Scarfo v. Snow

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NEIL SCARFO v. PATRICK SNOW ET AL.

(AC 37794)

Alvord, Prescott and Mullins, Js.

Argued March 2—officially released September 27, 2016

(Appeal from Superior Court, judicial district of

Middlesex, Epstein, J.)

Michael F. Dowley, with whom, on the brief, was

Melissa S. Harris, for the appellant (plaintiff).

John C. Leary, for the appellees (named defendant

et al.).

Opinion

MULLINS, J. The plaintiff, Neil Scarfo, appeals from

the judgment of the trial court, rendered in favor of the

defendants, Patrick Snow, Cider Hill Associates, LLC

(Cider Hill),1 Premier Building & Development, Inc.,

Kane Street Associates, LLC, Cobblestone Associates,

LLC, Premier Financial, Inc., Sydney Property Manage-

ment, LLC, and Premier Development, Inc.2 On appeal,

the plaintiff claims that the court erred in concluding

that he did not establish his claims of spoliation of

evidence, breach of contract, and breach of fiduciary

duty against Snow. Although the trial court authored a

well written and thorough memorandum of decision,

we, nevertheless, conclude that the form of judgment

was improper because the plaintiff lacked standing to

assert these claims in his individual capacity, and we

reverse the judgment and remand the matter with direc-

tion to dismiss the case.

The following extensive facts, as specifically found

by the trial court, inform our review. Scarfo ‘‘has been

a licensed realtor in the State of Connecticut for almost

twenty-eight years and works with the Century 21

agency. . . . Snow . . . has been engaged in con-

struction and real estate development for more than

twenty years. The parties had known one another for a

period of time before [they entered into] the December,

2004 contract . . . . [Scarfo] had an office across the

hall from [Snow] at the time of the contract, and the

parties continued to have their business offices in the

same building, on the same floor, across from one

another, for the entire period of time at issue. . . .

‘‘Sometime in 2002 or 2003, Snow saw a Century 21

ad for a ‘raw’ piece of land for sale in Cromwell. The

owner was Evergreen Realty [(Evergreen)]. Snow con-

sulted with a local planning and zoning attorney with

regard to a possible project, but there were difficulties

with initial proposals. In the spring of 2004, Snow sub-

mitted to the Connecticut Secretary of [the] State

papers for registering Cider Hill Associates as a limited

liability company, partially for insurance and liability

reasons, with the intent of development of the property.

One of Snow’s companies, Premier Development,

entered into a purchase agreement for the land from

Evergreen in April, 2004. Scarfo had discussed with

Snow the possibility of buying a lot in the planned

subdivision, but instead decided to become a partner

in the project.

‘‘On December 17, 2004, [Cider Hill] filed with the

Secretary of [the] State its Articles of Organization.3 As

memorialized in their agreement dated December 30,

2004, Scarfo presented Snow with a cashier’s check in

the amount of $262,500 on December 17, 2004, and, on

December 20, 2004, the closing took place in which

[Cider Hill] purchased the property at issue from Ever-

green. As listing agent, Scarfo took a $25,000 commis-

sion on the sale of the property, which Snow admits

was a reduced commission. . . . Scarfo contends that

Snow never contributed his $262,500 share of the initial

investment. Snow claims that his work in making all

of the arrangements to procure the land, investigation,

hiring engineers and soil scientists, planning, and incur-

ring other professional fees before the December, 2004

agreement, amount to costs in the range of $250,000,

plus he contributed the option moneys from the Novem-

ber, 2004 agreements.4 . . .

‘‘On December 30, 2004, [Scarfo] and [Snow] signed

a written [operating] agreement [(agreement)], calling

themselves ‘members,’ with each to have a 50 percent

interest in Cider Hill . . . . They further agreed that,

as of the date of the agreement, the value to each mem-

ber was one half of the unpaid obligations of the com-

pany plus $262,500.

‘‘The agreement obligated each of the members, at

the end of each fiscal year, to ascertain a valuation

based primarily upon the opinion of the [certified public

accountant] retained by the company, and further pro-

vided that, if the members could not agree on the valua-

tion, another certified public accountant was to

determine the value of the interest. Neither member to

the agreement ever provided an accounting and neither

member submitted an inquiry for an accounting to a

specially nominated accountant during the pendency

of the agreement. However, Snow arranged for the

accounting firm of Guilmartin, DiPiro & Sokolowski5

for [Cider Hill] and Michael DiPiro of that firm prepared

all of [Cider Hill’s] tax returns and [schedule K-1 tax

forms]. One might find that this revealed Snow’s compli-

ance with the ‘accounting’ portion of the agreement

mentioned . . . .

‘‘In an ‘Amendment’ to the agreement, also dated

December 30, 2004, the parties stated that each of them

was contributing ‘real property to [Cider Hill] with an

agreed upon value of $262,500.’ [Scarfo] and [Snow]

further agreed that they would obtain financing to com-

plete the acquisition of real property to develop a proj-

ect in the estimate amount of $1,500,000, and they

further agreed to divide equally the costs associated

with debt service, taxes, and other expenses. The only

specific delineation of responsibilities to either of the

partners was that . . . Snow was to be responsible to

‘obtain all required approvals, including but not limited

to subdivision approvals, planning and zoning approval,

permitting, Cromwell approvals, Department of Trans-

portation approvals, architectural rendering.’ . . .

‘‘There has been no allegation that Snow did not

perform these duties. Instead, [Scarfo] has alleged in his

amended complaint . . . that Snow was the ‘managing

partner’ and [and that he] failed to value the member-

ship annually, failed to notify [Scarfo] of the value of

his membership interest, failed to obtain bids, and failed

to distribute profits from the sale of the lots on the

development property [in breach of the amended

agreement].

‘‘Neither the agreement, nor the [December 30, 2004]

amendment . . . renders [Snow] the ‘manager’ of the

property. Nor does the agreement require [Snow] to

determine a value of the membership and provide it to

[Scarfo]. Indeed, each partner had that responsibility

to the other. Except for the annual tax returns and K-

1s provided by the [Cider Hill] accountant, neither party

did so and neither inquired of the other.

‘‘Two other provisions of this agreement specifically

applicable to this litigation are paragraphs 7 and 8,

which provide:

‘‘7. All aspects of the construction of the housing units

and related structures shall be performed by PREMIER

BUILDING & DEVELOPMENT, INC., at a cost plus 5

[percent]. [Cider Hill] shall obtain [three] bids for this

work to estimate the fair market value of this work and

to agree on the cost of said work.

‘‘8. The cost of work performed by PREMIER BUILD-

ING & DEVELOPMENT, INC., or its affiliates or assigns,

and PATRICK SNOW, or his affiliates or assigns, shall

be paid from the proceeds of the construction loan as

customary . . . .

‘‘Scarfo contends that he entered the agreement

because he relied on a preliminary budget prepared by

Snow, which reflected expenditures of $1,727,100. The

agreement does not make any mention of budgets or

reliance thereon. In addition, neither the agreement nor

any other document provides any guarantee of profit

nor pay-back to an investor in the event of going over

budget. Nor does the agreement provide that lots should

sell at a certain price or that the partner who actually

was negotiating the sale of the lots could not exercise

discretion in the sale, depending on the benefit to [Cider

Hill] or the difficulty in selling any particular lot on

the property.

‘‘Snow devoted full-time effort to the development

of the [Cider Hill] subdivision and sale of the properties.

While he was not designated by the parties in their

agreement as the ‘managing partner,’ he was the only

one of the two equal partners who worked on devel-

oping the property, engaging engineers, pavers, land-

scapers, etc.; procuring estimates; considering the

contractors and providers to be hired and used, etc.;

negotiating the necessary arrangements and business

transactions, as well as the loans; and, preparing for

and procuring necessary approvals from appropriate

authorities. In essence, he was the ‘de facto’ managing

member, or the operation would never have even begun

to get under way. Snow never received any salary or

compensation for his efforts.

‘‘In November, 2005, the Town of Cromwell Planning

and Zoning Commission approved the subdivision, with

special and general conditions. In 2006, lots began to

be sold; indeed approximately twelve of the twenty-

three lots were sold in that year. The number decreased

in 2007 and 2008. The real estate market, which had

been ‘on a roll,’ began the tumultuous decline from

which we are only now beginning to recover, just as is

the general economy. As Snow testified, he had high

hopes in 2004, and before 2008, he never expected a

loss. In an undated supplementary budget, proposed

expenditures had increased to $2,979,050. This was pre-

pared by Snow, and Scarfo did not ask any questions

about it. Snow testified that the property proved to be

a very difficult site on which to work. Among other

things, trees had to be cleared, there were inclines and

declines, a hill, the necessity of the construction of a

retaining wall, the soil was a type that was difficult to

control and had to be moved.

‘‘The income tax returns for [Cider Hill] reflect the

following: 2004—no gross receipts or sales; 2005—loss

of $455; 2006—profit of $166,705; 2007—loss of $98,501;

2008—loss of $230,048; 2009—loss of $13,845; 2010—

loss of $157,472, and, 2011—loss of $20.

‘‘Snow’s ‘bookkeeping’ and ‘records’ keeping in this

project [were] unique. According to Kathy Lehman, the

woman who was his bookkeeper, customer service rep-

resentative and office manager for seven years until

2010, each lot in the twenty-three lot [Cider Hill] subdivi-

sion had its own folder, containing the plot plan and

closing documents. The records produced at trial cer-

tainly confirm that. Invoices from subcontractors were

placed in a ‘to be paid’ pile and she never paid any bill

without an invoice. Thereafter, the payment set-up got

confusing. [Cider Hill] did not have a credit card and

had little in the way of equity at its commencement.

In order to benefit from the delay of having to pay

immediately, Snow took advantage of the sixty day pay-

ment plan for vendors [and] on various of the other

entities’ and Snow’s credit cards, and those cards were

used to pay [Cider Hill] bills. Snow would then later

make the credit card payments. Whenever Snow needed

to be reimbursed for an expenditure, he would give

Ms. Lehman the receipt. According to Ms. Lehman, the

credit card statements were at the office when she left.

‘‘In the early portion of its existence, [Cider Hill] used

a [particular] software package . . . [but], by the time

of the commencement of this litigation, it was no longer

accessible. [Cider Hill] then changed to Quick Books.

‘‘Neither Scarfo nor any of his Century 21 colleagues

assisted in the sale of any of the lots in the development.

In late 2008, or early in 2009, Snow advised Scarfo

that he thought that they would come in under budget.

Subsequently, however, when Snow advised Scarfo that

such was not the case and that there would not be a

profit, Scarfo initiated this lawsuit.

‘‘According to Ms. Lehman, Scarfo never asked her

for any documents or made any inquiries about [Cider

Hill] or Snow until 2009, when she provided Scarfo

documents in response to a request he made to her.

‘‘[Scarfo] alleges that the equities favor him because

of numerous discrepancies [that] he and his experts

are unable to resolve at this time and because of his

belief that the defendant was self-dealing. There is no

question in this court’s mind that the evidence in this

case presents examples of what one might consider

unorthodox ways of making and keeping records. It

may go beyond ‘sloppy,’ however, the evidence does

not reveal that there was an intent to deceive or hide

or self-deal.

‘‘One of the major complaints raised by Scarfo is that

Snow authorized ‘credits’ on the sale of lots in the

subdivision without authorization.6 Scarfo does not

point to any portion of the agreement, however, that

requires the partner working on the project to not be

able to exercise discretion in his attempts to move

the property.

‘‘Scarfo also complains that he only signed one of

the ‘consent’ forms for the sale of the properties and

that was at a fax request of the closing attorney when

Scarfo was in Florida. These forms listed the sales price

terms, including credits, for each lot in the subdivision.

Scarfo contends that he did not sign the other forms

[that] appear to have his signature. Snow denies that

he affixed that signature. No handwriting expert testi-

fied, and the court has no idea as to how these consent

forms were signed. Scarfo contends that he would never

have approved these credits had he known about them.

These forms, however, together with all of the other

closing documents . . . were all available to Scarfo

at any time during the course of the tenure of the con-

tract. In addition, Scarfo, having been in the real estate

business for more than twenty-five years, knew of the

necessity of such documents, and if he did not, he

certainly was alerted to that when he was asked to

fax his signature by the [Cider Hill] attorney at one of

the closings.

‘‘Scarfo also contends that the agreement was

breached because three written bids were not procured

for each phase of the project. The agreement does not

call for bids to be ‘written.’ In addition, the credible

testimony reveals that the [three bid] rule was usually

abided by and that, in his many years of experience,

Snow had established relationships with vendors and

subcontractors who were reliable, competent, and pro-

vided work and goods at competitive prices.

‘‘[Scarfo’s] expert, [certified public accountant]

Michael Sobol, was retained in 2013. At trial, he testified

that ‘his firm’ reviewed every item in the five boxes of

documents produced in discovery in this case, delivered

to [Scarfo’s] counsel in 2011 or 2012. Mr. Sobol

explained that, with regard to the documents which

were ‘some eight years after the events took place,’

he and his office tried to ‘get our heads around what

transpired from an accounting perspective.’ He

expected to find matching invoices or similar docu-

ments and accounts for all transfers and expenditures

made, but was not able to do so. As an example, Mr.

Sobol stated that, while he saw disbursements to [Con-

necticut Light and Power], he would find it an unsup-

ported disbursement unless he could find an invoice.

As another example, Mr. Sobol could not match expen-

ditures for General Paving, but a document shown to

him in court revealed a good portion of the amount

paid was indeed for that entity. There were, however,

many other discrepancies for which there was no identi-

fiable vendor or service provider.

‘‘Mr. Sobol testified that all of the credit card state-

ments were not in the materials delivered from [Snow],

but he also admitted that, even if he had all of the credit

card statements, he might not be able to identify the

vendor or service provider. Mr. Sobol concluded that

the fact that disbursements were unsupported did not

mean that they were inappropriate or unauthorized.

Clearly, Mr. Sobol found, and this court cannot disagree,

that as of the time of the delivery of these documents,

they did not reveal the pristine accounting or documen-

tation that was desired, nor did the document produc-

tion even come close to it. The records at this point in

time were certainly not in good order or well main-

tained. However, Mr. Sobol, [Scarfo’s] own expert, testi-

fied that he could not say that there was unrealized

profit for which Scarfo was entitled to payment.

‘‘In 2011, the town of Cromwell brought a civil action

against [Cider Hill] and General Paving and Construc-

tion Corp[oration (General Paving)], alleging that [they]

failed to construct properly certain public improve-

ments within the subdivision in accordance with the

plans that had been filed and approved [(Cromwell

action)]. There is dispute about how and when Scarfo

learned about [the Cromwell action]. Scarfo testified

that [he first learned of that action when he read] about

it in the newspaper. Snow contends that he approached

Scarfo, advising him not only of the suit, but also asking

him to advance his share of the funds necessary to

defend [that action] and proceed against General Pav-

ing. It was Snow’s belief that [Cider Hill] could prevail

in its claim that General Paving was responsible to the

town of Cromwell and to [Cider Hill]. Because neither

he nor [Cider Hill] had the financial resources to hire

counsel, Snow asked Scarfo to contribute to legal repre-

sentation costs. By this time, the [present] litigation

had commenced and, on the advice of counsel, Scarfo

refused to contribute and also refused the choice of

[Snow’s] counsel in the [present] lawsuit as counsel to

represent [Cider Hill] in the Cromwell [action] and the

proposed claims against General Paving. The town of

Cromwell was requiring the repair to the roads; [Cider

Hill] could not do it; and General Paving refused to do

it. Snow agreed to forfeit the bond and have the town

correct the problem, and a default judgment entered

against [Cider Hill]. In his counterclaim, Snow asserts

breach of contract, breach of fiduciary duty and negli-

gence claims against Scarfo for refusing to contribute

to legal costs [arising out of the Cromwell action].’’

(Footnotes altered.)

The court also found that there remained many unan-

swered questions after the close of evidence, and it

stated that it had ‘‘much doubt about the veracity of’’

either Scarfo or Snow. Furthermore, the court opined:

‘‘The complexity of the issues in this case arise from

the various allegations the parties have made, the very

confusing and manipulative way in which [Snow] con-

ducts his business(es), and the complete lack of any

attention whatsoever by [Scarfo] to the subdivision

development [that] is the subject of this lawsuit, as well

as a complete lack of any attention at all by [Scarfo]

to the partnership or the business on which he premises

his contentions that he is now entitled to damages and

other relief.’’

On the basis of these findings and astute observa-

tions, the court concluded that the plaintiff had failed

to establish any of his causes of action, and it rendered

judgment in favor of the defendants.7 This appeal

followed.8

Following appellate briefing and oral argument, we,

sua sponte, issued the following supplemental briefing

order: ‘‘The parties are hereby ordered to file simultane-

ous supplemental briefs of no more than ten pages

within ten days of issuance of notice of this order to

address the following issue:

‘‘1. Whether the plaintiff has standing to maintain this

suit in his individual capacity. See Smith v. Snyder, 267

Conn. 456, 460–63, 839 A.2d 589 (2004); Padawer v.

Yur, 142 Conn. App. 812, 66 A.3d 931 [cert. denied, 310

Conn. 927, 78 A.3d 146] (2013); see also Calpitano v.

Rotundo, Superior Court, judicial district of New Britain

Docket No. CV-11-6008972 (August 3, 2011) (52 Conn.

L. Rptr. 464); Ward v. Gamble, Superior Court, judicial

district of Hartford, Docket No. CV-08-5017829 (July 23,

2009) (48 Conn. L. Rptr. 286).

‘‘The parties are further ordered to include in their

supplemental briefs an analysis of the following

matters:

‘‘A. Based on the allegations throughout the com-

plaint that the defendant Snow breached the operating

agreement and amendment thereto of Cider Hill . . .

which documents were signed and entered into by

Scarfo and Snow as duly authorized members of Cider

Hill, what, if any, injury has the plaintiff incurred indi-

vidually that is distinct and separate from the alleged

injury to Cider Hill.

‘‘B. What is the basis for the plaintiff’s standing to

raise a claim that Snow breached his alleged fiduciary

duty to Cider Hill and to the individual plaintiff by

breaching the operating agreement of Cider Hill, and

the amendment thereto, and by self-dealing.

‘‘C. Whether the plaintiff has standing to raise a claim

of spoliation of evidence, which specifically alleges as

its basis, that Snow failed to preserve evidence despite

knowing that he had ‘obligations to the plaintiff and

[Cider Hill] under the December 30, 2004 [operating]

agreement and amendment dated December 30, 2004.’ ’’

The parties, thereafter, submitted their supplemen-

tal briefs.

In his supplemental brief, the plaintiff contends that

he has standing, individually, to maintain his direct

causes of action because he is claiming a direct rather

than a derivative injury. The plaintiff then specifies the

particular parts of the amended operating agreement

he alleges Snow violated and how he sustained direct

injury, separate and apart from any injury to Cider Hill.

For example, the plaintiff argues: ‘‘The [amended]

agreement between [the] plaintiff and . . . Snow

regarding capital contributions created personal duties

and obligations under the operating agreement to each

other. The claim is direct because it arises from a special

relationship, [namely,] the contractual relationship

between [the] plaintiff and . . . Snow. . . . The

agreement between [the] plaintiff and . . . Snow to

divide equally the costs and expenses of the company

created a joint duty and obligation wherein [the] plain-

tiff has a right to contribution/damages.’’ Specifically

as to his breach of fiduciary duty claim, the plaintiff

argues that he has standing to raise a direct claim

because his ‘‘claim is for express and continuing

breaches of personal duties and obligations under the

[amended] agreement by . . . Snow and not general

fiduciary duties and obligations to the company . . . .’’

He also contends that he has ‘‘standing to raise [a] claim

that . . . Snow breached his fiduciary duty to defen-

dant [Cider Hill] and [to the] plaintiff, individually, by

breaching the operating agreement and [the] amend-

ment [thereto] by self-dealing.’’ We disagree that these

are direct injuries, and we conclude that the plaintiff

did not have standing in his individual capacity to main-

tain his various causes of action and that the trial court

should have dismissed his case.

‘‘It is axiomatic that a party must have standing to

assert a claim in order for the court to have subject

matter jurisdiction over the claim. . . . Standing is the

legal right to set judicial machinery in motion. . . .

Standing requires no more than a colorable claim of

injury; a [party] ordinarily establishes . . . standing by

allegations of injury. . . . [I]f the injuries claimed by

the plaintiff are remote, indirect or derivative with

respect to the defendant’s conduct, the plaintiff is not

the proper party to assert them and lacks standing to

do so. [When], for example, the harms asserted to have

been suffered directly by a plaintiff are in reality deriva-

tive of injuries to a third party, the injuries are not

direct but are indirect, and the plaintiff has no standing

to assert them. . . .

‘‘A limited liability company is a distinct legal entity

whose existence is separate from its members. . . .

[It] has the power to sue or to be sued in its own name;

see General Statutes §§ 34-124 (b) and 34-186; or may

be a party to an action brought in its name by a member

or manager. . . . A member or manager, however, may

not sue in an individual capacity to recover for an injury

based on a wrong to the limited liability company. . . .

[A] member or manager of a limited liability company

is not a proper party to a proceeding by or against a

limited liability company solely by reason of being a

member or manager of the limited liability company,

except where the object of the proceeding is to enforce

a member’s or manager’s right against or liability to the

limited liability company or as otherwise provided in an

operating agreement . . . .’’ (Internal quotation marks

omitted.) Padawer v. Yur, supra, 142 Conn. App.

817–18.

In the present case, Snow filed articles of organiza-

tion for Cider Hill with the Secretary of the State’s

Office on December 17, 2004, listing himself as the agent

for service of process and listing his title as ‘‘Mem/Mgr.’’

Snow also listed Scarfo as a ‘‘Member’’ of Cider Hill.

The nature of the business to be transacted by Cider Hill

is listed as ‘‘[a]ny lawful business that may be carried on

under the Limited Liability Act.’’ Question five of the

articles of organization form provides:

‘‘MANAGEMENT

‘‘(Place a check mark next to the following statement

only if it applies.)

‘‘ The management of the limited liability com-

pany shall be vested in one or more managers.’’ (Empha-

sis in original.) There is no check mark in question five.

On December 30, 2004, Scarfo and Snow then entered

into a written operating agreement for Cider Hill and

an amendment thereto. The agreement provides that

Scarfo and Snow each were 50 percent members of

Cider Hill. The amendment specifically states that it

was drafted for the purpose of ‘‘memorializ[ing] their

agreement regarding the division of labor and expenses

regarding the development of the property on Ever-

green Road in Cromwell . . . .’’ Both Scarfo and Snow

each signed the original operating agreement as a

‘‘Member’’ of Cider Hill. They each then signed the

amendment to the Cider Hill operating agreement as

‘‘Its Member, Duly Authorized.’’

On October 27, 2009, Scarfo brought a six count

amended complaint against Snow and Cider Hill alleg-

ing damages, breach of fiduciary duty, and spoliation

of evidence, as well as requesting an accounting and an

opportunity to pierce the corporate veil of the various

defendant companies in which Snow was a participant,

including Cider Hill. The complaint was based upon

Snow’s alleged breaches of the amended agreement

regarding the Evergreen Road development (Evergreen

Project). The court found that Scarfo had failed to prove

his causes of action, and it rendered judgment in favor

of the defendants. Although neither the trial court nor

the parties questioned the issue of the plaintiff’s stand-

ing in this case, we requested supplemental briefing on

that issue, and we now conclude that the plaintiff did

not have standing in his individual capacity to maintain

this suit.

‘‘Our common law does not recognize [limited liabil-

ity companies], which were first created by statute in

Connecticut in 1993. Public Acts 1993, No. 93-267. [A

limited liability company] is a distinct type of business

entity that allows its owners to take advantage of the

pass-through tax treatment afforded to partnerships

while also providing them with limited liability protec-

tions common to corporations. . . . The [Limited Lia-

bility Company Act, General Statutes § 34-100 et seq.]

establishes the right to form [a limited liability com-

pany] and all of the rights and duties of the [limited

liability company], as well as all of the rights and duties

of members and assignees. It permits the members to

supplement these statutory provisions by adopting an

operating agreement to govern the [limited liability

company’s] affairs.’’ (Citations omitted.) Styslinger v.

Brewster Park, LLC, 321 Conn. 312, 317, A.3d.

(2016). ‘‘A limited liability company . . . is a hybrid

business entity that offers all of its members limited

liability as if they were shareholders of a corporation,

but treats the entity and its members as a partnership

for tax purposes. All [fifty] states and the District of

Colombia have enacted [limited liability company] legis-

lation, and every state has adopted or is considering

its own distinct [limited liability company] act.’’9 (Foot-

notes omitted.) Annot. 48 A.L.R. 6th 1, § 2 (2009 and

Supp. 2016); see General Statutes § 34-100 et seq.

‘‘A limited liability company is a distinct legal entity

whose existence is separate from its members. . . . A

limited liability company has the power to sue or be

sued in its own name . . . or may be a party to an

action through a suit brought in its name by a member.

. . . A member may not sue in an individual capacity

to recover for an injury the basis of which is a wrong

to the limited liability company.’’ (Citations omitted.)

Wasko v. Farley, 108 Conn. App. 156, 170, 947 A.2d 978,

cert. denied, 289 Conn. 922, 958 A.2d 155 (2008).

‘‘A corporation is a separate legal entity, separate and

apart from its stockholders. . . . It is an elementary

principle of corporate law that . . . corporate property

is vested in the corporation and not in the owner of

the corporate stock. . . . That principle also is applica-

ble to limited liability companies and their members.’’

(Citation omitted; emphasis omitted; internal quotation

marks omitted.) Litchfield Asset Management Corp. v.

Howell, 70 Conn. App. 133, 147, 799 A.2d 298, cert.

denied, 261 Conn. 911, 806 A.2d 49 (2002).

‘‘[T]he law [permits] shareholders to sue derivatively

on their corporation’s behalf under appropriate condi-

tions. . . . [I]t is axiomatic that a claim of injury, the

basis of which is a wrong to the corporation, must be

brought in a derivative suit, with the plaintiff proceeding

secondarily, deriving his rights from the corporation

which is alleged to have been wronged. . . . [I]n order

for a shareholder to bring a direct or personal action

against the corporation or other shareholders, that

shareholder must show an injury that is separate and

distinct from that suffered by any other shareholder or

by the corporation. . . . It is commonly understood

that [a] shareholder—even the sole shareholder—does

not have standing to assert claims alleging wrongs to

the corporation.’’ (Citations omitted; internal quotation

marks omitted.) Smith v. Snyder, 267 Conn. 456, 461,

839 A.2d 589 (2004).

‘‘[A] derivative suit is an action brought on behalf of

a corporation by some percentage of its shareholders.

. . . [In many of these actions, the] corporation is in

an anomalous position of being both a defendant and

a plaintiff in the same action. This unusual posture for

the corporation is the result of the historical evolution

of the derivative suit. At common law, there was no

action in law permitting a shareholder to call corporate

managers to account. . . . In equity, there were two

actions that evolved into a single derivative action: in

one action the corporation was named as a defendant in

order to compel it to take action against its controlling

officers; in the second, the shareholder maintained an

action against the officers and directors of the corpora-

tion, on behalf of the corporation. The dual actions

were cumbersome and evolved into the present day

unitary derivative action. . . . A shareholder’s deriva-

tive suit is an equitable action by the corporation as

the real party in interest with a stockholder as a nominal

plaintiff representing the corporation. . . . It is

designed to facilitate holding wrongdoing directors and

majority shareholders to account and also to enforce

corporate claims against third persons. . . .

‘‘The use of a nominal plaintiff in a derivative action

makes it an unusual procedural device by reason of its

dual nature in that it consists of the basic cause of

action, which pertains to the corporation and on which

the corporation might have sued, and the derivative

cause of action, based upon the fact that the corporation

will not or cannot sue for its own protection. . . . Thus

the dual nature of the stockholder’s action: first, the

plaintiff’s right to sue on behalf of the corporation, and,

second, the merits of the corporation’s claim itself.’’

(Citations omitted; internal quotation marks omitted.)

Ma’Ayergi & Associates, LLC v. Pro Search, Inc., 115

Conn. App. 662, 668–69, 974 A.2d 724 (2009).

Pursuant to General Statutes § 34-187: ‘‘(a) Except

as otherwise provided in an operating agreement, suit

on behalf of the limited liability company may be

brought in the name of the limited liability company

by: (1) Any member or members of a limited liability

company, whether or not the articles of organization

vest management of the limited liability company in

one or more managers, who are authorized to sue by

the vote of a majority in interest of the members, unless

the vote of all members shall be required pursuant to

subsection (b) of section 34-142; or (2) any manager or

managers of a limited liability company, if the articles

of organization vest management of the limited liability

company in one or more managers, who are authorized

to sue by the vote required pursuant to section 34-142.

‘‘(b) In determining the vote required under section

34-142 for purposes of this section, the vote of any

member or manager who has an interest in the outcome

of the suit that is adverse to the interest of the limited

liability company shall be excluded.’’10

‘‘[Section] 34-187 applies to all limited liability compa-

nies unless the operating agreement provides for a dif-

ferent rule that conflicts with the statute or provides

that the statute does not apply at all. That is the plain

meaning of the statutory language, ‘‘[e]xcept as other-

wise provided . . . . Thus, if the operating agreement

is silent as to the applicability of the statute, the statute

controls. . . . In other words . . . the statutory

scheme controls and provides for the default method

of operation, unless the organizers or members of the

limited liability company contract, through the

operating agreement, for another method of operation.

Indeed, this is one of the foundational principles of the

law governing limited liability companies.’’ (Citations

omitted; emphasis omitted; footnote omitted; internal

quotation marks omitted.) 418 Meadow Street Associ-

ates, LLC v. Clean Air Partners, LLC, 304 Conn. 820,

836–37, 43 A.3d 607 (2012).

In the present case, the plaintiff brought a direct

action against the only other member of Cider Hill,

against Cider Hill itself, and against other companies

in which Snow had an interest. He alleges various

causes of action flowing from an alleged breach of a

fiduciary type duty and a breach of the amended

operating agreement, which was signed by the plaintiff

and Snow, specifically as agents for Cider Hill. See

Chila v. Stuart, 81 Conn. App. 458, 464, 840 A.2d 1176

(‘‘[i]t is axiomatic that an action upon a contract or for

breach of a contract can be brought and maintained by

one who is a party to the contract sued upon’’ [internal

quotation marks omitted]), cert. denied, 268 Conn. 917,

847 A.2d 311 (2004). Indeed, neither the plaintiff nor

Snow were parties to the agreement in their individ-

ual capacities.

The plaintiff contends that Snow essentially misman-

aged the Evergreen Project. Although the plaintiff con-

tends that he suffered direct injury by the alleged action

or inaction of Snow, any benefit he would have received

from the Evergreen Project, were it not for the alleged

improprieties of Snow, would have flowed to him only

through Cider Hill, first benefiting Cider Hill. Accord-

ingly, if there was an injury, that injury was sustained

by Cider Hill and then sustained by the plaintiff. Thus,

the plaintiff’s injury is not direct, and he has no standing

to sue in his individual capacity. See Padawer v. Yur,

supra, 142 Conn. App. 817 (member or manager may

not sue in individual capacity to recover for injury based

on wrong to limited liability company); O’Reilly v.

Valletta, 139 Conn. App. 208, 216, 55 A.3d 583 (2012)

(same), cert. denied, 308 Conn. 914, 61 A.3d 1101 (2013);

Wasko v. Farley, supra, 108 Conn. App. 170 (same).

The form of the judgment is improper, the judgment

is reversed, and the case is remanded with direction to

dismiss the case for lack of subject matter jurisdiction.

In this opinion the other judges concurred.

1

Cider Hill is owned by both the plaintiff and Snow. After Snow’s attorney

filed an appearance with the trial court on behalf of all defendants, the

plaintiff filed a motion to disqualify counsel from representing Cider Hill

on the ground that, as a 50 percent owner of the company, he had not

agreed to counsel’s representation. On May 5, 2010, the trial court granted

that motion, and Cider Hill was no longer represented. Cider Hill is listed

on the trial court docket as ‘‘nonappearing.’’ It also has not participated in

this appeal.

2

Snow is a participant in each of the defendant companies.

3

The articles of organization were executed by Snow, who was listed as

the statutory agent for service of process. The document listed Snow’s title

as ‘‘Mem/Mgr’’ and Scarfo’s title as ‘‘Member.’’ The document also contained

a box that the preparer was to check if management of the company was

vested in a manager or managers. That box was not checked.

4

The court stated the following: ‘‘For example, in November, 2004, in

option agreements with three tile vendors with whom Snow had had previous

dealings, Snow agreed to provide them with reduced lot purchase prices

for payment of $50,000 each at the time of the making of the agreement.

Two of those were later returned by [Cider Hill].’’

5

According to the trial court: ‘‘Snow engaged this particular [accounting]

firm because it was Scarfo’s accounting firm, and Scarfo had asked Snow

to retain that firm for [Cider Hill].’’

6

The trial court stated: ‘‘For example, in November, 2004, in option

agreements with three tile vendors with whom Snow had had previous

dealings, Snow agreed to provide them with reduced lot purchase prices

for payment of $50,000 each at the time of the making of the agreement.

Two of those were later returned by [Cider Hill].’’

7

Snow also had filed counterclaims in this case, upon which the court

found in favor of Scarfo. This aspect of the judgment is not relevant to

this appeal.

8

In this appeal, the plaintiff’s claims are twofold. First, the plaintiff claims:

‘‘The trial court erred in failing to apply the appropriate standard with regard

to the spoliation of evidence, [and it] erred in failing to find that [the] plaintiff

established a rebuttable presumption that but for the fact of spoliation of

evidence, [the] plaintiff would have recovered [on his claims].’’ Second, the

plaintiff claims that ‘‘the trial court erred in failing to apply the appropriate

standard with regard to breach of fiduciary duty’’ in a limited liability com-

pany. He argues that ‘‘[t]he court failed to recognize that, by the very nature

of a limited liability company, a fiduciary duty between members exists.’’

He argues: ‘‘Where there is no dispute that Scarfo and Snow were members,

Scarfo and Snow had a fiduciary relationship to one another, and the trial

court should have shifted the burden to Snow to prove fair dealing by clear

and convincing evidence.’’ The plaintiff’s claim of breach of fiduciary duty

was based on Snow’s alleged breach of the amended agreement.

As to the plaintiff’s claim of spoliation of evidence, the trial court specifi-

cally found: ‘‘While the evidence clearly reflects discrepancies and very poor

recordkeeping or retention many years after the inception of this project,

the credible evidence does not reveal any intentional destruction or hiding

of materials needed for litigation.’’ We note that during oral argument before

this court, the plaintiff clearly stated that he was not contesting the court’s

factual findings in this case, and that his appeal concerned only matters

of law.

As to the plaintiff’s claim of breach of fiduciary duty, the trial court

specifically found: ‘‘[T]hese partners were equal in every way whatsoever,

and Scarfo was not precluded in any way from avoiding the alleged difficul-

ties about which he is now complaining. There has not been any breach of

fiduciary duty by the defendant.’’

As to the plaintiff’s claim for breach of the amended agreement, the court

specifically found: ‘‘The court cannot find that Snow violated the terms of

the contract. Furthermore, while there has been a great deal of innuendo,

the evidence does not support the contention that Snow did not fulfill his

responsibilities . . . .’’

We reiterate that, during oral argument, the plaintiff clarified that he was

not challenging any of the trial court’s factual findings. He specifically stated

that his appeal is one of law and that he is not trying to relitigate the facts.

9

‘‘[A] number of states have adopted or substantially adopted the Uniform

Limited Liability Company Act (ULLCA) . . . . According to the ULLCA, a

member of a member-managed [limited liability company] owes to the com-

pany and the other members the fiduciary duties of loyalty and care, and

a member in a member-managed [limited liability company] or a manager-

managed [limited liability company] shall discharge the duties under the

ULLCA or under the operating agreement and exercise any rights consis-

tently with the contractual obligation of good faith and fair dealing.’’ (Foot-

notes omitted.) Annot. 48 A.L.R. 6th 1, § 2 (2009 and Supp. 2016).

Although Connecticut previously had not adopted the ULLCA, our gover-

nor, on June 2, 2016, signed into law Substitute House Bill No. 5259, 2016

Sess., codifying what will be known as the Connecticut Uniform Limited

Liability Company Act. Public Acts 2016, No. 16-97. This law will take effect

on July 1, 2017, and it makes substantial changes to our current law.

We also note the existence of the Prototype Limited Liability Company Act

(Prototype Act), which was drafted by the Working Group on the Prototype

Limited Liability Company Act, Subcommittee on Limited Liability Compa-

nies Committee on Partnerships and Unincorporated Business Organizations

Section of Business Law American Bar Association in 1992. See 3 L.

Ribstein & R. Keatinge, Ribstein and Keatinge on Limited Liability Companies

(June 2016 Ed.) Appendix C; see also J. Burkhard, ‘‘Resolving LLC Member

Disputes in Connecticut, Massachusetts, Pennsylvania, Wisconsin, and the

Other States that Enacted the Prototype LLC Act,’’ 67 Bus. Law. 405, 416–18

(2012) (explaining that Connecticut modeled its limited liability company

statutes on Prototype Act but that Connecticut courts have treated claims

as derivative actions, similar to claims by corporations, in apparent contra-

vention of Prototype Act). The parties do not rely on either the ULLCA or

the Prototype Act in their supplemental briefs, and we, accordingly, do not

discuss them directly in addressing the issue of standing.

10

Here, it appears that the plaintiff may have had the ability to bring suit

in the name of Cider Hill without the need for a vote of members to authorize

suit on behalf of Cider Hill; see General Statutes § 34-187 (b); because the

only other member was Snow, who, obviously would have an interest in

the outcome of the suit that is likely adverse to the interest of Cider Hill.

A thorough review of the operating agreement also reveals that there was

no part of that agreement that addressed § 34-187 or any procedure for filing

suit for alleged wrongdoing.