ROGER L. SAUNDERS
v.
CLARK BRINER ET AL.
Argued
December 20, 2018
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 Fairfield, where the named defendant et
al. filed a counterclaim; thereafter, the case was
transferred to the judicial district of Water-bury, Complex
Litigation Docket, where Sloan Saunders et al. were added as
counterclaim defendants; subsequently, the case was tried to
the court, Zemetis, J.; judgment in part for the
plaintiff on the complaint and on the counterclaim, from
which the named defendant et al. appealed and the plaintiff
cross appealed; thereafter, the court awarded the plaintiff
attorney's fees, and the named defendant et al. filed an
amended appeal. Reversed in part; order
vacated.
David
P. Friedman, with whom were Proloy K. Das and, on the brief,
Marilyn B. Fagelson, Taruna Garg, David S. Hoopes and Jay R.
Lawlor, for the appellants-cross appellees (named defendant
et al.).
David
Feureisen, pro hac vice, with whom were Edward N. Lerner and,
on the brief, George Kent Guarino, for the appellee-cross
appellant (plaintiff).
Robinson, C. J., and Palmer, McDonald, D'Auria, Mullins,
Kahn and Ecker, Js. [*]
OPINION
KAHN,
J.
This
appeal requires us to consider five issues: (1) whether, in
the absence of authorization in a limited liability
company's operating agreement, its members or managers
lack standing to bring derivative claims on behalf of it
under either the Connecticut Limited Liability Company Act
(CLLCA), General Statutes (Rev. to 2017)§ 34-100 et
seq., [1] or, in the alternative, the common
law; (2) whether a trial court may exempt single member
limited liability companies from the direct and separate
injury requirement necessary to bring a direct action; (3)
under what circumstances may a trial court admit opinion
testimony of a joint, court-appointed fiduciary hired to wind
up the companies at issue when the party who proffered the
testimony of the fiduciary failed to disclose him as an
expert witness under Practice Book § 13-4; (4) under
what circumstances, if any, may the trial court apportion its
award of attorney's fees under the Connecticut Unfair
Trade Practices Act (CUTPA), General Statutes § 42-110a
et seq., between the plaintiff's CUTPA claims and
non-CUTPA claims; and (5) the parameters under which a trial
court may order reimbursement for fees incurred by a joint,
court-appointed fiduciary hired to wind up the companies at
issue. The defendants, Clark Briner and two entities solely
owned by Briner, a Connecticut limited liability company and
a Texas limited liability company with the same name, Revere
Capital, LLC (respectively, Revere Capital CT and Revere
Capital TX), [2] appeal, [3] following a bench trial,
from the trial court's judgment. The plaintiff, Roger L.
Saunders, cross appeals from the trial court's judgment.
We reverse the trial court's judgment rendered in favor
of the plaintiff as to his derivative claims because we
conclude that the plaintiff lacked standing to bring them
under the CLLCA or the common law. We, therefore, do not
reach the issues of whether the trial court improperly
admitted the testimony of a joint, court-appointed fiduciary
or whether the trial court incorrectly apportioned the
plaintiff's award of attorney's fees under CUTPA. We
affirm the trial court's judgment rendered in favor of
the plaintiff as to his direct claims and conclude that the
trial court did not abuse its discretion in refusing to order
the defendants to reimburse the plaintiff for the fees
incurred by the joint, court-appointed fiduciary and an
accountant hired by him.
The
present case arises from the deterioration of a business
relationship between three individuals: Briner, the
plaintiff, and the plaintiff's son, Sloan Saunders
(Saunders). The trial court found the following facts that
are relevant to our resolution of this appeal. In 2009, while
working together at Deutsche Bank, Saunders and Briner
decided to enter into the high interest, high yield
commercial real estate lending business by setting up a
limited liability company, Revere Investments, LLC (Revere
Investments), to act as a servicer of the loans. Initially,
Saunders and Revere Capital TX each owned 50 percent of
Revere Investments and constituted its
comanagers.[4] Although Saunders and Briner chose to
enter an industry in which they had little experience,
Saunders introduced Briner to the plaintiff, Saunders'
father, who had successfully navigated the ‘‘hard
money lending business'' for forty years. Briner and
Saunders sought the plaintiff's help in two respects.
First, they wanted the plaintiff, who had many contacts in
that industry, to help them ‘‘establish the
relationships necessary to create and maintain'' the
business.
Second,
Briner and Saunders also needed access to the plaintiff's
capital ‘‘to fund the high interest
loans'' before they secured investors to participate
in them. The parties often did not secure all the investors
necessary to fund a loan prior to closing the transaction
with the borrower. Throughout their business relationship,
therefore, the plaintiff helped Revere Investments succeed by
lending it the capital necessary to close loans before the
parties raised the necessary capital to finance it (bridge
financing). After Revere Investments raised capital from
investors to participate in the loan, it repaid the plaintiff
the principal amount of his bridge loan with interest. The
trial court found that, without the plaintiff's bridge
financing, Revere Investments ‘‘would have had
little or no business.''
The
plaintiff, who ‘‘desired to teach his
son'' the business, agreed to source loans, secure
investors and financers, and provide bridge financing.
Although the plaintiff agreed to provide assistance
‘‘to his economic detriment and for the equal and
joint benefit'' of Saunders and Briner, he
‘‘was not willing to forgo the . . . profits on
his investment or [on] the investment of [others]
that he would have earned if he simply invested in hard money
loans outside of [Revere Investments].'' (Emphasis in
original.) The plaintiff, Saunders, and Briner, therefore,
created a business arrangement in which the plaintiff and his
contacts sourced most of the loans and most of the financing,
especially at the beginning of their relationship. Revere
Investments would charge the borrower a high interest rate.
The parties then found investors to purchase a
‘‘participation interest'' in the loans
on a deal specific basis (outside investors). Outside
investors would provide capital in exchange for a return of
the principal invested plus a negotiated interest rate.
Revere
Investments profited from outside investors by offering them
a lower interest rate than it received from the borrower on
the underlying loan, which provided Revere Investments with a
profit equal to the difference between the two interest rates
(interest rate spread profit). Revere Investments also
withheld from outside investors various fees that it charged
the borrower, such as extension fees, late fees, and
servicing fees. Revere Investments charged the borrower
‘‘points''[5] ‘‘in
connection with most of its loans, '' and,
‘‘[i]n all cases where points were charged,
[they] were financed by Revere Investments as part of aloan,
so that Revere Investments did not advance to the borrower
the full principal amount of the loan, but advanced the
principal amount less the points'' (net funding).
Revere Investments did not pass the points to outside
investors, however, who received a return of principal and
interest only on the amount they actually invested.
Saunders,
Briner, the plaintiff, or their respective family members
(inside investors) who participated in a loan, by contrast,
did profit from points charged to borrowers. The advantageous
treatment for inside investors derived from the fact that,
unlike the outside investors, they received a return of
principal plus interest on the face amount of their
investment in the loan, despite the fact that they had not
funded the full face amount.[6] This technique of
‘‘grossing up'' allowed inside investors
to receive a higher return on their investment than an
outside investor who participated equally in a loan.
As part
of the parties' agreement[7] to gross up inside
investments, the parties additionally agreed that-in exchange
for his help-the plaintiff ‘‘would also keep both
the ‘interest rate spread profit' . . . and the
‘fees' earned on certain identified and agreed upon
nonfamily [investments].''
(Emphasis added.) This allowed the plaintiff to earn profits
that Revere Investments otherwise would have earned on the
outside investors he sourced. The oral agreement, however,
did not give Briner the same rights with respect to the
outside investors he sourced.
By
mid-2011, Briner had grown dissatisfied with the arrangement
allowing the plaintiff but not Briner to profit from outside
investors sourced by each of them respectively, because, by
that time, Revere Investments' business model and the
parties' respective responsibilities had changed.
Saunders, Briner and the plaintiff had created-at the request
of Briner-a second entity, Revere High Yield Debt Fund, L.P.
(Fund), which provided a vehicle for pooling outside investor
capital, and a controlling general partner of the Fund,
Revere High Yield, GP, LLC (Fund GP), which ‘‘was
owned equally [and comanaged] by [the plaintiff] and Briner .
. . .'' Under this revised arrangement, Revere
Investments' loans were funded by various combinations of
investments, including (1) financing from the Fund, which
would pool money from outside investors and buy a single
participation interest in a loan, (2) capital from inside
investors, and (3) capital from outside investors that chose
to participate in a particular loan alongside the Fund (side
car investments)[8].
The
parties' formation of the Fund and Fund GP expanded
Revere Investments' ‘‘loan portfolio size . .
. [thereby] increasing the ‘back office'
workload.'' During that time, however, Saunders had
accepted and begun a full-time job at another investment
firm, which required him to work sixty to seventy hours per
week. This placed a strain on Briner's relationship with
Saunders, because Briner-concerned that Saunders left him to
handle much of the work himself, including sourcing the loans
and finding the Fund investors-felt that he worked
‘‘disproportionately greater''
than Saunders yet profited less because he could not derive
profits from the outside investors he sourced in the same way
as the plaintiff did.
Eventually,
Briner demanded that the plaintiff and Saunders allow him to
‘‘skim the same . . . profits'' from
Revere Investments and the Fund on his outside investors that
the plaintiff received on the investors he sourced. Both the
plaintiff and Saunders refused. Despite their refusal, and
without their knowledge, Briner created Revere Capital CT,
which constituted an inside investor as Briner owned 100
percent and which enabled Briner to conceal the true source
of the funds he sourced by placing investments of outsider
capital into that company as opposed to the Fund or Revere
Investments. Consequently, when Revere Capital CT
participated in Revere Investments' loans, either through
the Fund or as a side car investment, Briner was able to
treat those outside investments as insider capital, allowing
him to retain ‘‘100 percent of the profits
associated therewith, '' including a benefit from the
elevated treatment of points. This conduct effectively
‘‘erased the distinction between the treatment of
[Briner's] ‘inside and outside investors,'
negatively affecting the profits of [Revere Investments]
and/or the Fund and correspondingly increasing [Briner's]
personal profits.''
In
addition to diverting outside capital away from Revere
Investments and the Fund in order to profit off of those
investments as if they were his own insider capital, Briner
also misallocated investor profits by withholding interest on
points from the other inside investors, so that they received
a return only on the net amount they invested. At the same
time, Briner grossed up investments made by his inside
investors. Briner also improperly[9] charged Revere
Investments for expenses incurred by Revere Capital TX,
[10] including employment, rent, travel
and advertising expenses. In mid-2012, after Saunders
discovered Briner's misallocation of points in some of
Revere Investments' loan spreadsheets, he and the
plaintiff hired outside accountants and legal counsel, who
exposed[11] ‘‘the extent of
[Briner's] incompetent and inconsistent management of
[Revere Investments], the Fund, and Fund GP . . . .''
In
November, 2012, the plaintiff commenced this action and, in
May, 2014, filed the operative twenty-seven count second
amended complaint[12] against the defendants, consisting
of fourteen direct counts brought by the plaintiff,
individually, and thirteen derivative counts brought on
behalf of Revere Investments, Fund GP, or both.[13] In
addition to moving for judicial dissolution of Revere
Investments and Fund GP in direct count one, the plaintiff
asserted both direct and derivative counts alleging
common-law fraud, [14] breach of contract, [15] breach of
the implied covenant of good faith and fair dealing,
[16] breach of fiduciary duty,
[17] and violations of CUTPA and the
Connecticut Uniform Securities Act.[18]
After
the plaintiff initiated the action, the parties agreed to
hire a joint, court-appointed fiduciary, Citrin Cooperman and
Company, LLP (Citrin), to wind up the Fund and Fund GP. After
a team led by Citrin's partner Alan A. Schachter examined
sixteen of Revere Investments' loans,
‘‘totaling nearly $18 million'' of Revere
Investments' approximately $40 million loan portfolio,
Schachter wrote a report containing Citrin's findings. In
that report, Schachter noted that the team
‘‘found a lack of internal controls'' and
‘‘a number of . . . reporting and recording
problems, '' which he noted were ‘‘not
surprising . . . given the lack of oversight and the
complexity of the investments.'' Schachter concluded
that Revere Investments, the Fund, and Fund GP,
‘‘as managed by Briner, had underpaid both the
investors and the principals, particularly [the
plaintiff].'' During the bench trial, the plaintiff
called Schachter to testify at trial regarding the findings
he outlined in his report. Over Briner's objection, the
trial court allowed Schachter to testify and admitted his
report into evidence.
Following
a ten day bench trial, in which the parties distilled
‘‘897 trial exhibits exceed[ing] several hundred
thousand pages in length, '' the trial court rendered
judgment in favor of the plaintiff on four of his thirteen
derivative counts and four of his fourteen direct counts.
Under derivative counts two and six, which alleged, on behalf
of Revere Investments, breach of contract against Revere
Capital TX and violations of CUTPA against the defendants,
respectively, the trial court ordered the defendants to pay
Revere Investments one payment of $284, 600. Under derivative
counts seven and eight, which alleged breach of fiduciary
duty on behalf of Revere Investments and Fund GP,
respectively, the trial court ordered Revere Capital TX to
pay Revere Investments and/or the Fund GP one payment of $92,
797, under counts seven and eight, and an additional $71, 000
under count seven. Under direct counts four and six, alleging
breach of the implied covenant of good faith and fair dealing
against Revere Capital TX and Briner, respectively, and
counts nine and ten, alleging breach of fiduciary duty on the
part of Briner and Revere Capital TX, the trial court awarded
the plaintiff one payment of $85, 078 in connection with the
failure to repay one of the plaintiff's loans to Revere
Investments. As to direct counts four and six, however, the
court rejected the plaintiff's claim that the court
should direct Briner to reimburse him for ‘‘fees
[related to] tax and accounting experts, '' including
Schachter.
After
the court rendered judgment, it held a hearing to determine
the appropriate amount of attorney's fees to award the
plaintiff under derivative count six, which alleged that the
defendants had violated CUTPA through Briner's diversion
of outside capital into Revere Capital CT. After the
posttrial hearing, the trial court filed a memorandum of
decision and supplemental order awarding the plaintiff $639,
054.91 in attorney's fees pursuant to General Statutes
§ 42-110g. This appeal followed.
The
issues presented for resolution on appeal are numerous. The
defendants first challenge the plaintiff's standing to
bring any of the direct or derivative counts for which the
trial court rendered judgment in his favor. The defendants
appeal from the trial court's judgment in favor of the
plaintiff as to his claims under derivative counts two, six,
seven, and eight-alleging breach of contract, violations of
CUTPA, and breach of fiduciary duty-claiming that the trial
court lacked subject matter jurisdiction to review the
plaintiff's derivative counts, because the CLLCA, the
statutory scheme in place at the time the plaintiff commenced
his action, did not provide a derivative remedy.
Additionally, the defendants claim that, in the absence of
such statutory authority by the legislature under the CLLCA,
the common law does not afford a member or manager of a
limited liability company derivative standing, because the
CLLCA, the statute that created that company structure,
solely governs this issue. The plaintiff responds that trial
courts have interpreted the CLLCA as permitting derivative
claims. In the alternative, the plaintiff claims that this
court should conclude that the common law grants him
derivative standing.
The
defendants also appeal from the trial court's judgment in
favor of the plaintiff as to his claims under direct counts
four, six, nine, and ten, alleging breach of fiduciary duty
and breach of the implied covenant of good faith and fair
dealing. The defendants claim that the plaintiff lacked
standing to challenge Briner's failure to repay one of
the plaintiff's loans to Revere Investments, because the
plaintiff's single-member limited liability company,
Saunders Capital, LLC (Saunders Capital), provided the
investment at issue and, therefore, constituted the proper
party to bring the action. The plaintiff responds that,
because he funded the investment with his personal capital,
he satisfies the requirements for direct standing regardless
of the source of his investments.
Additionally,
the defendants appeal from the trial court's judgment in
favor of the plaintiff as to derivative counts seven and
eight, claiming, specifically, that the trial court abused
its discretion in admitting Schachter's testimony because
the plaintiff failed to disclose him as an expert pursuant to
Practice Book § 13-4. The plaintiff responds that the
trial court did not abuse its discretion in admitting
Schachter's testimony in the absence of expert disclosure
because he did not call Schachter to testify as an expert
but, rather, as a fact witness testifying in his capacity as
the court-appointed fiduciary. To the extent that the trial
court allowed Schachter to provide expert opinion, the
plaintiff claims, Briner suffered no prejudice from its
admission, and the trial court needed Schachter's
assistance in understanding the complex calculations required
to determine what Revere Investments owed to its investors
and principals.
Finally,
the defendants appeal from the trial court's award of
attorney's fees under derivative count six, on which the
trial court rendered judgment for the plaintiff under CUTPA.
The defendants claim that the trial court improperly awarded
attorney's fees associated with both the plaintiff's
CUTPA and non-CUTPA claims, rather than those fees
attributable only to the CUTPA claims. The plaintiff responds
that the trial court properly apportioned attorney's fees
under CUTPA because, when parties litigate both CUTPA and
non-CUPTA claims in the same action and those claims involve
the same inextricably entwined facts, the trial court does
not need to apportion the payment of attorney's fees only
to work performed on the CUTPA related claims.
The
plaintiff cross appeals from the trial court's judgment
on his direct counts four and six insofar as he claims that
the trial court abused its discretion in refusing either to
order Briner to reimburse Revere Investments for the fees
incurred by Schachter and another accountant hired by him or
to hold a hearing for the purpose of apportioning those fees.
The defendants respond that the trial court properly rejected
the plaintiff's request for reimbursement because it
determined that all of the owners of Revere Investments,
including the plaintiff, bore some responsibility for failing
to ensure that Revere Investments operated in accordance with
proper bookkeeping and accounting procedures.
We
affirm the trial court's judgment rendered in favor of
the plaintiff on his direct counts, including its
determination not to apportion the fees incurred by Schachter
and another accountant hired by him. Because we conclude,
however, that the plaintiff lacked standing to bring his
derivative claims, we reverse the trial court's judgment
in favor of the plaintiff on his derivative counts and vacate
the court's award of attorney's fees under CUTPA.
Additionally, because we conclude that the plaintiff lacked
standing to bring his derivative claims, we do not reach the
issue of whether the trial court improperly admitted
Schachter's testimony.
I
STANDING
The
first two issues we resolve, regarding the standing our state
affords to members of limited liability companies to bring
derivative claims under the CLLCA and certain direct claims,
present matters of first impression. First, the defendants
claim that the trial court incorrectly determined that the
plaintiff had standing to bring derivative claims against
them. Second, the defendants contend the plaintiff lacked
standing to bring direct claims against Briner for failing to
repay the remainder of one of the plaintiff's loans to
Revere Investments when that company's books and records
indicate that the plaintiff's solely owned limited
liability company, Saunders Capital, rather than the
plaintiff himself, provided the capital.
A
Derivative
Standing
We
begin by addressing whether, in the absence of authorization
in the operating agreements of Revere Investments and Fund
GP, [19] the plaintiff lacked standing to
bring derivative claims on behalf of those companies under
either General Statutes (Rev. to 2017) § 34-187 or, in
the alternative, the common law. The defendants claim for the
first time on appeal that the plaintiff, a 50 percent member
of Revere Investments and Fund GP, lacked standing to bring
derivative claims on behalf of those companies under §
34-187 of the CLLCA, the operative statute at the time the
plaintiff commenced the present litigation. Further, the
defendants claim that, in the absence of legislative
authority under the CLLCA, there is no common-law authority
granting a member or manager ofa limited liability company
derivative standing. The plaintiff responds that, although
this court has never addressed whether limited liability
company members or managers can sue derivatively, other
courts have interpreted the CLLCA as permitting it. In the
alternative, the plaintiff claims that this court should
conclude, as other courts have, that the common law grants
him derivative standing.[20] We conclude that, in the absence
of a provision in the operating agreements of the respective
companies authorizing the filing of derivative lawsuits, the
plaintiff lacked standing to bring his derivative claims on
behalf of Revere Investments and Fund GP because neither the
CLLCA nor the common law provided for a derivative remedy at
the time the plaintiff commenced the present
action.[21]
The
record reveals the following additional facts that are
relevant to our resolution of this claim. The operating
agreements of Revere Investments and Fund GP list Briner
and/or Revere Capital TX as both a 50 percent member and
comanager of those companies. The operating agreement of Fund
GP also lists the plaintiff as a 50 percent member and
comanager of that company, and evidence at trial indicated
that Saunders transferred his 50 percent interest in Revere
Investments to the plaintiff in February, 2012.[22]
Additionally, the operating agreements of both companies vest
the authority to manage the business of each company in its
managers (manager-managed). Neither company's operating
agreement, however, authorizes its members or managers to
bring a derivative action.
In his
second amended complaint, in which the plaintiff added
derivative claims on behalf of Revere Investments and Fund GP
in thirteen separate counts, the plaintiff alleged that, as a
member or manager of the companies, he ‘‘fully
and adequately represent[ed] [their] interests . . .
.'' He further alleged that he ‘‘made
demands . . . of Briner on behalf of Revere Investments and
[Fund] GP to remedy the issues'' upon which he based
his claims. To the extent that he failed to make
‘‘any formal demand, '' the plaintiff
claimed, ‘‘it was [because] such a demand would
be futile . . . .''
In its
memorandum of decision, the trial court concluded that the
plaintiff had standing. With respect to the four derivative
counts on which the trial court rendered judgment in favor of
the plaintiff, the court noted that, ‘‘[i]nsofar
as [the plaintiff] alleges misconduct that damaged investors,
other than himself, he fairly and adequately represents the
interests of investors in [Revere Investments] and . . . Fund
[GP].'' The court reasoned that the plaintiff
constituted ‘‘an investor . . . and a co-owner of
[Revere Investments] (after February, 2012), '' and
‘‘a manager and co-owner of Fund GP.''
We
begin our review of the trial court's determination with
the general principles governing standing to sue.
‘‘If a party is found to lack standing, the court
is without subject matter jurisdiction to determine the
cause. . . . A determination regarding a trial court's
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.'' (Internal quotation
marks omitted.) PNC Bank, N.A. v. Kelepecz, 289
Conn. 692, 704- 705, 960 A.2d 563 (2008). ‘‘In
addition, because standing implicates the court's subject
matter jurisdiction, the issue of standing is not subject to
waiver and may be raised at any time.'' Equity
One, Inc. v. Shivers, 310 Conn. 119, 126, 74 A.3d 1225
(2013).
‘‘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 which
may affect the rights of others are forged in hot
controversy, with each view fairly and 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.'' (Internal quotation marks
omitted.) PNC Bank, N.A. v. Kelepecz, supra, 289
Conn. 705.The issue of whether the CLLCA provided the
plaintiff with a derivative remedy implicates statutory
aggrievement, which ‘‘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.)
Id.
‘‘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
plaintiff's position a right to judicial relief. . . .
[Stated differently, the] plaintiff must be within the zone
of interests protected by the statute.'' (Citation
omitted; internal quotation marks omitted.) McWeeny v.
Hartford, 287 Conn. 56, 65, 946 A.2d 862 (2008).
The
issue of whether the CLLCA authorizes a member or manager of
a limited liability company to bring a derivative action on
its behalf 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). We begin by noting that
Connecticut first recognized the limited liability company
structure in 1993 when our legislature enacted the CLLCA, a
statutory scheme it modeled after the Prototype Limited
Liability Company Act (Prototype Act).[23] See Scarfo v.
Snow, 168 Conn.App. 482, 500 n.9, 146 A.3d 1006 (2016)
(Connecticut's limited liability company statutory
provisions were modeled after Prototype Act). We recently
recognized that our legislature enacted the CLLCA in order to
establish ‘‘the right to form [a limited
liability company] and all of the rights and duties of the
[limited liability company], as well as all of the rights and
duties of members . . . .'' Styslinger v.
Brewster Park, LLC, 321 Conn. 312, 317, 138 A.3d 257
(2016).
On the
basis of the plain language of the act, we conclude that the
CLLCA does not permit members or managers to file derivative
actions but, rather, authorizes them to collectively commence
an action in the name of the limited liability company upon a
requisite vote of disinterested members or managers (member
initiated action). The CLLCA recognizes the right of the
limited liability company ‘‘to . . . sue and be
sued.'' General Statutes (Rev. to 2017) § 34-124
(b). General Statutes (Rev. to 2017) § 34-186 generally
authorizes ‘‘[s]uits . . . brought by or against
a limited liability company in its own
name.'' (Emphasis added.) Section
34-187[24] provides the procedure that members
or managers must follow if they wish to file a lawsuit in the
name of the company. Section 34-187 (a) (1) and (b)
authorizes any member of a limited liability company,
regardless of whether that company vests management
responsibilities in its members or managers, to bring an
action in the name of the company upon the vote of a
majority of disinterested members. Likewise, §
34-187 (a) (2) authorizes any manager of a manager-managed
limited liability company to bring an action in the name of
that company upon the vote necessary under General Statutes
(Rev. to 2017) § 34-142 (a), which requires
‘‘more than one-half by number of [disinterested]
managers . . . .''
Connecticut
modeled the procedure set forth in § 34-187 on §
1102 of the Prototype Act.[25] The drafters of the
Prototype Act expressly ‘‘emphasize[d] that
[§ 1102] does not permit derivative suits unless they
are provided for in the operating agreement.'' 3 L.
Ribstein & R. Keatinge, Limited Liability Companies (2d
Ed. 2011) Appendix C, p. App. C-109.[26] Instead, the
drafters intended to create a substitute for the derivative
action, which they deemed more appropriate ‘‘in
closely held firms like the typical [limited liability
company] . . . [in which] members can be expected to be
actively interested in the firm, and . . . can readily be
coordinated for a vote on a suit by the firm.''
Id., p. App. C-110. The ‘‘extra
expense'' and procedural hurdles required to bring a
derivative action, the drafters reasoned, ‘‘may
not be worth it'' in the limited liability company
context; id.; which differs from that of
‘‘public corporations . . . [where] the members
are generally passive . . . uninvolved in management and . .
. too numerous to coordinate effectively for action against
errant managers.'' Id., p. App. C-109.
We
conclude, therefore, that, in adopting a functionally
identical provision to § 1102 of the Prototype Act, our
legislature chose to omit the derivative action under the
CLLCA for members and managers of limited liability
companies.[27] Consequently, the plaintiff in the
present case failed to allege that he undertook the proper
procedure to maintain standing under the CLLCA. Although the
allegations set forth in the plaintiff's second amended
complaint-namely, that he was a member or manager of both
companies and that either he made demands on Brinerorsuch
demands were futile- comport with the procedural requirements
for bringing a derivative action under the CULLCA, they do
not comply with the requirements for bringing a member
initiated action under the CLLCA.[28]
The
plaintiff asks this court, however, to look past the CLLCA
and conclude that, despite our legislature's omission of
a derivative remedy in the CLLCA, limited liability company
members and managers may sue derivatively under the common
law.[29] We have recently explained, however,
that ‘‘[o]ur common law does not recognize
[limited liability companies], which were first created by
[the enactment of the CLLCA].'' Styslinger v.
Brewster Park, LLC, supra, 321 Conn. 317. The question
we must resolve, therefore, is‘‘whether the
recognition of [this] common-law remedy would conflict with
or frustrate the purpose of the [CLLCA] . . . .''
(Internal quotation marks omitted.) Caciopoli v.
Lebowitz, 309 Conn. 62, 69, 68 A.3d 1150 (2013). For the
reasons we have already explained, we conclude that it would.
Consistent with our reasoning, we observe that other
Prototype Act jurisdictions have held that members and
managers of limited liability companies must follow the
procedure for bringing a member initiated action and, as
such, lack standing to bring derivative actions under the
common law. See, e.g., Marx v. Morris, 386 Wis.2d
122, 148, 925 N.W.2d 112 (2019) (declining to
‘‘judicially import . . . corporate derivative
standing provisions into the [limited liability company]
context where the legislature has not done
so'').[30] Consequently, we conclude that the
trial court improperly exercised subject matter jurisdiction
over the plaintiff's claims on behalf of Revere
Investments and Fund GP.
B
Direct
Standing
We next
address whether the trial court incorrectly determined that
the plaintiff had standing to bring direct claims alleging
breach of fiduciary duty and breach of the implied covenant
of good faith and fair dealing against Briner and Revere
Capital TX for failure to repay one of his loans, the LR
Global bridge loan. The defendants claim that, because
Saunders Capital made the investment at issue, the plaintiff
lacked standing to bring a direct claim seeking repayment, as
he lacked a distinct and separate injury from the company.
According to the defendants, therefore, we should reverse the
trial court's judgment as to those claims because the
plaintiff was required to bring the action on behalf of
Saunders Capital.[31] The plaintiff acknowledges the
general rule prohibiting a member of a limited liability
company from bringing a direct action when seeking to recover
for a harm suffered by the company. He argues, however, that
the general rule should not apply because he financed the
loan with his personal capital through his wholly owned
company. The plaintiff, therefore, asks this court to
...