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

As a new addition in 2011, I am going to regularly feature new business lawsuits along with the usual trial and appellate decisions of interest in Connecticut.  Here's the first installment:

Appellate Court:

Cianci v. Original Werks, LLC 

Appellate Court finds that $150,000 mechanic's lien was timely filed despite claim that it was made after statutory limit of 90 days from date "services" were performed. The decision includes a discussion of the legislative history of the mechanic's lien statute and the definition of "services" under the statute. The court determined that services includes work done in or utilized in the building to be constructed, raised, removed, or reparied or the improvement of any lot or subdivision. In this case, the court construed the mechanic's lien statute liberally and found that that contractor returning to the property at the request of the homeowner to investigate alleged deficiencies constituted lienable services.

Walpole Woodworkers, Inc.  v. Manning

Appellate Court finds that homeowner who raised the Home Improvement Act's technical requirements of start and finish date in bad faith.  The Home Improvement Act in Connecticut requires registered contractors to include the following in written agreements:

•  signatures of owner and contractor
• name and address of contractor
• cancellation rights
• start date and completion date

Failure to include these requirements can result in technical defenses to enforcement of a  home improvement contract.  However, a homeowner cannot successfully raise these defenses in bad faith.  In this case, the homeowner had no real dispute with the work but refused to pay.  The Appellate Court upheld a finding of bad faith when the homeowner tried to raise the lack of start date and completion date in the contract.

Read here for one of my old posts on Connecticut's Home Improvement Act requirements and defenses.

New Lawsuits:

Environmental Energy Services, Inc v. Cylenchar Limited, et al.  United States District Court.

Plaintiff Environmental is a Connecticut corporation and claims that Defendants (both from England) made misrepresentations which induced plaintiff to perform services. Plaintiff claims breach of a partnership agreement, unjust enrichment, fraud, and violation of Connecticut’s Unfair Trade Practices Act. Plaintiff alleges that it was in a joint venture business with Defendants to market a technology that removes mercury from exhaust gasses in coal fired utilities. Pursuant to the joint venture, Defendants were to provide a significant cash investment, provide technical assistance, and a license. Plaintiff was to market the technology. Plaintiff alleges that it spent significant sums marketing the technology and gaining a trial customer for the new technology at which time the Defendants issued a cease and desist to Plaintiffs and refused to continue with the joint venture.

Tellar v. Webber, et al.  State Judicial District of Hartford.

Plaintiff and Defendant were equal owners of a limited liability company (LLC) engaged in the relish making business.  Plaintiff alleges that Defendant, his co-owner, dissolved the LLC without consent and started another relish business.  Plaintiff alleges the Defendant did so without sharing profits or including Plaintiff.  Plaintiff brought suit as an individual and derivatively on behalf of the the LLC against his co-owner in the LLC and the co-owner's new business.  The Plaintiff claimed breach of contract to share profits, breach of good faith and fair dealing, breach of fiduciary duty, conversion, civil theft, unfair trade practices, and usurping a corporate opportunity.

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In business litigation in Connecticut, attorneys many times seek to impose a constructive trust over assets or income connected to wrong doing, breach of fiduciary duty, or fraud by business partners or agents.  In a decision to be officially released on November 23, 2010, the Appellate Court upheld a trial court's  imposition of a constructive trust over certain assets of a business.  The case is Trevorrow v. Marcuccio, and you can download it here.

A constructive trust is not a real trust.  Rather, it is a judicially created trust and thus the term "constructive."  It arises when one party unjustly holds title or rights to property, such as assets or profits of a business partnership or corporation.  The wrongdoing may involve simply retaining property, misappropriating property, or converting the property into another form.  The trust is imposed against the wrongdoer who will be deemed to hold title of the property for the benefit of the innocent party.  In Trevorrow, the Appellate Court stated:

the issue raised by a claim for a constructive trust is, in essence, whether a party has committed actual or constructive fraud or whether he or she has been unjustly enriched

Typically, you see attorneys seeking constructive trusts in cases involving fraud, duress, breach of fiduciary duty, or some type of commission of a wrong.  However, the Trevorrow court clarified that the equitable remedy of a constructive trust is not only available in cases of actual or constructive fraud, but it is also available in cases where one party has been unjustly enriched at the expense of another even without a finding of wrong doing. 

In short, in Trevorrow, there was no finding of fraud or unethical conduct.  Rather, the court simply found that one person in the business relationship would have been unjustly enriched if permitted to keep the property. The Trevorrow case also serves as reminder that the trial court's enjoy discretionary equitable powers to impose constructive trusts if proper facts are present.

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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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