Connecticut Business Litigation Blog : Connecticut Business Lawyer & Attorney : N. Kane Bennett : Aeton Law Partners LLP : Hartford, Middletown, Glastonbury

Here is a round up of a few interesting business lawsuits making news in Connecticut this past week: 

Smoking Gun "Crap" Email In Case Watched by Wall Street

In Pursuit Partners, LLC v. UBS AG, et al., a 35 million dollar prejudgment remedy was awarded in favor of a Connecticut hedge fund against UBS.  Judge Blawie issued the order in Stamford Superior Court after finding the bank was in possession of material non-public information regarding downgrades to financial products that UBS continued to sell.  This case is getting a lot of attention on Wall Street and reported on by Matthew Goldstein  at seekingalpha.com and Serena NG and Carrick Mollenkamp on WSJ.com. 

The UBS case will be interesting to watch and is another example of the increasing importance of discovering smoking gun emails.  Preliminary discovery in the case turned up internal emails calling some of the financial products "crap."   Here is a docket report on the case. (download).

Fairfield Company Uncovers Fraud and Ejects Board Member

Competitive Technologies (CTT), won a contested default judgment for more than $4 million dollars after discovering a former board member took company money and invested it in a fictitious South American company that did not exist.  Read the report on the case by Michael Juliano of the Connecticut Post.  You can also download here a copy of the judgment from Judge Dorsey who found that the defendants willfully disregarded court orders.  

The fraud was uncovered in part by the work of Breen & Associates.  I have worked with Bill Breen before on several cases.  He is an exceptional fraud investigator and expert.  Looks like he successfully uncovered another financial fraud for a business client.   

Civil Rights Violations Alleged Against Litchfield In Refusing Jewish Temple

Rabbi Joseph Eisenbach has filed a lawsuit in federal court against the Town of Litchfield over the Town's refusal to permit modification of his property for religious purposes.  The complaint (download here) states that the Rabbi is seeking declaratory relief, permanent injunction, and damages for violations of civil rights and the Religious Land Use and Institutionalized Persons Act of 2000.  This case was reported on by Christine Stuart, editor of  CTNews Junkie where a reader left some disturbing comments about anti-semitic statements at the commission hearings on the matter. 

An attorney for the Town has not yet appeared in the case and no answer has been filed. Given the allegations in this Complaint, this is a case that is likely to stay in the news. 

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In Saunders v. Firtel, a decision to be officially released on September 22, 2009, the Connecticut Supreme Court upheld an award of double damages under Connecticut's wage and hour laws in what amounted to a dispute between two business partners, Barry Saunders and Burton Firtel.  The supreme court also upheld judicial dissolution of a company owned by the partners.  The case highlights the complications that can arise between partners when one partner is also an employee in the business.  

In this case, Saunders became part owner of a company that Firtel previously formed by himself.  Saunders also became an employee of the company as part of a larger business relationship.  This is not an uncommon arrangement in business, especially when a small business is purchased by a larger company.    Saunders and Firtel also formed another limited liability company together as equal owners. The business relationship was documented with an operational agreement. 

Although the partners successfully operated the business for years, a dispute arose out of unpaid wages after Saunders unsuccessfully tried to change the compensation structure of the business relationship.  In response, Firtel fired Saunders.  Saunders brought a lawsuit in Connecticut state court for unpaid wages claiming he was an employee.  He also sought to dissolve the limited liability company formed with Firtel. 

A few months ago, Connecticut's wage and hour laws were in the national spotlight because of the scandal with AIG's bonus plan for its employees in Wilton, Connecticut.    AIG claimed that it had to pay the bonuses because it feared double damages under Connecticut's wage and hour laws.  In this instance, Saunders brought his case in court relying on the same provisions that AIG feared. 

Connecticut's unpaid wage law, General Statutes section 31-72 ,provides that:

When any employer fails to pay an employee wages . . . the employee may recover, in a civil action, twice the full amount of such wages, with costs and such reasonable attorney's fees as may be allowed by the court . . 

To recover double damages, although not mentioned in the statute, courts require a finding of bad faith, arbitrariness, and unreasonableness by the employer.  In Saunders' case, he won because the trial court found that the failure to pay was willful.  What might seem strange about the case is that Saunders was not only an employee, but he was also a 49% stockholder and an officer in the company he sued to obtain double damages.  Firtel was a 51% owner, and the President. 

Dan Schwartz's Employment Law Blog has a nice summary of the supreme court's treatment of how Saunders qualified as an employee as well as the implication of the decision on employers.  I tend to agree with Dan that there is no significant impact on employers because if wages are earned, the wages should be paid regardless of the business relationship.

I think the case does highlight important considerations for business partners.  The case demonstrates how a breakdown in the relationship between two business partners can turn into a dispute where one partner effectively ends up in the shoes of the employer subject to wage and hour laws.  This was probably not intended and it is unlikely that Saunders and Firtel viewed themselves as employee and employer.  In fact, they appeared to be nearly equal partners.

The case is also another example of a once successful business partnership ending in arguments over compensation and written agreements.  It further shows that dissolution of a company is another judicial remedy, along with disassociation and expulsion in partnerships, for a company that can no longer operate in a practical manner. 

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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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