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Crosskey Architects, LLC v. Poko Partners, LLC

Court of Appeals of Connecticut

September 10, 2019


          Argued April 15, 2019

         Procedural History

         Action to recover damages for, inter alia, breach of contract, and for other relief, brought to the Superior Court in the judicial district of Hartford, where the action was withdrawn as to the defendant One Morningside Drive Partners, Limited Partnership; thereafter, the court, Robaina, J., granted the plaintiff's amended motion to cite in POKO Management Corp. as a party defendant; subsequently, the matter was tried to the court, Elgo, J.; judgment in part for the plaintiff, from which the defendants appealed to this court; thereafter, the court, Elgo, J., issued a rectification of its decision; subsequently, Pamela Olson, as executrix of the estate of Kenneth M. Olson, was substituted as a defendant. Affirmed.

          Thomas E. Katon, with whom, on the brief, was Adam D. Miller, for the appellants (defendants).

          Kirk D. Tavtigian, Jr., with whom was George M. Purtill, for the appellee (plaintiff).

          DiPentima, C. J., and Keller and Olear, Js.


          DiPENTIMA, C. J.

         The defendants[1] POKO Partners, LLC, POKO Reservoir Yaremich Developers, LLC, POKO Cape Loom Managers, LLC, One Morningside Group, LLC, One Morningside Managers, LLC, One Morningside Owners, LLC, Capehart Ventures, LLC, POKO Management Corp., Richard K. Olson, and Pamela Olson, as executrix of the estate of Kenneth M. Olson, [2] appeal from the judgment of the trial court rendered in part in favor of the plaintiff, Crosskey Architects, LLC. On appeal, the defendants claim that the court (1) improperly pierced the corporate veil, (2) improperly found that the plaintiff was entitled to damages on the theory of quantum meruit and (3) abused its discretion in awarding statutory prejudgment interest pursuant to General Statutes § 37-3a[3] on the theory of quantum meruit. We affirm the judgment of the trial court.

         The following facts, as found by the trial court, and procedural history are relevant. The plaintiff is an architectural firm owned by William Crosskey, a licensed architect. From 2006 to 2015, Crosskey had a business relationship with Kenneth Olson and his brother, Richard Olson. The Olsons oversaw between forty to sixty business entities established for the purpose of commercial and residential real estate development. The Olsons managed their business entities by having the businesses owned by one limited liability company while being managed and controlled by another. At the top of this structure are POKO Partners, LLC, in which Kenneth Olson has a 50 percent ownership interest, Richard Olson has a 40 percent ownership interest and Pamela Olson, Kenneth Olson's wife, has a 10 percent interest; and POKO Management Corp., in which Kenneth Olson has a 60 percent ownership interest and Richard Olson has a 40 percent ownership interest. Either Kenneth Olson or the Olsons together own a majority interest in nearly all of the defendant entities. The defendant entities owned by the Olsons operate out of one office in Port Chester, New York. All of the personnel working out of this office are paid by either POKO Partners, LLC, or POKO Management Corp. The Olsons' salaries are paid exclusively from POKO Management Corp.

         In the thirteen count operative complaint, the plaintiff sought damages for the unpaid work it had performed on four projects of the Olsons: the POKO office project, the Reservoir project, the Morningside Drive project and the Capehart project. The plaintiff alleged breach of contract, quantum meruit and unjust enrichment regarding each of the four projects, and sought to pierce the corporate veil.

         The court described the plaintiff's work on the four projects as follows. Kenneth Olson began communications with Crosskey in 2008, regarding the POKO office project, which involved renovating the office in Port Chester. Employees of the plaintiff exchanged e-mails with Richard Olson and an employee of POKO Partners, LLC, regarding the work requested. The work requested was done and accepted at the hourly rates that the plaintiff had charged since the beginning of the plaintiff's business relationship with the Olsons. After completing the work, Crosskey sent Kenneth Olson and POKO Partners, LLC, invoices totaling $4690.24 as of October 15, 2008, but the plaintiff was not paid. Richard Olson explained that the plaintiff was not paid because he and his brother assumed that the plaintiff would write off the costs.

         The Reservoir project involved new construction, mixed-use housing and commercial space development in the city of Bridgeport. In September, 2006, Kenneth Olson solicited the plaintiff's architectural services. Although the project never went forward, the plaintiff performed work on the project and submitted invoices. The plaintiff was never paid.

         The Morningside Drive project involved a group of small office buildings owned by Kenneth Olson on One Morningside Drive in Westport. The plaintiff provided architectural services in connection with this project. POKO Management Corp. was the property manager for One Morningside Drive, which was being developed in order to sell to Newman's Own Real Estate, LLC. Following the sale, POKO Management Corp. continued to use the plaintiff's services for ongoing projects at One Morningside Drive. There was an ongoing agreement in which the plaintiff was solicited to provide architectural services and the defendants would pay the plaintiff's hourly rates. Crosskey sent unpaid invoices in the amount of $10, 480.10 to POKO Partners, LLC, and POKO Management Corp. One Morningside Managers, LLC, was the managing entity of One Morningside Group, LLC, in which Richard Olson and Kenneth Olson each had a 37.5 percent interest, respectively, and the remaining 25 percent was owned by employees of the defendant entities. One Morningside Managers, LLC, was dissolved in 2014, after the buildings were sold to Newman's Own Real Estate, LLC, for $5.8 million. At that time, One Morningside Group, LLC, of which Kenneth Olson was an investor, netted $1, 669, 702.51. In reliance on an agreement that he would be paid, Crosskey continued to accept work from Kenneth Olson, but he was not paid.

         The Capehart project concerned the development of an old mill building in Norwich into apartment buildings. Kenneth Olson signed a contract in which he was identified as the managing member under the auspices of Capehart Ventures, LLC.[4] The Capehart project never came to fruition, and the court noted that Kenneth Olson's deposition testimony revealed that ‘‘close to a million and a half dollars'' was lost on the project. (Internal quotation marks omitted.) POKO Partners, LLC, the project manager on this project, received $450, 000 in project management fees. The plaintiff's outstanding bill for the project totaled $31, 383.93, with late charges totaling $63, 775.71. The court noted that Kenneth Olson ‘‘rationalized his refusal to pay the plaintiff for architectural services rendered for the Reservoir and Capehart projects by claiming that the plaintiff was ‘on spec.' In other words, the plaintiff was effectively working without compensation for [its] services unless and until the projects were ultimately approved for funding. There is, however, nocredible evidence that the plaintiff or Crosskey agreed to this arrangement.''

         The court found in favor of the plaintiff on the first count of the complaint alleging breach of contract as to the POKO office project as against POKO Partners, LLC, and POKO Management Corp. in the amount of $4690.24 plus interest; on the fifth count of the complaint addressing the Reservoir project and seeking quantum meruit as to POKO Partners, LLC, POKO Management Corp. and POKO Reservoir Yaremich Developers, LLC, in the amount of $23, 907.70 plus interest; on the seventh count of the complaint, alleging breach of contract as to the Morningside Drive project as against POKO Partners, LLC, POKO Management Corp., One Morningside Group, LLC, and One Morningside Managers, LLC, in the amount of $10, 480.09 plus interest; and on the tenth count of the complaint alleging breach of contract as to the Capehart project as against POKO Partners, LLC, Capehart Ventures, LLC, and POKO Cape Loom Managers, LLC, [5] in the amount of $31, 383.93 plus interest. The court also found that the plaintiff prevailed on the thirteenth count of the complaint and pierced the corporate veil, holding the Olsons personally liable for damages awarded on each count found in favor of the plaintiff. The court dismissed all other counts of the complaint as moot. The court awarded prejudgment interest pursuant to § 37-3a on all the damages. This appeal followed. Additional facts will be set forth as necessary.


         The defendants claim that the court improperly pierced the corporate veil and held the Olsons personally liable under the identity rule.[6] They argue that the court (1) misapplied the identity rule and (2) failed to properly consider whether the defendant entities served a legitimate business purpose. We are not persuaded.

         We note the following relevant law. ‘‘Whether the circumstances of a particular case justify the piercing of the corporate veil presents a question of fact. . . . Accordingly, we defer to the trial court's decision to pierce the corporate veil, as well as any subsidiary factual findings, unless they are clearly erroneous. . . . A court's determination is clearly erroneous only in cases in which the record contains no evidence to support it, or in cases in which there is evidence, but the reviewing court is left with the definite and firm conviction that a mistake has been made. . . .

         ‘‘Generally, a corporation is a distinct legal entity and the stockholders are not personally liable for the acts and obligations of the corporation . . . . Courts will, however, disregard the fiction of a separate legal entity to pierce the shield of immunity afforded by the corporate structure in a situation in which the corporate entity has been so controlled and dominated that justice requires liability to be imposed on the real actor.'' (Citations omitted; internal quotation marks omitted.) Commissioner of Environmental Protection v. State Five Industrial Park, Inc., 304 Conn. 128, 138-39, 37 A.3d 724 (2012).

         We address the defendants' arguments in turn.


         The defendants argue that the court misapplied the identity rule. They contend that the court improperly found that the identity test was satisfied based solely on its finding that the Olsons controlled the defendant entities. They argue that control is not relevant to the identity test and concerns, instead, the first prong of the instrumentality test. We are not persuaded.

         ‘‘It is well established that [t]he . . . determination of the proper legal standard in any given case is a question of law subject to our plenary review.'' (Internal quotation marks omitted.) Mirjavadi v. Vakilzadeh, 310 Conn. 176, 183, 74 A.3d 1278 (2013).

         ‘‘When determining whether piercing the corporate veil is proper, our Supreme Court has endorsed two tests: the instrumentality test and the identity test.''[7] (Internal quotation marks omitted.) KLM Industries, Inc. v.Tylutki, 75 Conn.App. 27, 32, 815 A.2d 688, cert. denied, 263 Conn. 916, 821 A.2d 770 (2003). The instrumentality rule has three prongs, the first of which requires ‘‘[c]ontrol, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own . . . .''[8] (Internal quotation marks omitted.) Naples v.Keystone Building & Development Corp., 295 Conn. 214, 232, 990 A.2d 326 (2010). To pierce the corporate veil under the identity rule, the plaintiff must show that ‘‘there was such a unity of interest and ownership that the independence of the corporations had in effect ceased or had never begun, an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting the economic ...

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