Robert J. MCKAY
v.
Stuart L. LONGMAN et al.
Argued
November 15, 2018
Appeal
from the Superior Court, Judicial District of
Stamford-Norwalk, Povodator, J.
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James
R. Fogarty, Old Greenwich, for the appellant in Docket No. SC
20013 and appellee in Docket No. SC 20014 (plaintiff).
Gary S.
Klein, Stamford, with whom was Todd R. Michaelis, Waterbury,
for the appellees in Docket No. SC 20013 and appellants in
Docket No. SC 20014 (named defendant et al.).
David
K. Fiveson, pro hac vice, with whom was Gerald L. Garlick,
West Hartford, for the appellee in Docket Nos. SC 20013 and
SC 20014 (defendant Manufacturers and Traders Trust Company).
Robinson,
C. J., and Palmer, DAuria, Mullins, Kahn and Ecker,
Js.[*]
OPINION
KAHN,
J.
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[332
Conn. 399] These consolidated appeals require us to consider
three main issues: (1) whether a plaintiff who is neither a
party to a mortgage nor an intended beneficiary thereof has
standing to challenge the enforceability of that mortgage
under the Connecticut Limited Liability Company Act, General
Statutes (Rev. to 2017) § 34-130; [1] (2) whether specified
transfers between an owner of property and the limited
liability companies of which he is either an officer or
equity holder constitute fraudulent transfers under the
Connecticut Uniform Fraudulent Transfer Act (CUFTA), General
Statutes § § 52-552e (a) (1) and (2) and 52-552f; and (3)
whether this court recognizes the doctrine of reverse
piercing of the corporate veil and, if so, whether the trial
court properly applied the doctrine to the facts in the
present case. The plaintiff, Robert J. McKay, and the
defendants Stuart L. Longman and various entities related to
him— Sapphire Development, LLC (Sapphire); Lurie
Investments, LLC (Lurie); R.I.P.P. Corp. (R.I.P.P.); 2 Great
Pasture Road Associates, LLC (Great Pasture); W.W. Land
Company, LLC (W.W. Land); Solaire Development, LLC; Solaire
Management, LLC; and Solaire Funding, Inc. (collectively,
corporate defendants)— filed separate
appeals,[2] following a bench trial, from the
trial courts judgment.
[332
Conn. 400] The present case arises from the plaintiffs
efforts to enforce a foreign judgment. The trial court found
the following facts. In July, 1996, after a falling out
between the plaintiff and Longman, who were once business
partners, the plaintiff obtained a judgment in New York
against Longman in the amount of $3,964,046.86 on the basis
of the New York trial courts finding that Longmans actions
constituted affirmative fraud against the plaintiff and that
Longmans conduct was gross, wanton and wilful (New York
judgment).[3] The plaintiff promptly filed a
certified copy of
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the New York judgment in Connecticut. The plaintiffs efforts
over the years to collect on the New York judgment have been
unsuccessful, including his attempts to attach Longmans
assets, which, over time, were in the form of two Connecticut
properties: real property located in Ridgefield, which was
the location of Longmans family residence (Ridgefield
Property), and real property located in Greenwich (Greenwich
Property).
Throughout
the relevant time period, Longman transferred ownership of
the Ridgefield and Greenwich Properties between himself and
his various entities. Included among these land transfers are
three contested transactions that "[set] the stage for
... the predominant issues [on appeal]." Those three
transactions, the additional details of which we set forth as
necessary, occurred on the following dates and between the
following parties. First, in October, 2007, Sapphire, a real
estate development business owned partly by Longman that held
record title to the Ridgefield Property during that time,
obtained a loan from the defendant Manufacturers [332 Conn.
401] and Traders Trust Company (M & T Bank)[4] secured by a
mortgage against the Ridgefield Property. Second, in
November, 2007, after Sapphire obtained the M & T mortgage
and transferred title to the Ridgefield Property to Longman,
Longman obtained a loan from J.P. Morgan Chase Bank, N.A.
(Chase Bank), also secured by a mortgage against the
Ridgefield Property (Chase Bank mortgage), and transferred
title to that property back to Sapphire. Finally, in
February, 2010, Longman individually acquired the Greenwich
Property and transferred title of that property to Lurie,
another real estate development business owned partly by him,
allowing Lurie to sell the property to a bona fide purchaser
several weeks later. Each of these contested transactions
occurred and was recorded "prior to any filing of a lis
pendens or judgment lien by the plaintiff ...."
After
learning of these and other transactions entered into by
either Longman or the entities he purportedly controlled, in
October, 2010, the plaintiff filed an eight count complaint
against Longman and twenty entities affiliated with him, M &
T Bank, and The Savings Bank of Danbury. See footnote 2 of
this opinion. The action by the plaintiff included, inter
alia,[5] three main claims [332 Conn. 402] that
are before us on appeal. First, the plaintiff alleged that
various land transfers from Longman to entities he
controlled— including his November, 2007 transfer of
the Ridgefield Property to Sapphire and his February, 2010
transfer of the Greenwich Property to Lurie— violated §
§ 52-552e (a) (1) and (2) and 52-552f of CUFTA, and requested
that the trial court impose constructive trusts on the
Ridgefield Property and the
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proceeds from the sale of the Greenwich Property. Second, the
plaintiff alleged that the M & T mortgage was unenforceable
under § 34-130 and requested that the trial court declare it
void in order to render the Ridgefield Property
"unencumbered" by that mortgage when the plaintiff
enforced the New York judgment against Longman and the
corporate defendants. Third, the plaintiff alleged that the
corporate defendants constituted alter egos of Longman and
requested that the trial court apply reverse veil piercing to
the corporate defendants "to the extent necessary to
satisfy the [New York] judgment."
After
an eight day bench trial, the trial court rendered judgment
relevant to the issues on appeal in the following manner. The
trial court rendered judgment as to counts one, three, and
four in favor of M & T Bank, holding, inter alia, that the
plaintiff lacked standing to challenge the M & T mortgage.
The trial court rendered judgment as to counts three through
eight in favor of the plaintiff as against Longman, Sapphire,
Lurie, R.I.P.P., and Great Pasture. As against W.W. Land and
Solaire Development, LLC, Solaire Management, LLC, and
Solaire Funding, Inc. (Solaire entities), however, the trial
court rendered judgment as to counts seven and eight in their
favor. These consolidated appeals followed.
In
order to place the parties arguments on appeal in the proper
context, we begin by outlining the trial courts decision.
First, the trial court rendered judgment [332 Conn. 403] in
favor of the plaintiff as to counts three and four of his
substituted complaint in the form of a declaratory judgment
avoiding and setting aside the fraudulent transfer of the
Ridgefield Property by Longman to Sapphire. Second, the court
imposed a constructive trust on the Ridgefield Property,
subjecting it to all postjudgment remedies that may be
applicable. Third, the trial court rendered judgment in favor
of the plaintiff as to counts five and six of his substituted
complaint in the form of a declaratory judgment avoiding and
setting aside the fraudulent transfer of the Greenwich
Property by Longman to Lurie. Fourth, the trial court imposed
a constructive trust on all moneys received from or other
items of value acquired through the transfer of the Greenwich
Property. Fifth, in addition to this constructive trust, the
trial court entered an award of $250,000 in damages in favor
of the plaintiff and against Lurie. Sixth, the trial court
rendered judgment in favor of the plaintiff as to counts
seven and eight of his substituted complaint in the form of a
judgment declaring that Sapphire, Lurie, R.I.P.P., and Great
Pasture are alter egos of Longman, and, as such, "their
separate corporate existence shall be disregarded for
purposes of satisfying the debt of ... Longman to the
plaintiff," and enjoined those defendants from disposing
of any assets prior to the satisfaction of the plaintiffs
foreign judgment. Seventh, the trial court rendered judgment
in favor of M & T Bank as to all the claims asserted against
it, including the plaintiffs claim under counts one, three,
and four that a mortgage on the Ridgefield Property between M
& T Bank and Sapphire (M & T mortgage) should be declared
void. Eighth, the trial court rendered judgment in favor of
the Solaire entities and W.W. Land as to all counts asserted
against them.[6]
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[332
Conn. 404] The plaintiff appeals from the trial courts
judgment in favor of M & T Bank as to its claim under counts
one, three, and four that the M & T mortgage should be
declared void. The plaintiff claims that the trial court
incorrectly determined that he lacked standing to challenge
the enforceability of that mortgage under § 34-130 (b), (c)
and (d), because those subsections are silent as to who may
bring a claim under them. M & T Bank responds that the trial
court properly held that, as neither a party to nor an
intended beneficiary of the mortgage between it and Sapphire,
the plaintiff lacked standing to challenge it.[7]
[332
Conn. 405] Longman and the corporate defendants appeal from
the trial courts judgment as to counts three through six
whereby that court rendered two declaratory judgments
avoiding and setting aside two specified transfers— one
between Longman and Sapphire and the other between Longman
and Lurie— under § § 52-552e (a) (1) and (2) and
52-552f of CUFTA, and imposed constructive trusts on the
Ridgefield Property and the proceeds from or other items
acquired through the sale of the Greenwich Property. Those
defendants claim that, with respect to both transfers at
issue, Longman did not transfer an "asset," which
is required in order to find that a transfer is fraudulent
under CUFTA. In response, the plaintiff claims that Longman
and the corporate defendants misconstrue the facts and case
law applicable to the question of whether the transfers were
fraudulent and asks this court to uphold the trial courts
determination.
Additionally, Longman and the corporate defendants appeal
from the trial courts judgment as to counts seven and eight
whereby that court rendered a judgment declaring that
Sapphire, Lurie,
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R.I.P.P., and Great Pasture constitute alter egos of Longman
and, as such, applied the doctrine of reverse piercing of the
corporate veil to reach their assets to satisfy the
plaintiffs foreign judgment. Those defendants claim that the
reverse piercing doctrine conflicts with Connecticut law and
that, in the alternative, the evidence in the present case
does not support the application of reverse piercing. The
plaintiff responds that this court should recognize reverse
veil piercing as a viable remedy and conclude that the trial
court properly applied the doctrine in the present case with
respect to Sapphire, Lurie, R.I.P.P., and Great Pasture.
[332
Conn. 406] The plaintiff appeals separately, however, from
the trial courts judgment as to counts seven and eight
rendered in favor of the Solaire entities and W.W. Land with
respect to that courts refusal to declare those entities
alter egos of Longman. The plaintiff claims that the trial
courts findings supported reverse piercing as to those
entities. Longman and the corporate defendants respond that,
if this court were to adopt reverse veil piercing, the trial
court properly declined to apply it with respect to these
four entities, because these entities are engaged in
legitimate businesses and the application of reverse piercing
would affect nonculpable parties who have an interest in
those companies. We affirm the judgment of the trial court.
I
STANDING
Because
the question of standing implicates subject matter
jurisdiction, we first consider the plaintiffs claim that
the trial court improperly held that he lacked standing to
bring an action under § 34-130,[8] challenging [332 Conn.
407] the sufficiency of Longmans authority, as a member of
Sapphire, to bind the company to the mortgage agreement
between it and M & T Bank. The plaintiff challenges the trial
courts determination that he lacked standing to challenge
the M & T mortgage, because, although he was a stranger to
the
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transaction, he claims that the trial court did not analyze
whether he lacked standing specifically under § 34-130, a
statute that he claims was intended by the legislature to
authorize third parties like him to bring claims. The
threshold issue we must address, therefore, is whether the
plaintiff is an individual who can challenge an alleged
failure by Longman to comply with the requirements of §
34-130 when entering into a contract, when the plaintiff is
neither a party to nor an intended beneficiary of that
contract. We conclude that the trial court correctly
determined that the plaintiff lacked standing to challenge
the M & T mortgage.[9]
The
record reveals the following additional facts that are
relevant to our resolution of this claim. In October, 2007,
Sapphire entered into a loan agreement with M & T Bank,
secured by the $2.5 million M & T mortgage on the Ridgefield
Property. Longman, acting as one of Sapphires
members,[10] executed the mortgage documents.
[332 Conn. 408] At the time he executed those documents,
however, Longman owned only a 5 percent interest in Sapphire,
with the remaining 95 percent interest owned almost
exclusively by his wife, Gayla Longman (Gayla). Longman did
not request Gaylas approval before executing the M & T
mortgage.
Among
its provisions, Sapphires operating agreement vested in the
operating manager the authority to manage the company,
"[e]xcept for actions requiring the approval of the
[m]embers pursuant to the provisions of the [Connecticut
Limited Liability Company] Act, the [a]rticles [of
organization], or this [operating] [a]greement ...."
Under the same section, the operating agreement noted that
the operating manager "shall not have the
authority" to mortgage any property of Sapphire without
the approval of a supermajority of Sapphires members, which
was defined as "[m]embers holding an aggregate of ...
100 [percent] or more of the [p]ercentage [i]nterests held by
all [m]embers."[11]
At
trial, M & T Bank introduced into evidence Sapphires 2008
statement of annual resolutions, which was signed by Gayla on
January 27, 2008, a few months after Sapphire entered into
the M & T mortgage, and contained a provision resolving
"that all prior acts of the officers ... including but
not limited to entering into agreement[s] and executing
documents prior to the adoption of said resolutions ... are
hereby ratified." Gayla testified at trial that, upon
signing the document, she intended to ratify all the acts
taken by Longman on behalf of Sapphire prior to January,
2008.
The
plaintiff asked the trial court to declare the M & T mortgage
unenforceable under § 34-130, because Sapphires operating
agreement did not authorize Longman, a 5 percent shareholder,
to obtain a mortgage from M & T Bank without approval from
Gayla, and because [332 Conn. 409] M & T Bank had failed to
confirm whether the mortgage to Sapphire had been approved
according to the terms of that operating agreement. Although,
ultimately, M & T Bank argued that Gayla ratified Longmans
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actions, it first claimed that the trial court lacked subject
matter jurisdiction over the plaintiffs claim, because the
plaintiff, who was neither a party to nor a third party
beneficiary of the mortgage, lacked standing to challenge its
enforceability.
The
trial court determined that, "[a]bsent a viable claim
that the mortgage transaction was a fraudulent transfer ...
the plaintiff [lacked standing] to challenge the sufficiency
of the ratification process." The court reasoned that
"the plaintiff ... provided no authority that a
third-party stranger to a transaction has the right to
challenge the ratification of the transaction ... when the
actual parties have done everything possible to show consent
and have engaged in substantial performance."
On
appeal, we begin with the general principles governing
standing to assert a claim. "If a party is found to lack
standing, the court is without subject matter jurisdiction to
determine the cause.... A determination regarding a trial
courts subject matter jurisdiction is a question of law.
When ... the trial court draws conclusions of law, our review
is plenary and we must decide whether its conclusions are
legally and logically correct and find support in the facts
that appear in the record....
"Standing is not a technical rule intended to keep
aggrieved parties out of court; nor is it a test of
substantive rights. Rather it is a practical concept designed
to ensure that courts and parties are not vexed by suits
brought to vindicate nonjusticiable interests and that
judicial decisions [that] may affect the rights of others are
forged in hot controversy, with each view fairly and [332
Conn. 410] vigorously represented.... These two objectives
are ordinarily held to have been met when a complainant makes
a colorable claim of direct injury he has suffered or is
likely to suffer, in an individual or representative
capacity. Such a personal stake in the outcome of the
controversy ... provides the requisite assurance of concrete
adverseness and diligent advocacy.... The requirement of
directness between the injuries claimed by the plaintiff and
the conduct of the defendant also is expressed, in our
standing jurisprudence, by the focus on whether the plaintiff
is the proper party to assert the claim at issue....
"Two broad yet distinct categories of aggrievement
exist, classical and statutory.... Classical aggrievement
requires a two part showing. First, a party must demonstrate
a specific, personal and legal interest in the subject matter
of the [controversy], as opposed to a general interest that
all members of the community share.... Second, the party must
also show that the [alleged conduct] has specially and
injuriously affected that specific personal or legal
interest.... Statutory aggrievement [however] exists by
legislative fiat, not by judicial analysis of the particular
facts of the case. In other words, in cases of statutory
aggrievement, particular legislation grants standing to those
who claim injury to an interest protected by that
legislation." (Internal quotation marks omitted.)
PNC Bank, N.A. v. Kelepecz, 289 Conn. 692, 704-705,
960 A.2d 563 (2008).
"In
order to determine whether a party has standing to make a
claim under a statute, a court must determine the interests
and the parties that the statute was designed to protect....
Essentially the standing question in such cases is whether
the ... statutory provision on which the claim rests properly
can be understood as granting persons in the plaintiffs
position a right to judicial relief.... [Stated differently,
the] plaintiff must be within the zone of interests protected
by
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the statute." (Citation omitted; internal quotation [332
Conn. 411] marks omitted.) McWeeny v. Hartford, 287
Conn. 56, 65, 946 A.2d 862 (2008).
The
issue of whether an individual who was neither a party to nor
an intended third-party beneficiary of a mortgage between a
limited liability company and a bank falls within the zones
of interests protected by § 34-130 so as to afford him
standing to challenge whether a member of the limited
liability company that executed the mortgage agreement as the
companys agent possessed sufficient authority to bind the
company through his actions presents a question of statutory
interpretation, over which we exercise plenary review, guided
by well established principles regarding legislative intent.
See, e.g., Kasica v. Columbia, 309 Conn. 85, 93, 70
A.3d 1 (2013) (explaining plain meaning rule under General
Statutes § 1-2z and setting forth process for ascertaining
legislative intent).
On the
basis of the plain language of this statute, only members and
managers— who represent either their own interests as
agents or those derivative of the limited liability
company— and the parties with whom those members or
managers contract fall within the zone of interests protected
by § 34-130. We begin by noting that the statutory language
found in § 34-130 (b), (c) and (d) governs the agency powers
of members and managers to execute legal instruments in
different contexts, including ordinary business transactions,
extraordinary business transactions, transactions entered
into under a member-managed limited liability company, and
transactions entered into under a manager-managed limited
liability company. A limited liability company may be
"member-managed" or "manager-managed."
See General Statutes (Rev. to 2017) § 34-140 (a) and (b). By
default, the members of a limited liability company manage
the companys affairs. The members, however, may, in the
articles of organization, vest management of the business in
a manager or managers. See General Statutes (Rev. to 2017) §
34-140 (a) and (b).
[332
Conn. 412] General Statutes (Rev. to 2017) § 34-130 (b),
which addresses situations in which the limited liability
company is manager-managed, provides in relevant part that a
"manager ... execut[ing] ... any instrument, for
apparently carrying on in the usual way the business or
affairs of the ... company ... binds the limited liability
company, unless the manager so acting has, in fact, no
authority to act for the ... company in the particular matter
and the person with whom he is dealing has knowledge
of [that] fact ...." On its face, this subsection deals
with protecting the interests of the party with whom the
agent of a limited liability company contracts when that
party is unaware that the agent lacks authority and seeks to
enforce an agreement made between it and the agent. See 2
Restatement (Third), Agency § 6.01, comment (b), p. 4 (2006)
("[a]n agent has power to make contracts on behalf of
the agents principal when the agent acts with actual or
apparent authority").
Section 34-130 (c), by contrast, addresses situations in
which a member or manager acts as an agent and that member or
manager "is not apparently ... carrying on in the usual
way the business or affairs of the ... company," in
which case his actions "[do] not bind the ... company,
unless authorized in accordance with the operating agreement
...." Subsection (c) appears to create a protection for
the limited liability company itself, by restricting agents
of the limited liability company from binding the limited
liability company to extraordinary dealings, unless
previously agreed on in the operating agreement.
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Finally, § 34-130 (d), which also governs actions by the
managers and members as agents of the limited liability
company, provides that "[a]n act of a manager or member
in contravention of a restriction on authority shall not
bind the limited liability company to persons having
knowledge of that restriction." (Emphasis [332 Conn.
413] added.) Unlike subsections (b) and (c), which protect
the contracting parties when the agent does not have actual
authority to act on behalf of the limited liability company,
§ 34-130 (d) addresses situations in which the agent has
apparent authority to act on behalf of the limited liability
company. On the one hand, this subsection protects the
unknowing party with whom the agent contracts, as it prevents
the limited liability company from subsequently avoiding
liability by alleging that the agent lacked authority to
enter into the agreement. On the other hand, it also protects
the limited liability company from being bound to
transactions in which the party with whom the agent is
contracting knows of a restriction on the agents authority
to enter into an agreement on behalf of its principal. See 3
Am.Jur.2d 516, Agency § 74 (2013) ("[t]he doctrine ...
may not be invoked by one who knows or has good reason to
know the limits and extent of an agents authority").
We
conclude that the plaintiff in the present case, who was
neither a party to the M & T mortgage nor a third-party
beneficiary of it, does not fall within the zone of interests
that § 34-130 was meant to protect.[12] The plaintiff
does not claim that he was either a member or manager of
Sapphire; nor does he claim that he was a party to the
mortgage agreement. Additionally, the plaintiff failed to
establish that he was an intended third-party beneficiary of
the mortgage. At the time Sapphire [332 Conn. 414] and M & T
Bank entered into the mortgage agreement, the plaintiff had
not yet recorded a lis pendens on the land records and,
therefore, had no recorded title interest in the
property.[13]
The
plaintiff asks this court, however, to interpret the
statutes silence as to who may bring an action under §
34-130 as an indication of the legislatures affirmative
intent to allow persons other than members or managers of the
limited liability company or the party with whom its agent
contracts to bring a claim challenging the enforceability of
an agreement between those two parties. That interpretation
is inconsistent with the general contract
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principle, articulated by this court, that "one who [is]
neither a party to a contract nor a contemplated beneficiary
thereof cannot sue to enforce the promises of the contract
...."[14] (Internal quotation marks omitted.)
Tomlinson v. Board of Education,226 Conn. 704, 718,
629 A.2d 333 (1993). We observe that other courts have
applied this proposition in the context of mortgages.
See, e.g., [332 Conn. 415] In re Espanol,
509 B.R. 422, 429 (Bankr. D. Conn. 2014) (citing
Tomlinson and holding that "[o]nly a party to
the contract or intended [third-party] beneficiary has
standing to challenge or seek to enforce the terms of [a]
mortgage"); Cimmino v. Household Realty Corp.,104 Conn.App. 392, 393, 395-96, 933 A.2d 1226 (2007) (citing
Tomlinson and holding that plaintiff lacked standing
to request that judgment of strict foreclosure on residence
in which he lived be set aside because he was not party to
mortgage on which bank ...