STATE OF CONNECTICUT
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`DOCKET NO. (X10) CV-166033559S
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`PERSONNA NOBLE, ET AL.
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`V.
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`NORTHLAND INVESTMENT CORP,
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`ET AL.
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`.
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`SUPERIOR COURT
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`COMPLEX LITIGATION DOCKET
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`AT WATERBURY
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`AUGUST 15, 2018
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`RULING ON MOTION TO STRIKE (# 1431
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`This is a putative class action brought “to remedy injuries caused by the defendants’
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`practices in connection with ownership and management of the Church Street South housing
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`complex in New Haven.” (Church Street South) The defendants are Northland Investment
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`Corporation (Northland), Lawrence R. Gotteisdiener (Gotteisdiener), Church Street New Haven
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`LLC (defendant LLC), Northland Fund 11 LP (defendant LP), Northland Fund 11 Partners LLC
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`(defendant GP), DeMarco Management Corporation (DeMarco) and Wm. M. Hotchkiss
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`Company (Hotchkiss). Defendant LP, defendant GP and Gotteisdiener move to strike all the
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`claims against them in the now operative Second Amended Class Action Complaint at entry #
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`189 (complaint or operative complaint).
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`In brief, the complaint alleges that Church Street South was a low—income apartment
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`complex located in New Haven across from Union Station (11 3) which was acquired in 2008 with
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`title vested in the defendant LLC. (‘11 11). From the time the property was acquired and
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`throughout the relevant time period, the defendants were on notice that it needed repairs to its
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`structural elements (ll 24) and had deficiencies identified by HUD and city inspections (ll 28).
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`Nonetheless, they allowed conditions to deteriorate “by choosing to spend much less than
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`necessary on repairs and maintenance, with the plan to allow the property to become
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`uninhabitable beyond repair” (ll 27). The named plaintiffs, along with the putative class
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`members, resided at Church Street South until such time as the alleged uninhabitable conditions
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`of the premises resulted in their relocation (fll 33). The operative complaint alleges that as a result
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`of the conduct of the defendants, the named plaintiffs and members of the putative class suffered
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`physical and emotional injuries, loss of personal property and other losses (Count One, W 45-53).
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`In deciding a motion to strike, Practice Book § 10—39, the court must examine the
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`allegations of the complaint in the light most favorable to the plaintiffs to determine the legal
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`sufficiency of the causes of action from the pleaded facts, as well as the reasonable inferences
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`that can be drawn from those facts. Violano v. Fernandez, 280 Conn. 310, 317—18, 907 A.2d
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`1188 (2006). Moreover, the “pleadings must be construed broadly and realistically, rather than
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`narrowly and technically.” Lawrence v. 0 and G Industries, Inc., 319 Conn. 641, 649, 126 A.3d
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`569 (2015). Finally, the court’s role is not to decide whether the evidence will support the cause
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`of action but only to determine whether the allegations are legally sufficient to state the cause of
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`action. Coe v. Board ofEducation, 301 Conn. 112, 117, 19 A.3d 640 (2011).
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`Defendant LP, defendant GP and Gotteisdiener maintain that the complaint fails to allege
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`sufficient facts to impose liability on them on two grounds. First, they maintain that there are
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`insufficient facts pleaded to impose liability on defendant LP and defendant GP on all counts.
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`Second, Gotteisdiener maintains there are insufficient facts pleaded of his direct and individual
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`participation in the conduct alleged in the first through fourth counts. The plaintiffs maintain the
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`operative complaint contains sufficient factual allegations in both respects.
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`I.
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`There are allegations against four entity defendants in the operative complaint: Church
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`Street New Haven LLC (defendant LLC), the entity alleged to hold the title to Church Street
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`South (fl 11), is a Delaware limited liability company whose sole member is Northland Fund 11
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`LP (defendant LP) (11 9a)). Defendant LP is a Delaware limited partnership whose general
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`partner is Northland Fund 11 Partners LLC (defendant GP) (1i 9.b)). Defendant GP is a Delaware
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`limited liability company whose sole member is defendant Northland (1] 9.c)). The operative
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`complaint not only alleges that Northland was in possession and control of the Church Street
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`South complex, which could make it directly liable to the plaintiffs, but also alleges that the
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`defendant GP and the defendant LP were used by Northland as alter—egos to create the defendant
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`LLC (1] 11) and that all three entities are “shell defendants” which, by inference, cannot insulate
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`Northland from liability under the general law of corporations and partnerships. The moving
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`defendants maintain that the defendant LLC, defendant LP and defendant GP are distinct and
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`legitimate entities and that the complaint fails to allege sufficient facts to disregard their
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`corporate and partnership structures.
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`Ordinarily, a corporate structure protects shareholders and members from personal
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`liability. However, the equitable doctrine known as “piercing the corporate veil” allows a court
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`to disregard the corporate structure if specific facts are established pursuant to the governing law
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`of the state of incorporation, Weber v. US. Sterling Securities, Inc, 282 Conn 722, 730, 924
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`A.2d 816 (2007), here Delaware.1 Similarly, a limited partnership ordinarily protects its limited
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`partners from liability and the circumstances under which a foreign limited partnership may be
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`held liable are governed by the laws of the state in which it was organized. General Statutes §
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`34-3 8f.
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`Delaware law favors corporate structures. See Harco National Insurance Co. v. Green
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`Farms, Inc, 1989 WL 110537, at *4 (Del. Ch. 1989) (“It should be noted at the outset that
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`persuading a Delaware Court to disregard the corporate entity is a difficult task. The legal entity
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`of a corporation will not be disturbed until sufficient reason appears”). Delaware courts have
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`held that the corporate veil may be pierced where there is fraud. Pauley Petroleum Inc. v.
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`Continental Oil Co, 43 De1.Ch. 366, 231 A.2d 450, 452—53 (1967), aff‘d, 239 A.2d 629, 633
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`(1968). Delaware courts have also disregarded the corporate form when the entity “is in fact a
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`mere instrumentality or alter ego of its owner.” Geyer v. Ingersoll Publications C0., 621 A.2d
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`784, 793 (Del.Ch.,1992). Fundamentally, Delaware courts will not disregard the corporate
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`structure unless there is sufficient evidence of misuse of the corporate form. See Irwin &
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`Leighton, Inc. v. WM. Anderson Co, 532 A.2d 983, 989 (Del.Ch.,1987) (“the cases inevitably
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`tend to evaluate the specific facts with a standard of ‘fraud’ or ‘misuse’ or some other general
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`term of reproach in mind”). However, “the underlying cause of action does not supply the
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`necessary fraud or injustice.” Mobil Oil Corp. v. Linear Films, Inc, 718 F. Supp. 260, 268 (D.
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`Del. 1989). “To support piercing the corporate veil, however, the fraud or injustice must consist
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`1 The original briefing in support and opposition to the motion to strike relied on
`Connecticut law regarding veil piercing (see entries ## 144, 168, 169). At oral argument on May
`17, 2018, the court requested supplemental briefing regarding the choice-of-law issue and the
`parties now agree that Delaware law controls (see entries ## 183, 184, 193, 194).
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`of something more than the alleged wrong in the complaint and relate to a misuse of the
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`corporate structure.” Medi-Tec ofEgypt Corp. v. Bausch & Lomb Surgical, 2004 WL 415251, at
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`*7 (Del.Ch.,2004). Courts construing Delaware law have concluded that the standards for
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`corporate veil piercing also apply to pierce the limited liability veil. NetJets Aviation, Inc. v. LHC
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`Communications, LLC, 537 F.3d 168, 176 (2d Cir. 2008).
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`The plaintiffs’ briefed position is that the defendant LP is an “alter ego” of the defendant
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`LLC and they only need to allege facts to pierce its veil because, if successful, the defendant GP
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`will be held liable by operation of Delaware statute (entries # 183, 194), allowing them to reach
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`Northland.2 The moving defendants argue that to hold Northland liable by way of veil piercing,
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`rather than directly, there must be facts alleged to pierce not only the veil of the defendant LLC,
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`but also the veil of the defendant GP, another Delaware limited liability company. The plaintiffs
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`are correct that under Delaware law, specifically 6 Del. Code Ann. §§ 15-306 (a) and 17-403 (b),
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`a general partner of a limited partnership may be held liable to third parties for actions taken by
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`the partnership. See Smith v. GC Services Limited Partnership, 2018 WL 1864929, at *1
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`(S.D.Ind., 2018); Valdez v. Capital Management Services, LP, 2010 WL 4643272, at *2, n4
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`(S.D.Tex.,2010). But since the general partner of defendant LP is Northland Fund 11 Partners,
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`LLC, another Delaware limited liability company, its veil likewise must be pierced under the
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`alter ego theory to vicariously reach Northland Investment Corporation which is otherwise
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`2 At oral argument on May 17, 2018, the plaintiffs stated that they were relying on veil
`piercing ultimately to hold Northland Investment Corporation, as the sole member of Northland
`Fund 11 Partners, LLC (defendant GP) liable, but that they were not seeking to pierce Northland’s
`corporate veil to hold its shareholders liable.
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`protected from liability to third persons under Delaware law. 6 Del. Code Ann. § 18-303.3
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`Because an alter ego theory is fact intensive, it is not readily susceptible to resolution at the
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`motion to strike stage. Nonetheless, the party relying on a veil piercing theory has the obligation
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`to plead facts to put the alter ego theory in issue.
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`Alter ego veil piercing under Delaware law arose in the context of cases seeking to hold a
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`parent company liable for the conduct of wholly owned subsidiary, Mabon, Nugent & Co. v.
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`Texas American Energy Corp, 1990 WL 44267, at *5 (Del. Ch. Apr. 12, 1990), or seeking to
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`hold an owner liable for the conduct of the owner’s company. Geyer v. Ingersoll Publications
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`Co, supra, 621 A.2d 784 (seeking to pierce the veil as to the president, chief executive officer
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`and controlling shareholder of the named corporate defendant). “To prevail under this alter-ego
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`theory, the plaintiff must demonstrate that the corporation [whose veil it seeks to pierce] and the
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`[entity in control] operated as a single economic entity such that it would be inequitable to
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`uphold a legal distinction between them. This is a difficult task.” (Quotation marks omitted;
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`citations omitted). Cohen v. Schroeder, 724 Fed. Appx. 45, 47 (2d Cir. 2018), aff’ing 248 F.
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`Supp. 3d 511 (S.D.N.Y. 2017). “To establish that an LLC is the alter ego of another entity, a
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`party must establish that (i) the entities in question operated as a single economic entity, and (ii)
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`there [is] an overall element of injustice or unfairness.” (Quotation marks omitted; citation
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`omitted). A. V.E.L.A. , Inc. v. Estate ofMarilyn Monroe, LLC, 2018 WL 1273343 at *4
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`3 Section 18-303 provides, in pertinent part: “(a) Except as otherwise provided by this
`chapter, the debts, obligations and liabilities of a limited liability company, whether arising in
`contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the limited
`liability company, and no member or manager of a limited liability company shall be obligated
`personally for any such debt, obligation or liability of the limited liability company solely by
`reason of being a member or acting as a manager of the limited liability company.”
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`(S.D.N.Y. March 5, 2018); see NetJets Aviation, Inc. v. LHC Communications, LLC, supra, 537
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`F.3d at 176.
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`The first element focuses on whether the entities were not sufficiently distinct from each
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`other. Cohen v. Schroeder, supra, 248 F. Supp. 3d at 519. Courts have looked to factors set out
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`in Harco National Insurance Co. v. Green Farms, Inc., supra,1989 WL 110537 at *4,
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`emphasizing that “while no single factor can justify a decision to disregard the corporate entity .
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`.
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`. some combination of them is required.” Cohen v. Schroeder, supra, 248 F. Supp. 3d at 519.
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`(Quotation marks omitted; citation omitted); see Fletcher v. Atex, Inc, 68 F .3d 1451, 1458 (2d
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`Cir. 1995). The factors include: how the entities operated in relationship to each other, whether
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`the entities were adequately capitalized for their purposes, whether the entities were solvent,
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`whether required records were kept, whether officers, directors and partners functioned properly,
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`whether corporate and partnership formalities were observed, whether funds were commingled or
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`siphoned, “and whether, in general, the [limited liability] corporation simply functioned as a
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`facade for the dominant” entity. Harco National Insurance Co. v. Green Farms, Inc., supra, 1989
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`WL 110537 at *4.
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`The second element focuses on misuse of the corporate form. “The law requires that .
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`.
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`.
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`injustice be found in the defendants’ use of the corporate form,” Mobil Oil Corp. v. Linear Films,
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`Inc., supra, 718 F. Supp. at 269, and “must consist of something more than the alleged wrong in
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`the complaint.” Medi-Tec ofEgypt Corp. v. Bausch & Lomb Surgical, supra, 2004 WL 415251,
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`at *7; see Cohen v. Schroeder, supra, 248 F. Supp. 3d at 524. “Where a corporation's owners
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`abuse the corporation's legally limited liability to effect injustice, the corporation may be
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`considered as an agency, adjunct or instrumentality of its owner. .
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`. and a court may exercise its
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`equitable power to disregard the legal privilege of the corporate form .
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`.
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`. The alter—ego claim
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`thus turns on the facts of the owner's operation of the corporation and its relationship to the
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`[plaintiff].” (Quotation marks omitted; citations omitted). Kertesz v. Korn, 698 F.3d 89, 91 (2d
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`Cir. 20 1 2).
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`The court must examine the allegations of the operative complaint to determine if it
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`contains relevant allegations in support of the first and second elements. The complaint alleges
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`the defendant LLC and the defendant Northland “acted as a single economic unit,” ($1 13), that
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`the officers, managers and employees of Northland were the officers, managers and employees of
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`the defendant LLC (11 17), that the defendant Northland “directed the management of Defendant
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`LP’s assets, revenues, liabilities and expenses” (11 12), that the defendant Northland, “through the
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`defendant LLC as its alter ego” retained DeMarco and Hotchkiss (W 25, 26), that the “Defendant
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`LP and Defendant General Partner, like the Defendant LLC, have no identity, existence, or ability
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`to act separate from Northland and the control Northland exerts over them,” (11 19) and that they
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`“were created as conduits for Northland’s decision—making with regard to properties it owned
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`and controlled and to allow it to obtain revenue from the operation of the properties or their
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`possible redevelopment” (11 20).
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`These allegations along with the reasonable inferences that may be drawn from them,
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`even when read broadly and in the light most favorable to sustaining their sufficiency, set forth
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`conclusions but few facts to support the alter ego theory. Conclusory allegations that Northland,
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`the defendant LLC, defendant LP and defendant GP acted “as a single economic unit” or that the
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`defendant Northland exercised general control over the other entities do not suffice. National
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`Gear & Piston, Inc. v. Cummins Power Systems, LLC, 975 F. Supp. 2d 392, 405 (S.D.N.Y.
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`2013); see Bridgeport Harbour Place I, LLC v. Ganim, 303 Conn. 205, 212—13, 32 A.3d 296
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`(2011) (“A motion to strike is properly granted if the complaint alleges mere conclusions of law
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`that are unsupported by the facts alleged”)
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`With respect to the first element, there are no allegations that the defendant LLC,
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`defendant LP and defendant GP were undercapitalized or insolvent or that they did not keep
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`records required under Delaware law. To the extent the complaint alleges that the defendant
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`LLC and the defendant GP did not observe corporate formalities, “[i]n the alter-ego analysis of
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`an LLC, somewhat less emphasis is placed on whether the LLC observed internal formalities
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`because fewer such formalities are legally required.” NetJets Aviation, Inc. v. LHC
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`Communications, LLC, supra, 537 F.3d at 178. Allegations of common management and sole
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`ownership likewise are not sufficient under Delaware law. Mabon, Nugent & Co. v. Texas
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`American Energy Corp, supra, 1990 WL 44267 at *5. Nor are the allegations that the entities
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`shared a common address, common offices, common directors and common employees.
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`A. V.E.L.A. , Inc. v. Estate ofMarilyn Monroe, LLC, supra, 2018 WL 1273343 at *5. There is a
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`specific factual allegation that the defendant Northland was listed as the named insured for
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`Church Street South with defendant LLC, defendant LP and defendant GP listed as additional
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`insureds (11 18) but that is akin to an allegation of common management. Finally, there is a single
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`allegation that on one occasion in 2009 Northland allocated “funding from the property to pay
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`parts of the salaries of Northland’s employees,” (1121), that could support an inference of
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`commingling or siphoning. In the absence of factual allegations to support the other first element
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`factors, this allegation standing alone does not suffice. Of greater significance, the complaint is
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`devoid of factual allegations that Northland used the structures of the defendant LLC, defendant
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`LP and defendant GP to perpetrate an injustice beyond the tort, CUTPA and contract claims
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`alleged in this action4 and fails to meet the requirements of the second element of Delaware alter
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`ego veil piercing.5
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`Based on the foregoing, the claims in all six counts against the moving defendant LP and
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`moving defendant GP are stricken. This conclusion, however, does not mean the plaintiffs must
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`revise the complaint to remove allegations that support their claim that the remaining defendants
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`4 The plaintiffs agree they have alleged that the “Defendant LLC was created by the other
`entities for the purpose of engaging in the allegedly tortious, unfair and illegal conduct described
`in the complaint. ” (Emphasis supplied) (Entry # 194, p.7).
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`5 In their reply memorandum at entry # 194, the plaintiffs argued for the first time that
`“Defendant LP and Defendant General Partner may also be held liable ‘on principles of agency,
`without reference to fraud or inequity’” relying on Phoenix Canada Oil Co, Ltd v. Texaco, Inc,
`658 F.Supp. 1061, 1084 (D.Del. 1984), aff‘d in part, 842 F.2d 1466, 1477-78 (3rd Cir. 1988)
`(remanded to explore customary agency principles). Like the alter-ego theory, the agency theory
`of veil piercing has been applied to hold a parent corporation liable for the activities of its
`subsidiary corporation “only if the parent dominates those activities,” looking to factors
`comparable to those set forth in Harco National Insurance Co. v. Green Farms, Inc, 1989 WL
`110537, at *4 (Del. Ch. 1989), see p.7 supra, such as “stock ownership, officers and directors,
`financing, responsibility for day-to-day operations, arrangements for payment of salaries and
`expenses, and origin of subsidiary’s business and assets.” (Quotation marks omitted; citation
`omitted). Phoenix Canada Oil Co, Ltd. v. Texaco, Inc., 658 F. Supp at 1084; see Henry v. St.
`Croix Alumina, LLC, 2007 US. Dist. LEXIS 98205, *25, *27, 2007 WL 6030275 (D. Virgin
`Islands, 2007). The absence of factual allegations to support the Harco factors has already been
`discussed, see p.9 supra.
`Alternatively, “a corporation ~ completely independent of second corporation — may
`assume the role of the second corporation’s agent in the course of one or more specific
`transactions.” Albert v. Alex. Brown Management Services, 2005 WL 213067 at *9 (Del. Ch.
`2005). This requires allegations of traditional agency liability, that is, actual authority or
`apparent authority.
`Id. *10. Under Delaware law, actual authority requires factual allegations
`that Northland expressly gave the defendant LLC authority to bind it as its agent and apparent
`authority requires allegations that Northland “knowingly or negligently” permitted its agent,
`defendant LLC, to exercise authority or held it out as possessing authority that it did not
`expressly grant to it.
`Id. “The doctrine of apparent authority expands the authority of an actual
`agent .
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`. .” Cefaratti v. Aranow, 321 Conn. 593, 602, n.6, 141 A.3d 752 (2016). The operative
`complaint does not contain factual allegations in support of traditional agency liability.
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`-10-
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`directly engaged in the conduct alleged in counts one through six even if those allegations refer
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`to Northland Fund 11 LP and Northland Fund 11 Partners LLC. Nor does it mean that the
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`plaintiffs cannot seek equitable veil piercing in the future if they ultimately prevail against the
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`defendant LLC and it is unable to satisfy a judgment.
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`II.
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`The plaintiffs seek to hold Gotteisdiener, Northland’s chief executive and chairman,
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`personally liable for the conduct alleged in counts one, two, three and four. This theory of
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`liability does not involve veil piercing because officers and shareholders who commit a tort can
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`be held personally liable “regardless of whether the corporation itself is liable.” Kildufi’v. Adams,
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`Inc, 219 Conn. 314, 332, 593 A.2d 478 (1991). Connecticut law applies because the plaintiffs’
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`alleged injuries occurred here. Macomber v. Travelers Property & Casualty Corp. , 277 Conn.
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`617, 640, 894 A.2d 240 (2006). “[A]n officer of a corporation does not incur personal liability
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`for its torts merely because of his official position. Where .
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`.
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`. an officer commits or participates
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`in the commission of a tort, whether or not he acts on behalf of his .
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`.
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`. corporation, he is liable
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`to third persons injured thereby.” Scribner v. O’Brien, Inc, 169 Conn. 389, 404, 363 A.2d 160
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`(1975). “Thus, a director or officer who commits the tort or who directs the tortious act done, or
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`participates or operates therein, is liable to third persons injured thereby, even though liability
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`may also attach to the corporation for the tort.” (Quotation marks omitted; citation omitted).
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`Ventres v. Goodspeed Airport, LLC, 275 Conn. 105, 142, 881 A.2d 937 (2005). The commission
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`or participation in the tortious conduct is a question of fact.
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`Id.
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`Counts one through four set forth a theory that from the time of its acquisition, the
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`owners and managers of Church Street South negligently, recklessly and deliberately acted or
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`-11-
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`failed to act to maintain the premises so that conditions would deteriorate to the point that
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`Church Street South would become uninhabitable. The motion to strike the claims against
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`Gotteisdiener focuses on the plaintiffs’ failure to allege specific facts regarding his personal
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`participation in the ownership and management of Church Street South and challenges the
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`accuracy of certain allegations.6 At the motion to strike stage, however, the court must deal only
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`with the sufficiency of the allegations and not their accuracy as the court must presume
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`compliance with the Practice Book § 4-2 (b) requirement that there is “good ground” to support
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`the allegations of the complaint.
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`The operative complaint alleges “Gotteisdiener .
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`.
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`. participated in the conduct described
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`in the complaint, including the decisions concerning the acquisition of Church Street South,
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`maintenance of Church Street South, the relocation of residents from Church Street South, and
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`the potential redevelopment of Church Street South” (1] 5), “had possession of and control over
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`the property” (11 6), and “was personally involved in decisions regarding the day-to-day
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`management of the complex, including decisions about repairs, responses to complaints, and
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`moving families to area motels, among other subjects.” (11 7). It also alleges that at the time
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`Church Street South was acquired, Gotteisdiener, along with the other defendants, had “notice
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`that in order to be decent, safe, and sanitary, Church Street South badly needed repairs to its
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`structural elements, such as the building envelope, roofing, windows, plumbing, heating,
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`ventilation, bathroom and kitchen fixtures,» electrical systems, means of egress, and exhausts.” (1i
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`6 The Reply Memorandum in Further Support of the Northland Defendants” Motion to
`Strike (# 193), at pages 2-3, references the absence of allegations about “when, where, to whom
`and in what context” certain public statements of Gotteisdiener were made and claims the
`plaintiffs “incorrectly” allege Gotteisdiener’s participation in various decisions with respect to
`the ownership and management of Church Street South.
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`24). And it alleges that Gotteisdiener, along with the other defendants, knew of “the unsafe and
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`deteriorating conditions at Church Street South, [but] allowed conditions to deteriorate even
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`further by choosing to spend much less on necessary repairs and maintenance, with the plan of
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`allowing the property to become uninhabitable beyond repair” by, for example, only making
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`repairs when ordered to do so by officials, making insufficient repairs, hiring incompetent or
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`unlicensed contractors, and ordering contractors “to conceal problems by patching holes, toxic
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`mold stains, and other damage with paint, compound, or bleach, instead of addressing the root of
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`the problem.”(1l 27).
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`Count one (negligence) alleges various dangerous and defective conditions resulting in
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`environmental and health hazards which the complaint alleges the defendants, including
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`Gotteisdiener, failed to remediate and repair (W 41 -43), count two (recklessness) alleges that the
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`defendants, including Gotteisdiener, were aware of the dangerous and defective conditions but
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`chose not to correct them because of “their desire to empty the project.” (11 42) and count four
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`(negligent infliction of emotional distress) relies on the allegations of negligent and reckless
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`conduct in counts one and two. Count three (CUTPA) alleges that the defendants’ “conduct was
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`a plan of ‘demolition by neglect’ allowing conditions to deteriorate to a point where tenants
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`would be forced to move out” and specifies the conduct the defendants, including Gotteisdiener,
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`engaged in. The allegations in the operative complaint and the reasonable inferences to be
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`drawn therefrom, viewed in the light most favorable to the plaintiffs, suffice to allege
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`Gotteisdiener’s personal liability, subject to trial proof of Gotteisdiener’s direct involvement in
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`the conduct alleged. D ’Angelo Development & Construction Corp. v. Cordovano, 121 Conn.
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`App. 165, 186, 995 A.2d 79, cert. denied, 297 Conn. 923, 998 A.2d 167 (2010).
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`III.
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`For the reasons stated in section I, the motion to strike the claims in all counts against the
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`defendants Northland Fund II LP and Northland Fund II Partners LLC is granted. For the reasons
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`stated in section II, the motion to strike the claims against the defendant Lawrence R.
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`Gotteisdiener is denied.
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`Ayn/Z-
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`LINDA K. LAGER, J DGE
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`-14-
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