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Metcalf v. Fitzgerald

Supreme Court of Connecticut

September 3, 2019

JONATHAN S. METCALF
v.
MICHAEL FITZGERALD ET AL.

          Argued March 29, 2019

         Procedural History

         Action to recover damages for, inter alia, vexatious litigation, and for other relief, brought to the Superior Court in the judicial district of Waterbury, where the court, Roraback, J., granted the motion to dismiss filed by the defendant Myles H. Alderman, Jr., et al. and rendered judgment for the defendants, from which the plaintiff appealed. Affirmed.

          Bruce L. Elstein, with whom was John J. Ribas, for the appellant (plaintiff).

          Joshua A. Yahwak, for the appellees (named defendant et al.).

          Cristin E. Sheehan, with whom were Timothy J. Holzman and, on the brief, Robert W. Cassot, for the appellees (defendant Alderman & Alderman, LLC, et al.).

          Robinson, C. J., and Palmer, McDonald, D'Auria, Kahn and Ecker, Js.

          OPINION

          D'AURIA, J.

         In this appeal, we are asked to determine whether the United States Bankruptcy Code provisions permitting bankruptcy courts to assess penalties and sanctions preempt state law claims for vexatious litigation and violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq. The plaintiff, Jonathan S. Metcalf, brought state law claims against the defendants, Michael Fitzgerald, Ion Bank (bank), Myles H. Alderman, Jr., and Alderman & Alderman, LLC (law firm), for alleged vexatious litigation and for unfair and deceptive business acts or practices during the plaintiff's underlying bankruptcy proceeding. The plaintiff appeals from the trial court's granting of the motion to dismiss filed by Alderman and the law firm, for lack of subject matter jurisdiction on the ground that federal bankruptcy law preempts the claims. The trial court determined that the outcome of the motion was controlled by the Appellate Court's decision in Lewis v. Chelsea G.C.A. Realty Partnership, L.P., 86 Conn.App. 596, 862 A.2d 368 (2004), cert. denied, 273 Conn. 909, 870 A.2d 1079 (2005). The court in Lewis held that the Bankruptcy Code preempted CUTPA and vexatious litigation claims for alleged abuse of the bankruptcy process. Id., 605-607. The plaintiff contends that the court in Lewis did not properly evaluate each of the three types of preemption by which Congress manifests its intent to preempt state law and failed to consider the relevant Bankruptcy Code provisions. See 11 U.S.C. § 105 (2012); Fed.R.Bankr.P. 9011. We disagree and affirm the judgment of the trial court.

         The following facts, as set forth in the plaintiff's complaint, and procedural history are relevant to our review of the plaintiff's claim. The plaintiff's business, Metcalf Paving Company, filed a chapter 11 bankruptcy petition in 2009. See 11 U.S.C. § 1101 et seq. (2012). The Metcalf Paving Company bankruptcy thereafter was converted to a case under chapter 7 of the Bankruptcy Code. See 11 U.S.C. § 701 (2012). The plaintiff then filed individually for bankruptcy under chapter 7. The bank, one of the plaintiff's creditors in the bankruptcy proceeding, subsequently commenced an adversary proceeding against the plaintiff under §§ 523 (a) and 727 (a) (7) of the Bankruptcy Code. Under these provisions, the bank objected to the discharge of the plaintiff's debt, asserting, among other allegations, that the plaintiff had failed to deliver a check, failed to provide documents, failed to disclose a website that he allegedly used for a new business, took possession of expensive machinery, unlawfully transferred property, destroyed property of the estate, defrauded creditors, and fraudulently withheld information from the chapter 7 trustee. In response, the plaintiff presented evidence to the Bankruptcy Court to contradict the allegations and moved for summary judgment. Upon reviewing the plaintiff's evidence, the bank moved to dismiss the adversary proceeding. The Bankruptcy Court granted the motion to dismiss.

         The plaintiff subsequently commenced this action in the Superior Court. In his complaint, the plaintiff set forth claims for vexatious litigation against all the defendants, and CUTPA claims against Fitzgerald and the bank. In support of the vexatious litigation claims, the plaintiff alleged that the defendants had initiated the adversary proceeding without probable cause and with malice, maintained the proceeding without probable cause and with malice, and, as a result, caused him to suffer damages. The plaintiff claimed that the defendants knew or should have known that the allegations they made during the adversary proceeding were without factual merit and were barred by the applicable statute of limitations. In support of the CUTPA claims, the plaintiff alleged that Fitzgerald and the bank repeatedly engaged in unfair and deceptive acts or practices during the bankruptcy proceeding, and that their conduct had been so frequent as to constitute a general business practice. The plaintiff claimed damages that included attorney's fees, losses from an inability to manage his business affairs, emotional distress, expenditures of time, effort and resources, and injuries to his business and professional reputation. The plaintiff alleged that he was entitled to damages and costs under the common law, double damages and treble damages under Connecticut's vexatious litigation statute, General Statutes § 52-568, and punitive damages and attorney's fees under CUTPA. See General Statutes § 42-110g.

         Alderman and the law firm moved to dismiss the vexatious litigation claims on the ground that the claims arose from conduct that allegedly had taken place within a bankruptcy proceeding and were, therefore, preempted by the Bankruptcy Code. The trial court agreed, granted the motion to dismiss the vexatious litigation claims and, on its own motion and for the same reason, dismissed the remaining counts of the complaint, including the CUTPA claims, for lack of subject matter jurisdiction. The trial court cited Lewis v. Chelsea G.C.A. Realty Partnership, L.P., supra, 86 Conn.App. 596, in support of its decision.

         In Lewis, the Appellate Court held that bankruptcy law preempted state law CUTPA and vexatious litigation claims. Id., 605-607. The Appellate Court reasoned that ‘‘[t]he exclusivity of federal jurisdiction over bankruptcy proceedings, the complexity and comprehensiveness of Congress' regulation in the area of bankruptcy law and the existence of federal sanctions for the filing of frivolous and malicious pleadings in bankruptcy must be read as Congress' implicit rejection of alternative remedies such as those the plaintiff seeks.'' Id., 605. Accordingly, the court in Lewis remanded the case to the trial court with direction to dismiss the action. Id., 607.

         Upon the trial court's dismissal of the present action, the plaintiff timely appealed to the Appellate Court. The appeal was then transferred from the Appellate Court to this court. See General Statutes § 51-199 (c); Practice Book § 65-1.

         On appeal, the plaintiff's sole claim is that the trial court incorrectly concluded that federal bankruptcy law preempted his state law claims for vexatious litigation and violations of CUTPA.[1] Specifically, the plaintiff argues that this court should not follow the holding in Lewis because that court failed to conduct a proper preemption analysis. Additionally, the plaintiff argues that his state law claims are neither expressly nor implicitly preempted and do not conflict with Congress' objectives in the Bankruptcy Code. We disagree.

         We begin with our well established standard of review for reviewing a trial court's decision on a motion to dismiss: ‘‘A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction. . . . [O]ur review of the court's ultimate legal conclusion and resulting [determination] of the motion to dismiss will be de novo. . . . When a . . . court decides a jurisdictional question raised by a pretrial motion to dismiss, it must consider the allegations of the complaint in their most favorable light. . . . In this regard, a court must take the facts to be those alleged in the complaint, including those facts necessarily implied from the allegations, construing them in a manner most favorable to the pleader. . . . The motion to dismiss . . . admits all facts which are well pleaded, invokes the existing record and must be decided upon that alone. . . . In undertaking this review, we are mindful of the well established notion that, in determining whether a court has subject matter jurisdiction, every presumption favoring jurisdiction should be indulged.'' (Internal quotation marks omitted.) Dorry v. Garden, 313 Conn. 516, 521, 98 A.3d 55 (2014).

         Turning to the legal principles at issue, we note that the supremacy clause of the United States constitution; see U.S. Const., art. VI, cl. 2; provides that federal law ‘‘shall be the supreme Law of the Land; and the Judges in every [S]tate shall be bound thereby, any Thing in the Constitution or Laws of any [S]tate to the Contrary notwithstanding. . . . Under this principle, Congress has the power to preempt state law.'' (Citation omitted; internal quotation marks omitted.) Arizona v. United States, 567 U.S. 387, 399, 132 S.Ct. 2492, 183 L.Ed.2d 351 (2012).

         The bankruptcy clause of the United States constitution grants Congress the power ‘‘[t]o establish . . . uniform Laws on the subject of Bankruptcies throughout the United States . . . .'' U.S. Const., art. I, § 8, cl. 4. District courts of the United States have ‘‘original and exclusive jurisdiction of all cases under title 11.'' 28 U.S.C. § 1334 (a) (2012). Through title 11 of the United States Code, Congress provided ‘‘a comprehensive federal system of penalties and protections to govern the orderly conduct of debtors' affairs and creditors' rights.'' Eastern Equipment & Services Corp. v. Factory Point National Bank, 236 F.3d 117, 120 (2d Cir. 2001); see 11 U.S.C. § 101 et seq. (2012). As for sanctions for abuse of the bankruptcy process, the Bankruptcy Code provides a variety of remedies. See, e.g., 11 U.S.C. § 105 (a) (2012) (authority to prevent abuse of process);[2] 11 U.S.C. § 303 (i) (2) (2012) (bad faith filing of involuntary petitions);[3] 11 U.S.C. § 930 (a) (2) (2012) (dismissal for unreasonable delay);[4] see also Fed.R.Bankr.P. 9011 (b) and (c) (sanctions for frivolous and harassing filings).[5] The question before this court is whether the Bankruptcy Code preempts vexatious litigation and CUTPA actions brought in state court that provide for penalties and sanctions, as well as damages for abuse of process.

         This court has explained that there are three types of preemption: (1) express preemption, whereby Congress has through clear statutory language manifested its intent to preempt state law; (2) implied preemption, whereby Congress has legislated so comprehensively that federal law occupies an entire field of regulation and leaves no room for state law (occupy the field preemption); and (3) conflict preemption, whereby state law conflicts with federal law such that it is impossible for a party to comply with both or the local law is an obstacle to the achievement of federal objectives. See, e.g., Sarrazin v. Coastal, Inc., 311 Conn. 581, 592- 93, 89 A.3d 841 (2014); see also English v. General Electric Co., 496 U.S. 72, 78-79, 110 S.Ct. 2270, 110 L.Ed.2d 65 (1990). The plaintiff contends that the Bankruptcy Code does not preclude his state court claims under express, implied, or conflict preemption. He further argues that this court should overrule the Appellate Court's holding in Lewis that the Bankruptcy Code preempts these claims because the Appellate Court failed to properly address the three types of preemption. Had it done so, according to the plaintiff, the court would have concluded that federal bankruptcy law does not preempt the state law claims at issue.

         Before addressing the three types of preemption in turn, it is important to note that the question of preemption turns on Congress' intent. We therefore ‘‘begin as we do in any exercise of statutory [construction] with the text of the provision in question, and move on, as need be, to the structure and purpose of the [federal law] in which it occurs.'' (Internal quotation marks omitted.) Air Transport Assn. of America, Inc. v. Cuomo, 520 F.3d 218, 221 (2d Cir. 2008).

         I

         Regarding express preemption, the plaintiff argues that the Bankruptcy Code does not contain an express provision preempting the causes of action brought in this case. We agree. ‘‘Express preemption occurs when ‘Congress . . . withdraw[s] specified powers from the [s]tates by enacting a statute containing an express preemption provision.' '' Trikona Advisers Ltd. v. Chugh, 846 F.3d 22, 35 (2d Cir. 2017); accord Arizona v. United States, supra, 567 U.S. 399. An express preemption provision ‘‘expressly directs that state law be ousted to some degree from a certain field.'' Assn. of International Automobile ...


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