim based on minority shareholder rights as the cases are brought by minority shareholders.

Connecticut General Statutes section 33-896 sets forth that a superior court judge may order dissolution when a shareholder brings an action and can prove 1) that there is a deadlock in management or an inability to elect directors; 2) there is shareholder oppression; or 3) the corporate assets are being wasted.    Seems simple enough.  However, there are complexities to these claims and the parties typically vigorously defend their positions.  Experts are often needed for damages, accounting, and forensics.  Many times, shareholder oppression actions end up on Connecticut’s complex litigation docket.  On this docket, the parties, attorneys, and litigants are subject to a specific set of procedural rules and the case is assigned to one judge for the length of the case.

This post is only an outline of typical examples and there are many details to each aspect of the statutory framework for dissolution.  Before seeking dissolution, shareholders should consider consulting an attorney.  Regardless of involving a lawyer, a shareholder may want to become familiar with the statutory framework for dissolution, the by-laws of the company, shareholder agreements, and the certificate of incorporation.  In a later post, I will go through some of the various types of judicial dissolution actions including oppression claims and the applicable defenses.

Seldom Used Holiday Rule Will Not Save Your Lawsuit Filing Deadline

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.

 

Connecticut Supreme Court and Appellate Court Cases and Briefs Online

There are three good online resources to get information on appellate court cases in Connecticut.  

The first resource is a new addition to the state judicial branch website.  The public now has access to the case and docket information regarding Supreme Court and Appellate cases.  Here is the link.   Previously, you could only access trial level cases.  This is a great addition to the website and will cut down on trips to the clerk’s office to check on the status of a case.

You can get download advanced release opinions from the Supreme Court and Appellate Court.  Here is the link.

You can also download copies of some briefs for cases assigned for argument before the Supreme Court.  Here is the link.  This website is maintained by the Appellate Advocacy Committee of the Connecticut Bar Association. Briefs are typically posted several months after being filed with the court.

Can An Attorney Bind A Client To A Settlement Agreement Even If The Client Did Not Agree?

The answer is –   yes, under the right set of facts.  In Connecticut, attorneys must abide by a client’s decision to settle a case.  Additionally, an attorney has to consult with a client and secure consent to accept or make a settlement offer.  Seems straightfoward, right? 

However, what happens if an attorney reasonably believes he has consent, but the client later disagrees?  Or, what if the client does give consent, but later changes her mind?  Or, how about a situation where it appears to the opposing party that the client’s attorney had authority to settle based on conduct of the client.  Does it matter whether there really was express authority given to the attorney to settle?

In a recently released decision,Ackerman v. Sobol Family Partnership, et al, the Connecticut Supreme Court addressed these very issues.  In the case, the Supreme Court upheld a trial court judgment in favor of a group of defendants that sought to enforce a settlement agreement.  The case involved a history of negotiations between well known attorneys for the two sides, including a failed mediation and a few months of verbal and written exchanges on settlement terms. 

The underlying case involved a dispute concerning "management and oversight of a family partnership and various family trusts."  Shortly before trial was scheduled to start, the defendants believed that a global settlement was reached for 1.1 million dollars based on an agreement with the plaintiffs’ attorney.  The plaintiffs disagreed and claimed that their attorney did not have authority to bind the plaintiffs to the settlement.  The defendants then filed a motion to enforce the settlement agreement.  Judge Eveleigh held a hearing on the motion, made factual findings on the record, and ultimately entered judgment in the case based on the settlement agreement.  

On appeal, the Supreme Court gave deference to Judge Eveleigh’s findings and upheld his decision to enforce the settlement agreement despite one of the plaintiffs stating her attorney had no authority to settle the case.    The Court’s decision was based on the actual or apparent authority that the plaintiffs’ attorney had to settle the case coupled with the defendants’ reasonable belief that the attorney had the authority. 

The following factors, if present, can result in an attorney binding a client to an enforceable settlement agreement whether the client actually agreed or not:

  • Terms of the settlement are clear, certain, and unambiguous
  • Offer and acceptance of the terms
  • Attorney had actual or apparent authority to agree to the terms
  • If apparent authority, then opposing party must have good faith belief that attorney had authority

On the issue of apparent authority, the basic question is whether it reasonably appeared to the opposing party that the attorney had authority to settle regardless of whether there was express authority.  The relevant inquiry for the court is the conduct of the client, not the attorney.  In other words, the client can engage in conduct that permits others to believe the client’s attorney had authority to settle.  For example, a court may find apparent authority existed if the client through her own actions held the attorney out as "possessing sufficient authority" or knowingly permitted the attorney to act with such authority.   If it was reasonable for the opposing party to believe there was authority to settle, a binding agreement can exist.  In these circumstances, as in the Sobol case, the court can enforce a settlement agreement even if the client later claims that there was no actual authority for the attorney to settle the case.  

The take away here is that a settlement agreement negotiated between attorneys can, under some circumstances,  bind a client to the agreement in court even if a client did not intend to agree or the client later changes her mind.  If a client wants to have final approval over every aspect of a settlement agreement, it should be clear to not only the client’s attorney, but also communicated to the opposing party as well. 

Connecticut Civil Procedure – A Law Clerk’s Perspective

Corey Dennis, a former Superior Court clerk in Connecticut, sent me an article he recently published on Connecticut civil procedure.  I am posting the article,  "Roadmap to Connecticut Procedure" (download here), with the permission of the Connecticut Bar Journal and Corey.  The article brings the perspective of a Law Clerk who was involved with the procedural aspects of the Connecticut Superior Court on a regular basis. It is a nice summary of the basics of early motion practice in Connecticut state courts.   The article also has a useful chart on distinctions between state and federal procedure in a few important areas.  Corey practices complex litigation and dispute resolution at Governo Law Firm in Boston, MA.

Complex Litigation Docket For Business Disputes In Connecticut

The Complex Litigation Docket or “CLD” is a special session of the Connecticut Superior Court  designed to accommodate the needs of complex cases.  The Judicial Branch published a fact sheet about the CLD.   Here is a summary of the CLD facts:

  • Designed for cases with intricate legal issues, multiple parties, or significant damages;
  • A single judge is assigned over all aspects of the case, similar to federal court;
  • Assignment of hearing dates for motions instead of the standard "short calendar" sessions;
  • Judges and court officers fully supported by staff with newer technology; and
  • Enhanced use of court-annexed mediation, include special masters.

Any party, or a judge, may request a transfer of a case from the regular Superior Court docket to the CLD.  A request is made by filling out and submitting an application.  Any objection must be filed within 15 days.  The Chief Administrative Judge of the Civil Division handles the request, and a hearing may be held to determine if referral to the CLD is appropriate.  The determination for placement on the CLD is made by an evaluation of several factors listed on the fact sheet.

For many business dispute or commercial cases, the CLD may be an appropriate venue rather than the regular docket.   The CLD is more akin to the federal court.  The benefits of a single judge assignment can be significant as it reduces delays in discovery and motion practice.  The CLD judges have standing orders designed to streamline the process.  Each case is also assigned a court officer who remains involved in the scheduling and administrative process.  In this way, cases are actively managed. 

The CLD also affords an opportunity to change venue in a case.  If your case is in a venue that you deem unfavorable to your case or client, one of three CLD venues (Hartford, Stamford, Waterbury) may be preferable.  You can request a particular venue when applying for the CLD, but there is no certainty that the request for a specific location will be granted.  Nevertheless, any one of the three venues may be preferable to others venues.

Although there are many upsides to the CLD, there are some reasons to stay on the regular docket.  For example, trial dates on the CLD are currently being scheduled 2 to 3 years out from assignment.  Although CLD trial dates are less likely to be continued than dates on the regular docket, CLD cases can take longer to arrive at resolution, especially if trial is necessary.   Also, there can be some gamesmanship involved with referrals to the CLD.  I have seen litigants applying to the CLD simply to delay the proceedings on the regular docket.  There is also a $325.00 fee for the docket.

In most significant business disputes or commercial litigation cases, the advantages available on the CLD, such as the single judge assignment,  may make the CLD the preferable venue. 

 

Did A Secretary Cause A Billion Dollar Default Judgment Against PepsiCo?

Imagine your company is so busy preparing for a board meeting that a secretary sets aside paperwork from a recently served lawsuit for a billion dollars over trade secrets.  Imagine further that your company bureaucracy fails to put it together that a lawsuit has been filed until such a time that your company becomes defaulted in the case, to the tune of $1.26 billion dollars.  Ouch. 

Well, that is exactly what happened at PepsiCo according to a report by Lynne Marek in the National Law Journal.  According to the story, PepsiCo for various reasons, failed to realize a lawsuit had been filed or a motion for default until it was too late.  The case involved allegations that PepsiCo stole trade secrets and ideas for Aqaufina from two Wisconsin men.  When the suit went unnoticed,  a Wisconsin state court judge granted a motion for default against PepsiCo.

Marek writes that PepsiCo is trying to undo the damage and vacate the default.  Perhaps PepsiCo can vacate the default, but if not, it is a devastating blow in litigation to lose your liability defenses. By all accounts PepsiCo indicates the lawsuit is questionable suggesting numerous defenses exist.  Unfortunately, it appears there is a chance they may never get to assert the defenses.

In Connecticut, if you are defaulted for failing to respond to a lawsuit and a default judgment enters against you, you also can lose the ability to defend against the allegations in the complaint.  If you further fail to appear in the case before the court determines the amount of damages (usually at a hearing), then you may also lose your ability to defend against damages claims. Of course, there are various ways to avoid a default judgment (such as filing an appearance before judgment enters), but if a lawsuit is ignored too long, you could face a similar fate as PepsiCo.

To avoid the PepsiCo disaster, Connecticut businesses should have a policy in place to handle all matters related to litigation or lawsuits.  A business should designate one person that all staff can refer litigation issues, lawsuit papers or any other documents.  Lawsuits should be given immediate attention so as to not miss any deadlines. 

In state court, deadlines can determined from civil summons or cover page of the lawsuit. 

  • A defendant has to file an appearance within 2 days of the return date listed on the civil summons
  • A defendant also has 30 days from the return date to file a responsive pleading to the complaint . 

These deadlines should not be ignored.  Although there are methods for vacating a default, even a frivolous lawsuit can end in a judgment if ignored for too long.

Connecticut State Court To Phase In Mandatory E Filing

The Connecticut Judicial Branch will implement mandatory electronic filing in Connecticut state superior courts in all civil cases by December 5, 2009.  The Judicial Branch is also going paperless for short calendar and notices will no longer be sent by paper in the mail (unless the firm or litigant is exempt) starting September 1, 2009.

The mandatory e-filing will be implemented in phases as follows:

E-filing will be available in all remaining civil cases (with few exceptions) starting August 22, 2009.

E-filing is mandatory in all foreclosure cases starting September 1, 2009.

E-filing is mandatory in all remaining civil cases starting December 5, 2009.

Law firms and attorneys can receive e-filing training in each judicial district.

E-filing will be mandatory starting December in Connecticut in both state superior and federal district courts unless a law firm or litigant qualifies for an exemption.