United States District Court, D. Connecticut
INTELICLEAR, LLC; A. MARTINHO BARRETTO; JOHN PAUL DEVITO; and GUY T. POWELL, Plaintiffs,
ROBERT J. VICTOR, Defendant.
RULING ON COUNTERCLAIM DEFENDANTS' MOTION TO
DISMISS FOR LACK OF STANDING AND FAILURE TO STATE A
BOND ARTERTON, U.S.D.J.
InteliClear filed this action on August 17, 2016 against
Defendant Robert J. Victor ("Victor") alleging
breach of fiduciary duty (Count One); civil theft in
violation of Conn. Gen. Stat. § 52-564 (Count Two);
conversion (Count Three); and demanding an accounting of all
financial transactions regarding InteliClear assets and funds
performed by Victor or at his direction (Count Four). On
September 1, 2016 Plaintiff filed an Amended Complaint [Doc.
# 10] adding a claim for tortious interference with business
expectancies (Count Five); and seeking a declaratory judgment
(Count Six). On January 19, 2017 InteliClear filed its Second
Amended Complaint [Doc. # 66], in which Barretto, Powell, and
DeVito joined the case as plaintiffs. Defendant's Answer
[Doc. # 83] was filed February 15, 2017.
also filed an Amended Counterclaim ("Counterclaim")
[Doc. # 78] February 13, 2017 asserting ten counterclaims
against Powell, Barretto, DeVito and Brandon Consulting
("Brandon"). In his individual capacity, Counterclaim
Plaintiff Victor asserts the following claims: (1) an
injunction against all Counterclaim Defendants (Count One);
(2) damages for conspiracy against all Counterclaim
Defendants (Count Two); (3) breach of contract against
Powell, Barretto, DeVito and InteliClear (Count Three); (4)
fraud/intentional misrepresentation against Powell, Barretto,
DeVito and InteliClear (Count Five); (5) breach of fiduciary
duty against Powell, Barretto and DeVito (Count Seven); (6)
reformation of the Operating Agreement provisions relating to
dissociation of Members (Count Nine); and (7) a declaratory
judgment of the parties' rights and responsibilities
under the Operating Agreement and the Members Agreement
against Powell, Barretto, DeVito and InteliClear (Count Ten).
Derivatively, on behalf of InteliClear, Victor asserts as
counterclaims: (1) tortious interference with business
relationships against Powell, Barretto and DeVito (Count
Four); (2) fraud/intentional misrepresentation against
Powell, Barretto, and DeVito (Count Six); and (3) violations
of the Connecticut Unfair Trade Practices Act, Connecticut
General Statutes §§ 42-110a et seq.
("CUTPA") against Barretto (Count Eight).
Defendants InteliClear, Barretto, Powell and DeVito
("Counterclaim Defendants") move [Doc. # 89] for
dismissal of Counts One through Nine of the Amended
Counterclaim. Oral argument was held July 5, 2017. For the
reasons that follow, Counterclaim Defendants' Motion is
granted in part and denied in part.
began to work on the design of a new securities clearing and
settlement software product in 2002, and over the next
several years he invested substantial time, effort, and
resources in developing the product. (Amended Counterclaim
("Am. Counterclaim") ¶¶ 18-19.) In
January 2005 Powell, Barretto and DeVito joined as Members of
the Company and InteliClear adopted its present name,
Operating Agreement, and Members Agreement. (Id.
¶¶ 23-24, 28.)
was appointed General Manager with broad powers to run the
Company. (Id. ¶ 29.) Under Victor's
management, InteliClear grew and achieved a high level of
success. (Id. ¶ 27.) As the value of
InteliClear increased and a pending transaction which would
provide a substantial benefit to InteliClear and its Members
approached fruition in August 2015, Powell, Barretto, and
DeVito, undertook actions in contravention of the Operating
Agreement, to take over control of InteliClear and force
Victor out of the company, resorting to disparagement,
threats, intimidation, and extortion. (Id.
¶¶ 34-35.) Their actions caused this
transaction to fail, resulting in harm to InteliClear's
business and reputation. (Id. ¶¶ 58-59.)
the other Members passed "Resolutions" that were
not approved by the requisite voting percentage of the
Members to: (a) remove Victor as General Manager; (b) change
the Company's principal office; (c) close its bank
accounts and take control of its funds; (d) open a new bank
account and write unauthorized checks; (e) interfere with the
Company's customer relationships and sources of revenue;
and (f) interfere with Victor's ability to make a living.
(Am. Counterclaim ¶36-38.) When Powell,
Barretto, and DeVito directed InteliClear's bank to close
its accounts in Connecticut, the bank froze the accounts.
(Id. ¶ 39.) They also opened a new and
unauthorized bank account in New Jersey, over which Victor
had no signature authority, and executed a lease for the
Company's office space in New Jersey that was not
authorized by Victor. (Id. ¶¶ 40, 43.)
also alleges that Powell and Barretto conspired with Brandon,
a company controlled by Barretto that provides computer
programmers and other services to InteliClear. (Id.
¶¶ 44-45.) Because Brandon did not keep proper
records of its activities on behalf of InteliClear, neither
InteliClear nor Victor were able to determine whether
Brandon's charges were justified by the services it
purported to provide, nor could they identify work or
services which may be properly chargeable to clients.
(Id. ¶¶ 44-47.) Barretto eventually told
Victor that there was only a nominal markup of approximately
three percent and also claimed that Victor had been aware of
this markup. However, when Victor demanded to know the actual
markup and requested documentation, Barretto refused to
provide the information, claiming it was proprietary to
Brandon. (Id. ¶¶ 48-49.) Victor believes
the actual markup imposed by Brandon is higher than three
percent and a reasonable estimate of the cumulative amount of
the markup is hundreds of thousands of dollars. (Id.
governance over the years was informal and its policies
regarding Members' benefits and expense allowances had
been liberal. (Am. Counterclaim ¶ 60.) In addition,
Powell and Barretto have repeatedly obligated InteliClear to
pay sums in excess of $5, 000 without the Super Maj ority
Vote required by its Operating Agreement. (Id.)
Nonetheless, in what Victor claims to be an effort to force
him out of the Company, Powell, DeVito and Barretto demanded
extensive documentation regarding Victor's expenses going
back to the inception of InteliClear, and used this
information in order to claim, and to cause InteliClear to
claim, misconduct by Victor. (Id. ¶ 62.)
Despite this, Powell and Barretto have refused to hold their
own claims for expense payment and reimbursement to the same
standard and have routinely charged and been reimbursed for
items that are not ordinary business expenses. (Id.
September 2015, Powell and Barretto's actions led Victor
to commence an action in the Connecticut Superior Court,
which included a Verified Complaint and Application for
Temporary and Permanent Injunction ("the Litchfield
Action"). (Id. ¶ 65.) Victor also sought
an order in the Litchfield Action directing the defendants to
provide him a full and functioning version of
InteliClear's software accessible by computer. (Id.
¶ 66.) On October 13, 2015 the parties to that
Action entered into a stipulated agreement on the record.
(Id. ¶¶ 67-68.) The agreement entered as
an Order of the court and included that Powell and Barretto
would not further interfere with InteliClear's bank
accounts. (Am. Counterclaim ¶ 68.) They also agreed (and
the Court directed) that disputes concerning InteliClear,
which the parties could not resolve, would be submitted to
Justice C. Ian McLachlin (Ret.) for resolution. (Id.
¶ 69.) Based upon these agreements, a scheduled
hearing on the application for injunction in the Litchfield
Action was cancelled. (Id. ¶ 70.) On May 26,
2016 the defendants removed the Litchfield Action to federal
court (the "Federal Action"). On August 12, 2016,
Victor filed a voluntary dismissal of the Federal Action,
without prejudice. (Id. ¶ 72.)
August 16, 2016, Powell, Barretto, and DeVito, denominating
themselves "non-defaulting parties" under the
parties' "Members Agreement, " purported to
dissociate Victor as a Member of InteliClear and to remove
him as its General Manager. (Id. ¶ 74.) The
next day, Powell, Barretto, and DeVito, claiming to act as
the sole members of InteliClear, and Barretto, claiming to
act as General Manager, again caused InteliClear's bank
to freeze its account and attempted to move the funds to a
bank account in New Jersey over which Victor has no access.
(Am. Counterclaim ¶ 75.) That same day, August 17, 2016,
Powell and Barretto caused InteliClear to initiate the
instant federal court action against Victor. (Id.
more recent actions by Powell, Barretto and DeVito were taken
soon after Victor presented them with a memorandum and term
sheet for a transaction, potentially worth more than twelve
million dollars, for the sale of the company and soon after
Victor made additional efforts to stop their unauthorized
actions and require accountability for payment of services to
Brandon. (Id. ¶ 78.) Their actions caused
InteliClear to lose the opportunity to complete the potential
August 23, 2016 Powell, Barretto and/or DeVito filed
documents with the Connecticut Secretary of State,
purportedly on behalf of InteliClear, reflecting their
purported removal of Victor as General Manager and Member of
InteliClear. (Id. ¶ 81.) Powell, Barretto
and/or DeVito, also contacted InteliClear's clients and
misrepresented to them the validity of their actions with
respect to InteliClear and directed clients to send payments
to addresses and accounts controlled by them. (Id.
¶ 82.) Powell, Barretto and DeVito also misrepresented
to clients that there has been a final determination that
Victor is dissociated from InteliClear and that he embezzled
funds and changed their proportionate shares of the business
to reflect that they are entitled to larger percentages due
to their purported removal of Victor. (Id.
Victor has Standing to Assert Derivative Claims on Behalf of
asserts claims for Tortious Interference with Business
Relationships (Count Four), Fraud (Count Six), and Unfair
Trade Practices (Count Eight) derivatively on behalf of
InteliClear. Counterclaim Defendants maintain Victor lacks
standing to pursue his derivative claims because he does not
adequately represent InteliClear's interests. (Def.'s
Mot. to Dismiss at 27.) Victor maintains that he has standing
to sue derivatively because, as the sole member whose
interests have been targeted individually and who has not
participated in the self-dealing and conflict of interest
transactions alleged in his Counterclaim, he adequately
represents the interests of the only member who would assert
these claims. (Pl.'s Opp'n at 28.)
Gen. Stat. § 52-572J provides in relevant part:
Whenever any corporation or any unincorporated association
fails to enforce a right which may properly be asserted by
it, a derivative action may be brought by one or more
shareholders or members to enforce the right The derivative
action may not be maintained if it appears that the plaintiff
does not fairly and adequately represent the interests of the
shareholders or members similarly situated in enforcing the
right of the corporation or association.
Conn. Gen. Stat. § 33-721 provides: "[a]
shareholder may not commence or maintain a derivative
proceeding unless the shareholder ... (2) fairly and
adequately represents the interests of the corporation in
enforcing the right of the corporation." In turn,
"[a]dequate and fair representation consists of the
nominal plaintiffs having interests and issues coextensive
with those of the class of shareholders he seeks to represent
and being able to assure the trial court that as a
representative, he will put up a real fight." N.
Star Contracting Corp. v. Albright, 156 Conn.App. 311,
318 (2015) (citing Barrett v. S. Conn. Gas Co., 172
Conn. 362 (1977)). "The real issue is whether an inquiry
of all possible antagonisms between the interests of the
representative and those of the class . . . reveals conflicts
which make it likely that the interests of the other
stockholders will be disregarded in the management of the
suit." Barrett, 172 Conn, at 374 (internal
citations and quotation marks omitted).
Barrett, the Connecticut Supreme Court noted that an
important factor in considering whether a "nominal
plaintiff has conflicts that preclude assurance of fair and
adequate representation of all other shareholders" is
whether the plaintiff has previously brought an action
individually against the company he or she now purports to
represent. Id. at 374-75. However, Connecticut
courts have recognized that even a plaintiff who may have a
claim against a company can still adequately represent the
interests of that company in a derivative action.
Beckworth v. Bizier, 138 F.Supp.3d 144, 153-54 (D.
Conn. 2015) (citing Barrett, 172 Conn, at 373)
("Barrett.. . does not hold that a plaintiff
with possible individual claims against the corporation can
never fairly and adequately represent other shareholders in a
derivative action."). "Whether a plaintiff is an
appropriate representative is fact-specific and depends upon
any number of factors, " including:
(1) whether the named plaintiff is the real party in
interest; (2) the plaintiffs familiarity with the litigation
and willingness to learn about the suit; (3) the degree of
control exercised by attorneys over the litigation; (4) the
degree of support given to the plaintiff by the other
shareholders; (5) the plaintiffs personal commitment to the
action; (6) the remedies sought by the plaintiff; (7) the
relative magnitude of the plaintiffs personal interests as
compared to the plaintiffs interest in the derivative action
itself; and (8) the plaintiffs vindictiveness toward the
Fink v. Golenbock, 238 Conn. 183, 205 (1996).
nearly all of the factors weigh in favor of finding Victor
has standing to pursue the claims on behalf of
InteliClear. As the only shareholder not involved in
the actions forming the basis for the derivative claims,
Victor is the real party in interest and is more than
sufficiently familiar with and committed to the litigation.
Moreover, the court in Beckworth concluded with
respect to the seventh Fink factor: where "no
party other than the plaintiffs is likely to pursue the
derivative claims against the defendants, " because the
remaining parties are alleged to have benefitted from the
alleged unlawful actions, the plaintiffs' interest in the
derivative claims was "not outweighed by their personal
interests." 138 F.Supp.3d at 154. In so holding, the
court found significant that the plaintiff had abandoned all
claims in "direct conflict with those of the
corporations they seek to represent." See Id.
at 153. Similarly, Victor's individual claims do not
conflict with InteliClear's claims and thus the seventh
factor also weighs in favor of finding Victor has standing.
Victor is the only individual who would assert the claims in
Counts Four, Six and Eight on behalf of InteliClear because
they are grounded in actions taken by the remaining Members.
Thus, there are no similarly situated shareholders or members
to whom consideration must be given and Victor has standing
to assert claims derivatively on behalf of InteliClear.
Counterclaim Defendants Argue Counts One Through Nine Fail to
State Claims Upon Which Relief can be Granted
Count One: Injunction
Count One of his Amended Counterclaim, "Victor seeks an
injunction requiring that InteliClear recognize his ownership
interest and rights as General Manager and rescind the
improper and unlawful actions taken by the other members by
which they have purported to seize control of
InteliClear." (Am. Counterclaim ¶ 90.) Counterclaim
Defendants, looking to federal law, argue that an injunction
cannot stand as an independent cause of action. See E.
Point Sys., Inc. v. Maxim, No. 3T3-CV-00215 VLB, 2014 WL
523632, at *12 (D. Conn. Feb. 7, 2014) ("E. Point
I") (quoting Williams v. Walsh, 558 F.2d
667, 671 (2d Cir.1977)) ("injunctive relief, does not
constitute [a] separate' cause of action."). Victor,
however, relies upon Connecticut state law, which recognizes
a claim for an injunction as a viable free-standing cause of
action. See Baker v. Town of Cheshire, No.
CV075013602, 2008 WL 1971495, at *9 (Conn. Super. Ct. Apr.
24, 2008J, affd in part, rev'd in part sub nom. Ugrin
v. Town of Cheshire, 307 Conn. 364, 54 A.3d 532 (2012)
C'[i]t appears that a majority of Connecticut courts have
recognized a claim for an injunction as a viable
free-standing cause of action."); Frantz v.
Romaine, No. CV000176623S, 2001 WL 358861, at *2 (Conn.
Super. Ct. Mar. 28, 2001) (finding that the "plaintiff.
. . alleged a legally sufficient cause of action for an
Defendants urge that "[t]he manner of procedure in suits
seeking injunctive relief is governed by federal law."
(Counterclaim Def.'s Reply ("Def.'s Reply")
at 2 (citing 13 James Wm. Moore, Moore's Federal Practice
§ 65.07 (2011).) However, in at least two other
diversity cases, federal district courts looked to state law
to determine whether an injunction could be pled as an
independent cause of action. See In re A Purported
Judgment Lien Against Rose Ann Juarez, No.
3:14-CV-2173-P, 2015 WL 12939259, at *3 (N.D. Tex. Mar. 20,
2015) ("injunctive relief is not an independent cause of
action under Texas law, and thus granting an injunction is
contingent on a viable underlying claim."); Dun v.
Bank of Am., NA, No. 12-11840, 2013 WL 6050140, at *7
(E.D. Mich. Nov. 15, 2013) (citing state court of appeals for
proposition that "an injunction is an equitable remedy,
not an independent cause of action."). Accordingly,
because an injunction is recognized as a freestanding cause
of action under Connecticut law, Count One should not be
dismissed on that basis.
Victor's Counterclaim asserts a cause of action for an
injunction, which is recognized under Connecticut law, but
not federal, the court will look to state law to determine
what he must plead to state this claim. The Connecticut
Supreme Court has held that a "party seeking injunctive
relief has the burden of alleging and proving irreparable
harm and lack of an adequate remedy at law." Tighe
v. Berlin, 259 Conn. 83, 87 (2002). "Although an
absolute certainty is not required, it must appear that there
is a substantial probability that but for the issuance of the
injunction, the party seeking it will suffer irreparable
harm." Id. at 87-88. Counterclaim Defendants
argue that "notwithstanding oblique references to his
'livelihood' and the 'unique value of his
interest as a Member of InteliClear, ' Victor fails to
show that his distributions and other benefits or his
interest in the company cannot be monetized."
(Def.'s Reply at 2.) While Connecticut courts do not
appear to have spoken on this issue, the Second Circuit
recognizes that "the denial of a controlling ownership
interest in a corporation may constitute irreparable
harm." Wisdom Imp. Sales Co. v. Labatt Brewing
Co., 339 F.3d 101, 114 (2d Cir. 2003). The Court thus
finds that Victor has sufficiently pled irreparable harm and
thus denies Counterclaim Defendants' Motion to Dismiss
Count Two: Civil Conspiracy
alleges civil conspiracy among InteliClear, Powell, Barretto,
and DeVito with Brandon "to commit fraud, tortiously
interfere with business relationships . . . [and] to allow
Brandon to impose, collect and retain charges that are
excessive and unfair." (Am. Counter Claim ¶¶
85-86.) Counterclaim Defendants maintain that Victor has not
alleged facts sufficient to establish that any of the alleged
acts constitute a substantive tort that can ...