author: PETERS, J.

text:
    JAMES P. OSTROWSKI ET AL. v. CRAIG AVERY ET AL.
    (SC 15655)
    Callahan, C. J., and Borden, Katz, Palmer and Peters, Js.

      Argued September 25
    officially released December 9, 1997

      Robert A. Harris, for the appellants-appellees (plaintiffs).

      Dion W. Moore, with whom was Robert Berta, for the appellees-appellants (named defendant et al.).
   Opinion

PETERS, J.

This case raises important issues concerning the procedural and substantive rules governing claims of fiduciary misconduct in general and usurpation of a corporate opportunity in particular. The plaintiffs, minority shareholders of Avery Abrasives, Inc. (Avery Abrasives), a manufacturer of abrasive cutting wheels, brought this action in their individual capacities and derivatively on behalf of that corporation pursuant to General Statutes § 52-572j. On the motion of its special litigation committee, Avery Abrasives became a defendant in accordance with General Statutes § 52-107. The plaintiffs claimed that, by establishing International Small Wheels (ISW), a corporation engaged in the manufacture of small abrasive cutting wheels, the defendants Craig Avery and Michael Passaro had violated their fiduciary duties to Avery Abrasives. Specifically, the plaintiffs alleged that the defendants had diverted customer orders to ISW, had used Avery Abrasives equipment and personnel for ISW business, had conducted ISW business from the Avery Abrasives premises during business hours, had hired Avery Abrasives employees to work for ISW and had usurped a corporate opportunity. The plaintiffs further claimed that: (1) the defendants’ conduct violated General Statutes § 42-110a et seq., the Connecticut Unfair Trade Practices Act (CUTPA); (2) the defendants were unjustly enriched by the salaries and benefits that they received from Avery Abrasives during the time they operated ISW; (3) Avery wrongfully had disregarded his fiduciary duty to Avery Abrasives by allowing an Avery Abrasives employee, Mary Sobek, to engage in a competing business enterprise, Monroe Abrasives, Inc., and to conduct business for Monroe Abrasives, Inc., while at work at Avery Abrasives; (4) Avery’s conduct constituted negligence in breach of the duty he owed to Avery Abrasives and its shareholders; and (5) Avery’s conveyance to his wife, Antoinette Avery, of their jointly owned home violated General Statutes § 52-552, the Uniform Fraudulent Transfer Act.

After a court trial, Moran, J., concluded that the defendants, although they were corporate fiduciaries, were not liable to the plaintiffs. The court found that the plaintiffs had failed to establish the truth of their allegations, and, accordingly, that: (1) any misconduct by the defendants in working on ISW business while at Avery Abrasives had not adversely affected their job performance or caused more than de minimis harm to Avery Abrasives; (2) the defendants had not misappropriated any property from Avery Abrasives; and (3) Avery had not knowingly allowed Sobek to conduct business for Monroe Abrasives, Inc., while she was working at Avery Abrasives, or, alternatively, even if Avery had allowed Sobek to do such work, the damage to Avery Abrasives had been minimal. The court also determined that the defendants had not violated CUTPA. Implicitly rejecting the plaintiffs’ negligence claim, the trial court concluded that because Avery was not hable to the plaintiffs, it would not consider whether the transfer of his interest in his home to his wife was fraudulent. Finally, the court determined that the plaintiffs had met their burden of proof that the defendants had usurped a corporate opportunity by forming ISW. The court, nonetheless, declined to impose liability for such usurpation, principally because, prior to the formation of ISW, the defendants had obtained the consent of Raymond Avery, who is Craig Avery’s father, as well as the president, chief executive officer and majority shareholder of Avery Abrasives.

The plaintiffs appealed from the judgment of the trial court claiming that the trial court improperly had: (1) failed to require Avery to prove the fairness of his conduct by clear and convincing evidence; (2) concluded that permission from Raymond Avery absolved the defendants from liability for usurpation of a corporate opportunity belonging to Avery Abrasives; (3) refused to apply disclosure requirements to the defendants in the absence of controlling appellate precedents; and (4) concluded that the defendants’ appropriation of a corporate opportunity did not constitute an unfair and deceptive trade practice. The defendants cross appealed, claiming that the trial court improperly had determined that the manufacture of small wheels was a coxporate opportunity for Avery Abrasives. The appeal and cross appeal were transferred from the Appellate Court to this court pursuant to Practice Book § 4023 and General Statutes § 51-199 (c). We reverse the judgment of the trial court and remand the case for a new trial.

The following facts are relevant to this appeal. Aveiy Abrasives is a Connecticut corporation that manufactures abrasive cutting wheels. Raymond Avery, the president and chief executive officer of Avery Abrasives, owns more than 54 percent of the outstanding Avery Abrasives stock. During the period of time in question, the remainder of Avery Abrasives stock was held by eight minority shareholders, including the plaintiffs, and an employee stock ownership plan. Avery is the vice president of manufacturing for Avery Abrasives, and was elected a director of Avery Abrasives in 1976. Passaro is the finishing supervisor at Avery Abrasives.

Avery Abrasives manufactures cutting wheels in diameters of five inches and larger. Prior to 1970, Avery Abrasives had manufactured smaller wheels in diameters of less than five inches but, in 1970, Raymond Avery had decided to focus on the manufacture and sale of larger wheels, particularly wheels of twenty inches or more in diameter.

In 1976, the defendants became persuaded that there was a market for small cutting wheels of less than four inches in diameter. Avery asked his father whether he and Passaro could retain their positions at Avery Abrasives while running their own corporation to manufacture small cutting wheels. After obtaining Raymond Avery’s consent to the plan, the defendants incorporated ISW by certificate filed January 27, 1977. At an Avery Abrasives board of directors meeting held the following day, January 28, 1977, Raymond Avery proposed to the directors that Avery Abrasives expand to manufacture small wheels. Neither of the defendants disclosed to the minority shareholders of Avery Abrasives that ISW already had been formed to pursue this very opportunity.

The defendants operated ISW from 1976 until late 1989 or early 1990. ISW manufactured wheels of less than four inches in diameter, which it produced from large wheels purchased at a discount from Avery Abrasives. ISW sold some of its finished wheels to Avery Abrasives, hired several Avery Abrasives employees and shared some customers with Avery Abrasives. ISW ran an advertisement in the Yellow Pages listing Avery Abrasives’ telephone number as its own. Occasionally, the defendants conducted ISW business while at Avery Abrasives. Between 1976 and 1988, ISW generated total gross revenues of $328,562, producing an annual average gross revenue of $25,274.

This case presents an unusual factual situation in which the majority shareholder of the corporation is the father of the corporate fiduciary who has been charged with usurpation of a corporate opportunity. The issues presented have significance, however, for all corporations, particularly closely held corporations.

I

The starting point of our analysis is the proper allocation of the burden of proof in claims of violation of a corporate fiduciary’s duty to his or her corporation. We begin by setting out the basic framework for analyzing claims of violation of fiduciary duty. We then turn to the requirements specific to a claim of usurpation of corporate opportunity.

The plaintiffs claim that the defendants violated their fiduciary duty to Avery Abrasives in a number of ways. In essence, the plaintiffs allege that the defendants misused Avery Abrasives’ resources, interfered with its business relationships, engaged in self-dealing transactions with Avery Abrasives, and, finally, usurped a business opportunity belonging to Avery Abrasives.

The trial court found that the plaintiffs had met their burden of proof with respect to establishing the role of the defendants as corporate fiduciaries. It concluded, nonetheless, that the plaintiffs also were required to assume the burden of proving that the defendants had violated their fiduciary obligations to Avery Abrasives. This latter conclusion was improper.

It is well established in our corporate fiduciary law that once a plaintiff establishes the existence of a fiduciary duty, the burden shifts to the corporate fiduciary to prove fair dealing by clear and convincing evidence. See Konover Development Corp. v. Zeller, 228 Conn. 206, 229-30, 635 A.2d 798 (1994); Oakhill Associates v. D’Amato, 228 Conn. 723, 726-27, 638 A.2d 31 (1994).

In our cases concerning self-dealing transactions, we have stated that, if a director of a corporation enters into a transaction with the corporation that will inure to his or her individual benefit, the director bears the burden of proving that the transaction is “fair, in good faith and for adequate consideration . . . .” Rosenfield v. Metals Selling Corp., 229 Conn. 771, 795-96, 643 A.2d 1253 (1994); Osborne v. Locke Steel Chain Co., 153 Conn. 527, 534—35, 218 A.2d 526 (1966); see also Klopot v. Northrup, 131 Conn. 14, 20-21, 37 A.2d 700 (1944); Massoth v. Central Bus Corp., 104 Conn. 683, 688-89, 134 A. 236 (1926).

The framework governing a claim of usurpation of a corporate opportunity differs only in part from the basic corporate fiduciary framework. To prevail on this kind of claim, we observed, in Katz Corp. v. T. H. Canty & Co., 168 Conn. 201, 207-208, 362 A.2d 975 (1975), that a plaintiff bears the burden of establishing: (1) a fiduciary relationship between the corporation and the alleged wrongdoers; and (2) the existence of a corporate opportunity. Once a plaintiff establishes these predicates to liability, the burden then shifts to the fiduciaries to establish, by clear and convincing evidence, the fairness of their dealings with the coiporation. In this case, the trial court failed to heed the instructions of Katz Corp. After having determined that the plaintiffs had met their threshold burdens of proof, the court improperly failed to shift to the defendants the burden of justifying, by clear and convincing evidence, the manner in which they had discharged their fiduciary obligations. The court’s findings of no liability on the part of the defendants cannot stand because they resulted from the court’s mistaken determination that the plaintiffs bore the burden of establishing the extent of Avery Abrasives’ loss.

II

Whether the trial court’s misallocation of the burden of proof requires a new trial depends on whether the trial court properly found that the plaintiffs had met their threshold burdens of proof. If they did not, the trial court’s judgment in favor of the defendants would have to be sustained on that ground.

A

The defendants have not challenged the validity of the trial court’s finding that the plaintiffs had established the defendants’ fiduciary relationship to Avery Abrasives. Indeed, in light of Avery’s status as both an officer and a director of Avery Abrasives, he necessarily stands in a fiduciary relationship to Avery Abrasives and, derivatively, to its minority shareholders. “An officer and director occupies a fiduciary relationship to the corporation and its stockholders.” Katz Corp. v. T. H. Canty & Co., supra, 168 Conn. 207. Accordingly, the judgment of the trial court must be reversed and the case must be remanded for further proceedings to determine whether the defendants can satisfy their burden of proof with respect to the claims of breach of their fiduciary duty. It is the defendants who must prove, by clear and convincing evidence, their fair dealing with respect to the plaintiffs’ claims for: (1) the diversion of Avery Abrasives customer orders to ISW; (2) the use of Avery Abrasives equipment and personnel for ISW business; (3) the conduct of their ISW business from the Avery Abrasives premises; and (4) the hiring of Avery Abrasives employees to work for ISW.

B

The scope of the trial on remand depends, however, not only on the proper resolution of these fiduciary claims but also on the propriety of the trial court’s resolution of the plaintiffs’ claim that the defendants had usurped a corporate opportunity. The defendants, in their cross appeal, argue that the trial court improperly determined that the plaintiffs had established the other factual predicate that they were required to prove, namely, that Avery Abrasives had a corporate opportunity to manufacture and sell small abrasive wheels. In light of the absence of specific appellate guidance on this aspect of our corporate law, we now turn to a description of the constituent elements of the law of usurpation of a corporate opportunity.

The parties on appeal do not contest that the trial court properly assigned to the plaintiffs the initial burden of establishing the fact of the existence of a corporate opportunity. The defendants, however, challenge the propriety of the legal analysis undertaken by the court in finding that the plaintiffs had met their burden. We conclude that the court properly found that, in forming ISW, the defendants had pursued a business venture that constituted a corporate opportunity belonging to Avery Abrasives.

Our decision in Katz Corp. delineated the contours of a cause of action for usurpation of a corporate opportunity. We applied, in that case, an “avowed business purpose” test of corporate opportunity and recognized a defense of corporate financial inability. Katz Corp. v. T. H. Canty & Co., supra, 168 Conn. 209. We concluded that the purchase of the plaintiff corporation’s own outstanding stock did not constitute a corporate opportunity because: (1) the avowed business purpose of the corporation was not the purchase of its own securities; and (2) the corporation had no interest or expectancy in the purchase of its securities. Id., 209-10; see also S. Cross, Connecticut Corporation Law and Practice (1989) § 5.8 (B), pp. 278-79.

We began our analysis in Katz Corp. by citing the seminal corporate opportunity case of Guth v. Loft, Inc., 23 Del. Ch. 255, 5 A.2d 503 (1939). Katz Corp. v. T. H. Canty & Co., supra, 168 Conn. 208-209. According to Guth, whether a corporate opportunity exists is a “factual question to be decided by reasonable inferences from objective facts.” Guth v. Loft, Inc., supra, 277. In Guth, the Delaware Supreme Court explained: “[I]f there is presented to a corporate officer or director a business opportunity which the corporation is financially able to undertake, is, from its nature, in the line of the corporation’s business and is of practical advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and, by embracing the opportunity, the self-interest of the officer or director will be brought into conflict with that of his corporation, the law will not permit him to seize the opportunity for himself.” Id., 272-73.

In utilizing dual tests of corporate opportunity, the “avowed business purpose” test as well as the “interest or reasonable expectancy” test, Katz Corp. implicitly followed the accepted law in other jurisdictions. Katz Corp. v. T. H. Canty & Co., supra, 168 Conn. 209. We take this occasion to elaborate further on the content of these tests. The avowed business puipose test that we invoked in Katz Corp. is a variant of the “line of business” test, one of the leading tests of coiporate opportunity. This test asks whether the opportunity is “closely associated with the existing and prospective activities of the corporation . . . .” Rosenblum v. Judson Engineering Corp., 99 N.H. 267, 273, 109 A.2d 558 (1954). The Minnesota Supreme Court has developed a multifactor analysis for assessing what activities fall within a coiporation’s line of business. Among the useful factors Usted by the court in Miller v. Miller, 301 Minn. 207, 224-25, 222 N.W.2d 71 (1974), are: (1) whether the business opportunity was one in which the complaining corporation had an interest or an expectancy growing out of an existing contractual right; (2) whether there was a close relationship between the opportunity and the corporation’s business purposes and current activities; and (3) whether the business areas contemplated by the opportunity were readily adaptable to the corporation’s existing business, in Ught of its fundamental knowledge, practical experience, facilities, equipment, and personnel. The importance of a proper definition of the avowed business purpose test is underscored by the observation of legal scholars that the economic rationale for this test is that, for a small firm in particular, it may well be more efficient to expand its operations than to enter new fields. V. Brudney & C. Clark, “A New Look at Coiporate Opportunities,” 94 Harv. L. Rev. 998, 1012-13 (1981).

In Katz Corp., we also considered and appüed an “interest or expectancy” test to determine the existence of a corporate opportunity. This test is basically “an extension of the concept of corporate property.” V. Brudney & C. Clark, supra, 94 Harv. L. Rev. 1013. Requiring less tangible evidence than ownership or a right to exclude third parties, proof of a corporation’s “interest or expectancy” nonetheless requires a showing of more than a mere hope or desire on the part of the corporation. Id., 1014; see D. Brown, note, “When Opportunity Knocks: An Analysis of the Brudney & Clark and ALI Principles of Corporate Governance Proposals for Deciding Corporate Opportunity Claims,” 28 Corp. Prac. Commentator 507, 514 (1987).

Our decision in Katz Corp. is ambiguous about the relationship between the avowed business purpose test and the interest or expectancy test. The analysis in that case is consistent, however, with the view that proof that the corporation had an interest or expectancy in the contested venture is a probative, but not a dispositive, factor in determining the existence of a corporation’s avowed business purpose. Katz Corp. v. T. H. Canty & Co., supra, 168 Conn. 209. We adopt that view today and conclude, explicitly, that the dominant inquiry is whether the corporate opportunity at issue falls within the corporation’s avowed business purpose.

The plaintiffs in this case have met their burden of proving the existence of a corporate opportunity within the meaning of the Katz Corp. avowed business purpose test. The trial court found that the plaintiffs had proven that the manufacture of small cutting wheels was within Avery Abrasives’ line of business, and that the Avery Abrasives board had contemplated entering the small wheels market at a board of directors meeting only days after ISW was incorporated in 1977. The fact that this discussion took place may be relevant, in some circumstances, to the adequacy of the defendants’ disclosure to the board. See part III A of this opinion. It does not, however, require a finding that the manufacture of small wheels is not a corporate opportunity that belongs to Avery Abrasives. We are persuaded that the trial court’s findings are supported by sufficient evidence in the record. We, therefore, reject the defendants’ cross appeal.

As a consequence, the trial court’s misailocation of the burden of proof to the plaintiffs requires a remand for a new trial, limited to the issue of the defenses that the defendants will have to prove in order to avoid liability to the plaintiffs. The plaintiffs will not be required to prove again that they have met their dual threshold burdens of proof, with respect to the existence of both a fiduciary relationship and a corporate opportunity. For the remaining issues relating to defenses, the trial court is entitled to guidance concerning the scope of the defenses to be adjudicated on remand.

Ill

The claims that remain to be decided are those that the defendants, as corporate fiduciaries, bear the burden of proving by clear and convincing evidence. We now turn to the framework that, on remand, the trial court should apply in analyzing these remaining claims. The underlying issue is what the defendants need to prove to establish their good faith.

The most significant legal issue relating to the defendants’ burden of proving fair dealing, a question of first impression for this court, pertains to the claim of usurpation of a corporate opportunity. In particular, what role does disclosure to other directors and shareholders play in determining whether a corporate opportunity was in fact usurped? That question contains three sub-inquiries: (1) to whom should a corporate fiduciary make disclosure and what information must be communicated; (2) in the absence of an appropriate disclosure, can a corporate fiduciary interpose other defenses in order to avoid liability; and (3) if other defenses are available to the corporate fiduciary, in the absence of an appropriate disclosure, what does a corporate fiduciary have to prove in order to establish a good faith defense to a claim of usurpation of a corporate opportunity? In our view, these inquiries should be resolved in a manner that not only provides protection for the corporation but also gives appropriate weight to the specific circumstances in which the corporate fiduciary and the corporation find themselves.

A

We turn first to the question of identification of the person or persons to whom corporate fiduciaries should disclose their intention to undertake an enterprise that might be a corporate opportunity. The trial court refused to impose liability on the defendants because, although they did not disclose their plan to form ISW to the Avery Abrasives board of directors or its minority shareholders, they sought the consent of Raymond Avery, Craig Avery’s father as well as chief executive officer and majority shareholder of Avery Abrasives. We disagree with the trial court.

In our analogous case law on self-dealing transactions, we have held that a director may avail himself or herself of the defense of full disclosure only upon proving “approval of the contract or transaction by shareholders or disinterested directors . . . .” Rosenfield v. Metals Selling Corp., supra, 229 Conn. 797; see also Massoth v. Central Bus Corp., supra, 104 Conn. 689; Mallory v. Mallory Wheeler Co., 61 Conn. 131, 141-43, 23 A. 708 (1891). The self-dealing statute in effect during the relevant time period, General Statutes (Rev. to 1995) § 33-323, similarly authorizes corporate approval of such transactions by disinterested directors or by the majority of all of the shareholders of a corporation. If the self-dealing transaction could not be authorized by the board of directors except with the vote of the fiduciary or other interested directors, the agreement “may be ratified by [the corporation’s] stockholders after its execution, at least where all consent . . . .” Massoth v. Central Bus Corp., supra, 689.

The relevant scholarly commentary on the law of corporate opportunity contemplates disclosure to disinterested directors. “If the opportunity is rejected by the corporation, at least by a disinterested vote of the board of directors after full disclosure, the opportunity usually ceases to be a corporate opportunity.” H. Henn & J. Alexander, Laws of Corporations (3d Ed. 1983) § 237, p. 636. “Rejection of the opportunity by a disinterested majority [of directors] should bar any challenge to subsequent exploitation by the executive . . . .” Note, “Corporate Opportunity,” 74 Harv. L. Rev. 774 (1961). In addition, “the shareholders of the corporation ordinarily can ratify the transaction . . . .” W. Fletcher, Cyclopedia of the Law of Private Corporations (1994) § 862.05, p. 314.

In this case, the defendants disclosed the opportunity only to a single majority shareholder who is a member of the immediate family of one of them. That procedure was inadequate for two reasons. First, the minority shareholders of Avery Abrasives were never informed that Avery was pursuing for his own account a business opportunity in which the board had exhibited an interest. Second, owing to the fiduciary’s close family relationship with the consenting director, Raymond Avery cannot be termed “disinterested” and, therefore, was not a proper person to authorize the defendants’ pursuit of the opportunity, let alone to provide the sole consent on behalf of Avery Abrasives. We, therefore, conclude that the defendants failed to make an appropriate disclosure sufficient to justify their pursuit of a corporate opportunity.

B

We next address the consequence of the failure of a corporate fiduciary adequately to disclose the possible existence of a corporate opportunity. Courts and commentators have developed three different approaches regarding the effect of such a disclosure or nondisclosure on the liability of such a fiduciary.

1

One approach, recently espoused in § 5.05 of the American Law Institute’s Principles of Corporate Governance: Analysis and Recommendations (1992) (Principles of Corporate Governance), makes disclosure determinative of fiduciary liability. Section 5.05 (a) provides, in relevant part, that a director or senior executive may not take advantage of a corporate opportunity unless: “(1) The director or senior executive first offers the corporate opportunity to the corporation and makes disclosure concerning the conflict of interest . . . and the corporate opportunity ... (2) The corporate opportunity is rejected by the corporation; and (3) Either: (A) The rejection of the opportunity is fair to the corporation; (B) The opportunity is rejected in advance, following such disclosure, by disinterested directors ... or, in the case of a senior executive who is not a director, by a disinterested superior, in a manner that satisfies the standards of the business judgment rule ... or (C) The rejection is authorized in advance or ratified, following such disclosure, by disinterested shareholders, and the rejection is not equivalent to a waste of corporate assets . . . .” This approach, which unequivocally imposes fiduciary liability in the absence of appropriate disclosure, has been followed by the courts of Maine and Oregon. Northeast Harbor Golf Club, Inc. v. Harris, 661 A.2d 1146, 1151-52 (Me. 1995); Klinicki v. Lundgren, 298 Or. 662, 682-83, 695 P.2d 906 (1985); contra Broz v. Cellular Information Systems, Inc., 673 A.2d 148, 157 (Del. 1996).

The bright line approach taken by the Principles of Corporate Governance has appeal. It promotes efficiency because it provides clear guidance both to corporate officers and directors and to the courts that are called upon to enforce fiduciary obligations. Also, it underscores the importance of timely disclosure in order to ensure timely corporate access to all of the information that the corporation needs to determine what course of action is in the corporation’s best interest.

A one-size-fits-all approach has, however, the drawback of any bright line rule. It offers no opportunity to differentiate among the variety of factual circumstances in which an alleged usurpation of a corporate opportunity may arise. In Katz Corp., we implicitly rejected the claim that the “defendants should first have presented the opportunity to purchase stock to the corporation by calling a directors’ or shareholders’ meeting,” because no corporate opportunity existed within the meaning of the avowed business purpose test and the corporation was financially unable to pursue the venture. Katz Corp. v. T. H. Canty & Co., supra, 168 Conn. 209-10; see also Bricklin v. Stengol Corp., 1 Conn. App. 656, 666, 476 A.2d 584, cert. denied, 194 Conn. 803, 482 A.2d 709 (1984). In a related context, we have refused to apply a bright line rule to determine whether, for res judicata purposes, coiporate officers or shareholders are in privity with their corporation. Joe’s Pizza, Inc. v. Aetna Life & Casualty Co., 236 Conn. 863, 868, 675 A.2d 441 (1996), citing Amalgamated Sugar Co. v. NL Industries, Inc., 825 F.2d 634, 640 (2d Cir.), cert. denied, 484 U.S. 992, 108 S. Ct. 511, 98 L. Ed. 2d 511 (1987). Without denying the significance of timely and full disclosure, we decline to adopt a bright line rule in this area of fiduciary responsibility.

2

Another case law approach focuses less on adequate disclosure by a corporate fiduciary and more on whether affirmative defenses, such as the corporation’s financial inability to avail itself of the corporate opportunity at issue, can be proven by the corporate fiduciary. That was implicitly the position that we took in Katz Corp. v. T. H. Canty & Co., supra, 168 Conn. 210. We reasoned that “there can be no expectancy in a transaction unless the corporation is financially able to undertake it.” Id. Accordingly, we rejected the plaintiffs’ claim for relief in part because the corporation’s “cash on hand and liquid assets were insufficient to enable it to make such a substantial purchase.” Id.

Courts in other jurisdictions similarly afford the corporate fiduciary the opportunity to prove, as an affirmative defense, that the corporation lacked the financial ability to pursue the opportunity. Some courts permit such a defense in all cases. See, e.g., Paulman v. Kritzer, 74 Ill. App. 2d 284, 292-96, 219 N.E.2d 541 (1966), aff’d, 38 Ill. 2d 101, 230 N.E.2d 262 (1967). Other courts limit the defense of financial inability to cases in which the defendant corporation can be proven to have been insolvent at the relevant time. See, e.g., Irving Trust Co. v. Deutsch, 73 F.2d 121, 124 (2d Cir. 1934), cert. denied, 294 U.S. 708, 55 S. Ct. 405, 79 L. Ed. 1243 (1935); note, supra, 74 Harv. L. Rev. 773.

We agree with the perception of those courts that a claim of usurpation of a corporate opportunity should be examined through a wide-angled lens that takes account of a large variety of relevant factors. Nonetheless, we are persuaded by the learned discussion in the Principles of Corporate Governance that a proper multifactor analysis must give special weight to the significance of disclosure or nondisclosure of a possible corporate opportunity to the corporation’s board of directors or its shareholders. In our view, without such special weight, a multifactor analysis gives insufficient guidance to the trier of fact.

3

Adopting yet a third form of analysis, the Delaware Supreme Court, in Broz v. Cellular Information Systems, Inc., supra, 673 A.2d 148, recently enunciated a safe harbor rule. The court concluded that, if a corporate fiduciary made a timely and appropriate disclosure of the opportunity to the corporation’s board, the fiduciary would automatically have discharged his or her fiduciary obligation. Id., 157. “[Presenting the opportunity to the board creates a kind of ‘safe harbor’ for the director, which removes the specter of a post hoc judicial determination that the director or officer has improperly usurped a corporate opportunity.” Id.

The court in Broz declined to hold that nondisclosure, per se, constituted usurpation of a coiporate opportunity. Rejecting the contrary view of the Principles of Corporate Governance, the court decided against the adoption of a “requirement of formal presentation under circumstances where the corporation does not have an interest, expectancy or financial ability.” Id., 157. Instead, relying on principles derived from Guth v. Loft, Inc., supra, 23 Del. Ch. 255, and its progeny, the court considered whether: “(1) the corporation [was] financially able to exploit the opportunity; (2) the opportunity [was] within the corporation’s line of business; (3) the corporation [had] an interest or expectancy in the opportunity; and (4) by taking the opportunity for his own, the corporate fiduciary [would] thereby be placed in a position inimicable to his duties to the corporation.” Broz v. Cellular Information Systems, Inc., supra, 673 A.2d 155. Applying that test, the court in Broz determined that, in light of the relevant circumstances, the corporate fiduciary in that case had not usurped an opportunity that properly belonged to the corporation. Id., 157.

We adopt, for Connecticut, two major propositions of law decided by Broz. We agree with the principle that adequate disclosure of a corporate opportunity is an absolute defense to fiduciary liability for alleged usurpation of such a corporate opportunity. A corporate fiduciary who avails himself or herself of such a safe harbor should not be held accountable subsequently for opportunities embraced or forgone. The criteria for adequate disclosure are those that we have discussed earlier in this opinion. We also agree that, without prior adequate disclosure, a corporate fiduciary still may prove bona fides by clear and convincing evidence, by establishing that his or her conduct has not harmed the corporation. We add, however, that, in assessing such harm, the trier of fact must give special weight to the effect of nondisclosure on the corporation’s entrepeneurial opportunities.

The Delaware court’s decision in Broz, moreover, does not make explicit the proper allocation of the burden of proof with regard to these affirmative defenses of corporate fiduciaries. We reiterate, therefore, that, in Connecticut, corporate fiduciaries bear the burden of proving, by clear and convincing evidence, that they have not usurped a corporate opportunity. If they wish to take advantage of a safe harbor, corporate fiduciaries must establish the adequacy of their disclosures to the corporation. In the absence of such disclosures, corporate fiducaries like the present defendants must prove that, in light of the relevant circumstances outlined in Broz, they did not deprive the corporation of an opportunity that the corporation could have pursued. The fact of nondisclosure, although accorded special weight in this determination, is not dispositive. The factual backdrop for these issues in the circumstances of this case will need to be explored further on remand.

IV

Finally, we must consider certain issues that are likely to arise again on remand. The principal remaining issue is the propriety of the trial court’s conclusion that the conduct of the defendants in this case did not violate § 42-110a et seq., CUTPA.

The trial court found that the plaintiffs had failed to establish that the defendants had engaged in any unfair or deceptive trade practice. As discussed above, however, that finding cannot stand because the trial court improperly allocated to the plaintiffs the burden of proof with respect to their claims of violations of fiduciary duty.

If the retrial results in findings of violations of fiduciary duty, the question remains whether such misconduct constitutes an unfair and deceptive trade practice within the meaning of CUTPA. CUTPA “applies to a broad spectrum of commercial activity.” Larsen Chelsey Realty Co. v. Larsen, 232 Conn. 480, 492, 656 A.2d 1009 (1995). The act states that “[n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” General Statutes § 42-110b (a). The act defines “trade or commerce” broadly to encompass “the advertising, the sale or rent or lease, the offering for sale or rent or lease, or the distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value in this state.” General Statutes § 42-110a (4). “The entire act is remedial in character . . . and must be liberally construed in favor of those whom the legislature intended to benefit.” (Citations omitted; internal quotation marks omitted.) Larsen Chelsey Realty Co. v. Larsen, supra, 492.

Although purely intracorporate conflicts do not constitute CUTPA violations, actions outside the scope of the employment relationship designed “to usurp the business and clientele of one corporation in favor of another ... fit squarely within the provenance of CUTPA.” Fink v. Golenbock, 238 Conn. 183, 212, 680 A.2d 1243 (1996). In Larsen, a case involving claims of breach of fiduciary duty, unfair competition, theft of a corporate opportunity and tortious interference with a business relationship, we concluded that the trial court had improperly set aside the jury’s finding of a CUTPA violation. Larsen Chelsey Realty Co. v. Larsen, supra, 232 Conn. 493. Therefore, on remand, once all the relevant facts are established, in accordance with the proper allocation of proof, the trial court must determine whether the defendants’ conduct constituted a CUTPA violation.

Furthermore, on remand, the trial court must determine whether Avery’s misconduct, if any, constituted a negligent breach of his duty to Avery Abrasives and its shareholders. If the plaintiffs can persuade the court that Avery is so hable, the court then must resolve the plaintiffs’ fraudulent conveyance claim against Antoinette Avery.

By way of summary, it is settled that the plaintiffs have met their burden of proving that: (1) both defendants stood in a fiduciary relationship to Avery Abrasives; and (2) the manufacture of small wheels constituted a corporate opportunity belonging to Avery Abrasives. It also is settled that the defendants failed to meet their burden of proving that they had made disclosure sufficient to avail themselves of the safe harbor. At the retrial, it remains to be determined whether the defendants can prove by clear and convincing evidence any of their affirmative defenses. Once the trial court determines whether the defendants have met their burden of proof with respect to these affirmative defenses, the trial court can then determine whether it needs to address the CUTPA and negligence claims.

The judgment is reversed and the case is remanded to the trial court for a new trial in accordance with this opinion.

In this opinion the other justices concurred.

       General Statutes § 52-572j provides in relevant part: “(a) Whenever any corporation or any unincorporated association fails to enforce a right which may properly be asserted by it, a derivative action may be brought by one or more shareholders or members to enforce the right . . . .”

       Through its special litigation committee, Avery Abrasives moved to dismiss the action, claiming that the action would cause it unnecessary expense. The trial court denied the motion, concluding that the special litigation committee’s recommendation had been biased.

       Although Avery Abrasives successfully intervened to become a defendant for the purpose of filing a motion to dismiss the plaintiffs’ cause of action, it is only a nominal defendant on this appeal. The defendant Antoinette Avery is a defendant only for the purposes of the claim of fraudulent conveyance. We, therefore, will refer to Craig Avery and Michael Passaro, jointly, as the defendants for the purposes of this appeal. Individually, they will be referred to by their last names.

       General Statutes § 52-107 provides in relevant part: “The court may determine the controversy as between the parties before it, if it can do so without prejudice to the rights of others; but, if a complete determination cannot be had without the presence of other parties, the court may direct that such other parties be brought in. . . .”

       The plaintiffs claimed that the judgment of the trial court should be reversed and the case remanded with direction that judgment be rendered for the plaintiffs with respect to the claims of breach of fiduciary duty, violation of CUTPA and unjust enrichment. The plaintiffs also claimed that further proceedings should be held regarding the proper remedy, including a remedy for the alleged fraudulent conveyance.

       In order to provide context for our discussion of the issues relating to usurpation of a corporate opportunity, we first outline the doctrine governing claims of violation of a corporate fiduciary duty. Accordingly, we address the issues on appeal in a different order from that in which they were briefed by the plaintiffs.

       The plaintiffs argue that Passaro, as an agent of Avery Abrasives, was a corporate fiduciary with respect to matters within the scope of his employment. See Town & Country House & Homes Service, Inc. v. Evans, 150 Conn. 314, 316-17, 189 A.2d 390 (1963). The record indicates that the trial court made no distinction between Passaro and Avery with respect to their fiduciary status; the court seems to have assumed that both were corporate officers and thus corporate fiduciaries. On appeal, no challenge has been raised to the trial court’s implicit finding that Passaro was a fiduciary of Avery Abrasives.

       The court in Katz Corp. did not fill in the interstices because, in that case, the dispositive issue was whether the law of usurpation of corporate opportunity encompassed claims of insider trading. Having decided that it did not, we had no occasion to explore further the constituent elements of a transaction that does constitute usurpation of a corporate opportunity. Katz Corp. v. T. H. Canty & Co., supra, 168 Conn. 208-12.

       We disagree, however, with the Minnesota court’s analysis insofar as it requires the complaining corporation, in order to demonstrate the existence of a corporate opportunity, to prove its financial ability to undertake an opportunity. Miller v. Miller, supra, 301 Minn. 225. That view is inconsistent with our decision, in part I of this opinion, that it is the corporate fiduciary, not the complainant, who must establish, as an affirmative defense, that the corporation lacked the financial ability to avail itself of a corporate opportunity.

       A New York trial court has concluded, for example, that an interest or expectancy may exist if a director were pursuing an opportunity in the field on behalf of the corporation, or if the corporation needed the business opportunity, or if the opportunity was developed at the corporation’s expense. Litwin v. Allen, 25 N.Y.S.2d 667, 685-86 (Supreme Court 1940).

       Because the parties have not briefed the issue of what information a fiduciary must communicate to the appropriate corporate representatives to constitute full disclosure, we do not address this issue.

       General Statutes (Rev. to 1995) § 33-323, which was repealed effective January 1, 1997, provides in relevant part: “(a) A contract or transaction between a corporation and a director thereof or a member of his immediate family, or between a corporation and any other corporation, firm or other organization in which a director of the corporation and members of his immediate family have an interest, shall not be voidable, and such director shall not incur any liability, merely because such director is a party thereto or because of such family relationship or interest, if: (1) Such family relationship or such interest, if it is a substantial interest, is fully disclosed, and the contract or transaction is not unfair as to the corporation and is authorized by (i) directors or other persons who have no substantial interest in such contract or transaction in such a manner as to be effective without a vote, assent or presence of the director concerned or (ii) the written consent of all of the directors who have no substantial interest in such contract or transaction, whether or not such directors constitute a quorum of the board of directors; or (2) such family relationship or interest, if it is a substantial interest, is fully disclosed, and the contract or transaction is approved by the affirmative vote of the holders of a majority of the voting power of the shares entitled to vote thereon; or (3) the contract or transaction is not with the director or a member of his immediate family and any such interest is not substantial, subject, however, to the provisions of subsection (b) of this section; or (4) the contract or transaction is fair as to the corporation. . . .”
      The conflict of interest transaction statute effective January 1, 1997, contains a similar provision for disclosure and ratification by disinterested directors. See General Statutes § 33-783.

       Interpreting the American Law Institute’s Principles of Corporate Governance standard as reported in an earlier tentative draft, the Oregon court explained: “If, after full disclosure, the disinterested directors or shareholders unreasonably fail to reject the offer, the interested director or principal senior executive may proceed to take the opportunity if he can prove the taking was otherwise ‘fair’ to the corporation. Full disclosure to the appropriate corporate body is, however, an absolute condition precedent to the validity of any forthcoming rejection as well as to the availability to the director or principal senior executive of the defense of fairness.” (Emphasis added.) Klinicki v. Lundgren, supra, 298 Or. 682-83.

        In a more recent decision adopting that same standard, the Maine Supreme Court held that “[t]he central feature of the [American Law Institute] test is the strict requirement of full disclosure prior to taking advantage of any corporate opportunity.” Northeast Harbor Golf Club, Inc. v. Harris, supra, 661 A.2d 1151. “If [the defendant] failed to offer the opportunity at all . . . then she may not defend on the basis that the failure to offer the opportunity was fair.” Id., 1162.
      Furthermore, the Pennsylvania Supreme Court, in the course of adopting other sections of the Principles of Corporate Governance dealing with derivative actions, has stated that “[cjourts of the Commonwealth are free to consider other parts of [the Principles of Corporate Governance] and utilize them if they are helpful and appear to be consistent with Pennsylvania law.” Cuker v. Mikalauskas, 547 Pa. 600, 613 n.5, 692 A.2d 1042 (1997).

       Commentators supporting a standard that makes disclosure mandatory and dispositive have noted that, “when the fiduciary decides that the corporation is financially unable to take the opportunity, he is substituting his own judgment for that of the board of directors or shareholders.” D. Brown, supra, 28 Corporate Practice Commentator 516. The “[a]vailability of the defense of corporate incapacity reduces the incentive to solve corporate financing and other problems,” and recognizes that evidence regarding the corporation’s financial status is often within the control of the diverter. V. Brudney & C. Clark, supra, 94 Harv. L. Rev. 1020-22. They argue that “the appropriate method to determine whether or not a corporate opportunity exists is to let the corporation decide at the time the opportunity is presented.” 3 W. Fletcher, supra, § 861.10, p. 285; 1 A.L.I., Principles of Corporate Governance, supra, § 5.05, pp. 299-300, reporter’s notes.

       Still others make the corporation’s financial ability to pursue the opportunity a condition precedent to a finding of corporate opportunity, placing the burden on the plaintiff corporation. See Miller v. Miller, supra, 301 Minn. 225; see also Racine v. Weisflog, 165 Wis. 2d 184, 195, 477 N.W.2d 326 (1991); D. Brown, supra, 28 Corp. Prac. Commentator 520-21.

       In a subsequent corporate opportunity case, the same court reiterated that “[a] director who opts not to inform the board of the opportunity acts at his peril, unless he is ultimately able to demonstrate post hoc that the corporation was not deprived of an opportunity in which it had an interest in or capability of engaging.” Thorpe by Castleman v. CERBCO, Inc., 676 A.2d 436, 442 n.7 (Del. 1996).

       If, for example, the evidence adduced with respect to a corporate fiduciary’s alleged usurpation of a corporate opportunity were in equipoise, the Irier of fact should conclude, in the absence of appropriate disclosure, that the fiduciary had failed to sustain his burden of proof.

       The trial court refused to hold the defendants in this case to the elements of the law of corporate opportunity as we have described them. It took the position that applicable common-law and analogous statutory principles concerning corporate disclosure requirements, without definitive appellate guidance, could not be applied to the defendants without violating principles against retroactivity. We disagree.

        In Neyland v. Board of Education, 195 Conn. 174, 179, 487 A.2d 181 (1985), we discussed the three-part test set out in Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S. Ct. 349, 30 L. Ed. 2d 296 (1971), for determining whether a decision must be applied prospectively only. A common-law decision will be applied nonretroactively only if: (1) it establishes “a new principle of law, either by overruling past precedent on which litigants have relied . . . or by deciding an issue of first impression whose resolution was not clearly foreshadowed”; (citations omitted) Neyland v. Board of Education, supra, 179; (2) given its prior history, purpose and effect, retrospective application of the rule would retard its operation; and (3) retroactive application would produce substantial inequitable results, injustice or hardship. Id., 180.
      Our decision today neither establishes a new principle of law nor works substantial inequitable results on corporate fiduciaries who relied on our earlier cases. The conclusion that a defendant in a corporate opportunity case bears the burden of establishing fair dealing by clear and convincing evidence has long been established in our corporate fiduciary law. To the extent that we decide an issue of first impression in adopting the safe harbor approach to disclosure, we do not announce a new rule of law but expand upon our decision in Katz Corp. v. T. H. Canty & Co., supra, 168 Conn. 201. Furthermore, the availability of such a safe harbor provides a defense and, therefore, cannot harm the defendants. Thus, the framework we set out for analyzing claims of usurpation of a corporate opportunity is applicable to the defendants.


source: Caselaw Access Project

author: KATZ, J.

license: Public Domain

text:
    WILLIAM TAFF v. JAYMA BETTCHER
    (SC 15683)
    CáQahau, C. J., and Borden, Berdon, Norcott and Katz, Js.

      Argued November 5
    officially released December 16, 1997

      James D. Hirschfield, for the appellant (defendant).

      Everett E. Newton, for the appellee (plaintiff).
   Opinion

KATZ, J.

The sole issue in this certified appeal is whether the Appellate Court properly dismissed for lack of a final judgment the defendant’s appeal from the trial court order precluding the parties to this underlying custody action from filing any motions regarding custody or visitation “for a period not less than one year.” The pertinent facts in this case are simple and undisputed. William Chandler Taff (Chandler) was bom out of wedlock on March 20, 1991, to the plaintiff father, William Taff, and the defendant mother, Jayma Bettcher. On March 26,1992, the plaintiff, claiming that the defendant was an unfit mother, brought an action seeking custody of Chandler. The defendant filed a cross complaint seeking sole custody and support.

The trial court, Gill, J., essentially heard the custody dispute twice: the first time was in the summer of 1993, when ten witnesses testified, including a child care provider, a psychiatrist, two psychologists and the parties themselves, and the second time was in the summer of 1994, when the court, in an effort “hopefully [to] finalize the custody and visitation issues surrounding young Chandler,” heard the testimony of seventeen witnesses, including psychiatrists, a psychologist, family friends, the parties’ former spouses and past and present nannies for Chandler. Although the court had continued the case for one year in the hopes that the situation would improve and that the defendant would modify her behavior for the benefit of her son, the court ultimately concluded that “[f]irst, Chandler . . . needs closure on those issues of custody and visitation. Second, [the] defendant mother should have a reduced role in Chandler’s life which will provide some closure with more stability, and less negativism.” Accordingly, on July 29, 1994, the court rendered judgment for the plaintiff awarding him custody of Chandler, with specific supervised visitation rights to the defendant. Additionally, the court entered ancillary orders pertaining largely to Chandler’s nanny.

In 1995, the plaintiff moved to modify the court’s orders regarding payment of the nanny and the defendant’s visitation schedule, and the attorney for the minor child moved for payment of counsel fees and to modify her court-ordered responsibilities. Thereafter, in 1996, the defendant moved for modification of visitation, and also filed a motion once again seeking custody. These six motions were heard by the trial court, Kline, J., who, before all of the evidence had been presented, unfortunately died. The defendant requested a transcript of the partial proceedings to allow the case to be concluded before another judge. On October 1,1996, rather than allow the parties to continue, the trial court, Dranginis, J., instead, ordered the parties to engage in conflict mediation and precluded them from filing any further motions regarding custody or visitation “for a period not less than one year.” The court also scheduled a hearing with regard to the financial issues for November 7 and 8, 1996.

The defendant appealed from the orders precluding further filing and requiring conflict mediation. In addition, she moved for a stay of the hearing on the financial issues until after the appeal could be resolved, and she requested that the trial court recuse itself on the ground of bias. Following the trial court’s denial of the defendant’s motions for a stay and for recusal, the defendant amended her appeal to include review of those rulings. Thereafter, the Appellate Court, suo moto, dismissed the defendant’s appeal for lack of a final judgment, and this court granted her petition for certification, limited to the following issue: “Did the Appellate Court properly dismiss this appeal for lack of a final judgment?” Taff v. Bettcher, 241 Conn. 904, 694 A.2d 41 (1997). Because we conclude that the trial court order precluding the parties from bringing any further motions regarding custody or visitation constituted an appealable final judgment, we reverse the judgment of dismissal of the Appellate Court. Additionally, we retain jurisdiction over the appeal in this court and impose additional orders on the trial court and the parties in the interest of expediting this case.

We begin with established jurisdictional principles that guide, and indeed control, whether an order is appealable. Appellate jurisdiction is limited, with few statutory exceptions not pertinent to this case, to appeals from final judgments. See General Statutes §§ 51-197a, 51-199 and 52-263; see also Practice Book § 4000. Consequently, interlocutory appeals must be dismissed. The difficulty comes not with the rule, but, rather, with its application. To help evaluate whether an otherwise interlocutory order is nonetheless final for purposes of appeal, we have in recent years relied on the standard set forth in State v. Curcio, 191 Conn. 27, 31, 463 A.2d 566 (1983), which permits the immediate appealability of an order “in two circumstances: (1) where the order or action terminates a separate and distinct proceeding, or (2) where the order or action so concludes the rights of the parties that further proceedings cannot affect them.”

It is clear that had the trial court ruled on the merits with regard to any of the motions first heard by Judge Kline, any such decision would have been appealable. See General Statutes §§ 46b-56 and 46b-86; Borkowski v. Borkowski, 228 Conn. 729, 734-40, 638 A.2d 1060 (1994). The issue in this case, however, is not whether a decision on any of those motions is a final judgment, but, rather, whether the order denying the parties access to the court and precluding them from filing any motions pertaining to custody and visitation of their son for a period of not less than one year constitutes an appealable final judgment.

Although this is an issue of first impression, we have in a closely related context recognized the importance of the relationship shared between parent and child and how certain orders affecting that relationship so impact the rights of the parties as to require immediate review. Applying the second Curdo standard and its antecedents, in Madigan v. Madigan, 224 Conn. 749, 754-55, 620 A.2d 1276 (1993), we concluded that “a temporary order of custody is a final judgment for the purpose of an immediate appeal because a parent’s custodial rights during the course of dissolution proceedings cannot otherwise be vindicated at any time, in any forum.” We recognized that temporary custody orders affect the irreplaceable time and relationship shared between a parent and a child and can have irreparable consequences for the parent-child relationship. “A lost opportunity to spend significant time with one’s child cannot be replaced by a subsequent order of custody as part of an ultimate dissolution judgment. ... To deny immediate relief to an aggrieved parent interferes with the parent’s custodial right over a significant period in a manner that cannot be redressed by a later appeal.” Id., 756. On balance, we were more persuaded by the rationale for allowing an immediate appeal of the temporary custody order than by the traditional reasons of judicial economy that might otherwise have precluded its review. Accordingly, we held that an immediate appeal of a temporary custody order is the “only reasonable method of ensuring that the important rights surrounding the parent-child relationship are adequately protected.” Id., 757.

The considerations that informed our decision in Madigan apply equally to the facts of this case. Just as a temporary custody order may have a significant impact on a subsequent permanent custody decision, a court order barring the parties for one year from seeking review on the issues of custody and visitation may interfere with a parent’s custodial rights over a significant period in a manner that cannot be redressed at a later time. A lost opportunity to spend significant time with one’s child is not recoverable. See id., 756. Any chance by the noncustodial parent to restructure custody and visitation to enhance the relationship or further establish a foundation in that interval cannot be replaced by a subsequent modification one year later. Nor can any harm to the child caused by the custodial arrangement be meaningfully addressed one year after it occurs. We are persuaded that, as in the case of a temporary order of custody, an immediate appeal of the court order in this case is “the only reasonable method of ensuring that the important rights surrounding the parent-child relationship are adequately protected.” Id., 757. Accordingly, we conclude that the Appellate Court improperly dismissed the defendant’s appeal for lack of a final judgment.

By our decision today, we are not expressing an opinion as to the merits of the claims in the defendant’s appeal from the trial court order. We recognize that “[t]he power of a domestic relations court to act equitably is the keystone to the court’s ability to fashion relief in the infinite variety of circumstances which arise out of the dissolution of a marriage. Gallagher v. Gallagher, 11 Conn. App. 509, 513, 528 A.2d 379 (1987), quoting Pasquariello v. Pasquariello, 168 Conn. 579, 585, 362 A.2d 835 (1975). Decision-making in family cases requires a flexible, individualized adjudication of the particular facts of each case .... Weidenbacher v. Duclos, 234 Conn. 51, 76, 661 A.2d 988 (1995), quoting Seymour v. Seymour, 180 Conn. 705, 710, 433 A.2d 1005 (1980).” (Internal quotation marks omitted.) Meehan v. Meehan, 40 Conn. App. 107, 112-13, 669 A.2d 616, cert. denied, 236 Conn. 915, 673 A.2d 1142 (1996). In this case, the trial court was presented with an increasingly hostile situation and used its powers of equity to fashion relief for the parties. Whether the trial court exercised those powers properly is not part of the certified question, but, rather, is the issue in the underlying appeal, which is not currently before the court.

Although we conclude that the Appellate Court improperly dismissed the appeal and would normally remand the case to that court to decide the issues in the defendant’s underlying appeal, in the interest of expediting this case for the benefit of the minor child, whose custody and visitation have been the subject of court proceedings for nearly his entire life, we will retain jurisdiction of the case for the purposes of appellate review of those issues. To enable this court to decide the case, however, certain steps must be taken.

We begin with the trial court. If “necessary to the proper disposition of the cause,” we may remand the case to the trial court for a clarification or explication of its decision. Practice Book § 4061; see, e.g., State v. Patterson, 227 Conn. 448, 454-55, 629 A.2d 1133 (1993); State v. Pollitt, 199 Conn. 399, 416-17, 508 A.2d 1 (1986); State v. Cobbs, 198 Conn. 638, 643, 504 A.2d 513 (1986); State v. Lafferty, 189 Conn. 360, 363, 456 A.2d 272 (1983); State v. Ostroski, 184 Conn. 455, 460-61, 440 A.2d 166 (1981). We conclude that a remand to Judge Dranginis for an articulation of the reasons for her order precluding the parties from filing any motions regarding custody or visitation for at least one year is appropriate in this case. In the absence of a further explanation by the court setting forth the basis for its decision, we would review the record to ascertain the facts upon which the court’s decision may have been based. The trial court’s order is sparse, however, reflecting only that the parties, through counsel, had attended a status conference with respect to the motions still pending at the time of Judge Kline’s untimely death. In view of the crucial importance of the court’s fact-finding with respect to the issues in the underlying appeal, an articulation by the court of the facts upon which its order was based will substantially assist us in resolving the defendant’s claims. That articulation should at least reflect the trial court’s findings with regard to the need for the order.

We further conclude that an articulation from Judge Walsh of his reasons for continuing that order is warranted. Although the parties represented that he continued the order pending a determination by this court of the propriety of the Appellate Court’s dismissal of the appeal, there is no record explaining the basis for that decision or its scope.

With regard to the parties, they are instructed to prepare and supplement the record in an appropriate fashion. They are further instructed to comply with a briefing schedule to be set by this court following the trial court’s articulations. Finally, in the event that Judge Walsh determines that there is no longer any need to further continue the order, the parties may agree to have the case assigned to another judge for determination of the outstanding motions rather than return to this court to argue why the appeal is not moot; see footnote 3 of this opinion; and, if necessary, to address its merits.

The judgment of the Appellate Court is reversed and the case is remanded to that court with direction to remand the case to the trial court for further proceedings in accordance with this opinion. We, however, retain jurisdiction over the case in order to resolve, if necessary, the claims in the underlying appeal.

In this opinion the other justices concurred.

       The plaintiff opposed the defendant’s petition for certification, and filed a brief in this court asking that the judgment of the Appellate Court be affirmed. At oral argument before this court, however, the plaintiff, who indicated that he had benefited to some degree by not having to respond to the defendant’s barrage of motions during the yearlong period in which no such motions could be filed, represented through counsel that he “specifically has no interest in the outcome of the case” because “whether this matter goes back to the Appellate Court or directly back to the trial court does not affect his rights one way or the other.” Counsel for the minor child agreed with the defendant in this case and urged the court to reverse the judgment of the Appellate Court.

       Our decision to reverse the judgment of the Appellate Court pertains to the trial court order precluding the parties from filing any further motions regarding custody and visitation. The parties have not briefed the issue of whether the two additional orders that formed the basis of the defendant’s amended appeal, i.e., the denial of the defendant’s motion to stay the proceedings in connection with the financial orders and the denial of the defendant’s motion for Judge Dranginis to disqualify herself, are final judgments for purposes of appeal. The issues of finance and custody, however, are inextricably intertwined with one another. As we have stated, orders relating to custody and support are part of a carefully crafted mosaic such that a change to one will necessarily create a change to the other. See Sunbury v. Sunbury, 210 Conn. 170, 174-75, 553 A.2d 612 (1989); Wolf v. Wolf, 39 Conn. App. 162, 174-75, 664 A.2d 315 (1995). Although the denial of the defendant’s motion to disqualify is not, in and of itself, a final judgment; Burger & Burger, Inc. v. Murren, 202 Conn. 660, 667, 522 A.2d 812 (1987); it would serve no reasonable purpose to separate it from the other two issues, and, indeed, would only serve unnecessarily to protract the proceedings, a consequence we clearly seek to avoid. See footnote 3 of this opinion.

       The trial court order prohibiting the parties from bringing any motions regarding custody and visitation expired on October 1, 1997, leaving the parties free to seek further redress from the corut as of that date. The appeal from the order would, therefore, now be considered moot unless it were to qualify for review under the “capable of repetition yet evading review” exception. See Loisel v. Rowe, 233 Conn. 370, 396-97, 660 A.2d 323 (1995). The parties, however, informed the court at oral argument that the trial court, Walsh, J., has continued the orders that are the subject of the underlying appeal until this court decides whether the Appellate Court properly dismissed the defendant’s appeal. As the parties must continue to refrain from seeking any redress from the court regarding custody and visitation of Chandler, and the clerk’s office must continue to reject any motions pertaining to such issues, the appeal is not moot. We note that the trial court has ordered an updated family relations study that necessarily made some adjustments to the visitation schedule to allow that study to be conducted.

       Whether the trial court’s order was, in effect, tantamount to a refusal to rule on any of the pending motions that pertained to custody and visitation or a denial of them is an issue that has not been briefed as part of this certified appeal. Therefore, we decide in this appeal only whether an order precluding the parties from “filing any further motions for modification and/ or order addressed to issues of custody or visitation” is a final judgment for purposes of appeal.

       Because we determine that the order in this case is a final judgment on the basis of its effect on the rights of the parties, we need not decide whether it would merit immediate appeal under the Curdo test, as a “separate and distinct proceeding . . . .” State v. Curdo, supra, 191 Conn. 31.


author: PER CURIAM.

text:
    FLEET CREDIT CORPORATION v. DONALD F. MILLER, COMMISSIONER OF REVENUE SERVICES PRODUCTO MACHINE COMPANY ET AL. v. DONALD F. MILLER, COMMISSIONER OF REVENUE SERVICES
    (SC 15679)
    Callahan, C. J., and Norcott, Katz, Palmer and McDonald, Js.
    Argued November 4
    officially released December 16, 1997

      Richard K. Greenberg, assistant attorney general, with whom, on the brief, was Richard Blumenthal, attorney general, for the appellant (defendant).

      Donald E. Frechette, with whom was Jeremy A. Mellitz, for the appellees (plaintiffs).
   Opinion

PER CURIAM.

After examining the record on appeal and considering the briefs and oral arguments of the parties, we have determined that the appeal in this case should be dismissed on the ground that certification was improvidently granted.

The appeal is dismissed.

       We granted the defendant’s petition for certification to appeal from the judgment of the Appellate Court; Fleet Credit Corp. v. Miller, 44 Conn. App. 529, 690 A.2d 423 (1997); limited to the following issue: “Did the Appellate Court improperly determine that the plaintiff taxpayers were not liable for the payment of interest pursuant to General Statutes (Rev. to 1993) § 12-242d for the underpayment of their estimated corporate business tax?” Fleet Credit Corp. v. Miller, 241 Conn. 902, 693 A.2d 303 (1997).


text:
    STATE OF CONNECTICUT v. ANTHONY RICE
    (SC 15672)
    Callahan, C. J., and Norcott, Katz, Palmer and McDonald, Js.
    Argued October 29
    officially released December 16, 1997

      Robert G. Golger, special public defender, for the appellant (defendant).

      Michael E. O’Hare, deputy assistant state’s attorney, with whom, on the brief, were Michael Dearington, state’s attorney, and Christopher A. Alexy, assistant state’s attorney, for the appellee (state).
   Opinion

PER CURIAM.

After examining the record on appeal and considering the briefs and oral arguments of the parties, we have determined that the appeal in this case should be dismissed on the ground that certification was improvidently granted.

The appeal is dismissed.

       We granted the defendant’s petition for certification to appeal from the judgment of the Appellate Court; State v. Rice, 44 Conn. App. 919, 690 A.2d 436 (1997); limited to the following issue: “Did the trial court commit harmful error in ruling inadmissable the defendant’s proposed cross-examination of Raymond Turner regarding Turner’s pending charges and whether he had discussed those charges and his testimony with the prosecution prior to taking the witness stand?” State v. Rice, 240 Conn. 931, 693 A.2d 301 (1997).


author: MCDONALD, J.

text:
    STATE OF CONNECTICUT v. ANTHONY CARTER
    (SC 15593)
    Borden, Berdon, Katz, Palmer and McDonald, Js.
    Argued October 3
    officially released December 16, 1997

      Denise B. Smoker, deputy assistant state’s attorney, with whom, on the brief, were James E. Thomas, state’s attorney, Christopher L. Morano, supervisory assistant state’s attorney, and Judith Rossi, assistant state’s attorney, for the appellant (state).

      Mark Rademacher, assistant public defender, for the appellee (defendant).
   Opinion

MCDONALD, J.

The sole issue in this appeal is whether the Appellate Court correctly determined that the defendant, Anthony Carter, did not knowingly and voluntarily waive his right against self-incrimination when he entered guilty pleas. The state appeals, upon the granting of certification, from the Appellate Court’s judgment that the trial court inadequately canvassed the defendant before accepting his guilty pleas. State v. Carter, 43 Conn. App. 555, 685 A.2d 1129 (1996). We reverse the judgment of the Appellate Court.

The state filed an information against the defendant, charging him with three counts of the sale of narcotics in violation of General Statutes § 21a-277 (a), three counts of conspiracy to sell narcotics in violation of General Statutes §§ 53a-48 and 21a-278 (b) and three counts of the sale of narcotics within 1500 feet of a housing project in violation of General Statutes § 21a-278a (b). The information also charged the defendant with violating the Corrupt Organizations and Racketeering Activity Act (CORA) in violation of General Statutes § 53-395 (b) and (c) and conspiracy to violate CORA in violation of General Statutes §§ 53a-48 and 53-395 (b) and (c).

Subsequently, the defendant withdrew his initial pleas of not guilty as to all counts of the information and entered pleas of guilty as to the two CORA counts and the three sale of narcotics counts. His counsel was present and participated in the entering of his guilty pleas. The state nolled the remaining charges.

At the time of the entry of the guilty pleas, the state agreed on the record to recommend that “the defendant receive a sentence of sixteen years [incarceration], with the right to argue for a lesser period of incarceration, but in no event [should he] receive a sentence of less than eight years. After a recitation of the factual predicate for the pleas and the state’s placing the plea agreement on the record, the trial court proceeded to canvass the defendant to determine whether the pleas of guilty were [knowingly] intelligently and voluntarily made.

“During the canvass, the defendant admitted that he had made three sales of heroin to undercover officers, that he had acted as lookout for fellow purveyors of narcotics and that he had attempted to flag down vehicles to sell narcotics. At the end of the canvass, the trial court found that the pleas were entered voluntarily, that the defendant understood the crimes charged, that, by his own concession, he had received effective assistance of counsel, and that he admitted the factual basis of each charge against him. Accordingly, the trial court accepted the pleas of guilty and made findings of guilty . . . .” State v. Carter, supra, 43 Conn. App. 557. When the defendant later appeared for sentencing the trial court imposed a total effective sentence of twelve years. Id., 558.

The defendant did not move to withdraw his pleas, nor did he file any postsentence motions in the trial court. On appeal to the Appellate Court, the defendant raised for the first time his claim that his canvass by the trial court was constitutionally defective.

The Appellate Court reversed the trial court’s judgment, ruling that the trial court failed to include in its canvass a sufficient warning that the defendant’s pleas of guilty operated as a waiver of his constitutional right against self-incrimination. It concluded that the trial court had failed to inform the defendant that he had a right to persist in his plea of not guilty. Id., 562. The defendant’s remaining claim on appeal, that his right to due process was violated by the trial court during his sentencing hearing, was not addressed by the Appellate Court.

The defendant raises before us a federal constitutional defect in his plea canvass under State v. Golding, 213 Conn. 233, 567 A.2d 823 (1989).

Golding established a four part test. “In order to prevail on appeal on a constitutional claim, that has not been adequately preserved at trial, the defendant must meet all of the following conditions: ‘(1) the record is adequate to review the alleged claim of error; (2) the claim is of constitutional magnitude alleging the violation of a fundamental right; (3) the alleged constitutional violation clearly exists and clearly deprived the defendant of a fair trial; and (4) if subject to harmless error analysis, the state has failed to demonstrate harmlessness of the alleged constitutional violation beyond a reasonable doubt.’ ” State v. Pinnock, 220 Conn. 765, 778, 601 A.2d 521 (1992), quoting State v. Golding, supra, 213 Conn. 239-40. “We have also held that we remain free to dispose of the claim by focusing on whichever condition is most relevant in the particular circumstances.” (Internal quotation marks omitted.) State v. Pinnock, supra, 778. We conclude on the basis of this record that a constitutional violation did not clearly exist and did not clearly deprive the defendant of a fair trial.

The United States Supreme Court has held that for the acceptance of a guilty plea to comport with due process, the plea must be voluntarily and knowingly entered. Boykin v. Alabama, 395 U.S. 238, 243-44, 89 S. Ct. 1709, 23 L. Ed. 2d 274 (1969). Boykin set forth three federal constitutional rights of which a defendant must be cognizant prior to entering a guilty plea: (1) the privilege against compulsory self-incrimination; (2) the right to trial by jury; and (3) the right to confront one’s own accusers. Id., 243. Since a guilty plea constitutes a waiver of these constitutional rights, a reviewing court cannot presume from a silent record that a defendant knowingly waived these three rights. State v. Badgett, 200 Conn. 412, 419-20, 512 A.2d 160, cert. denied, 479 U.S. 940, 107 S. Ct. 423, 93 L. Ed. 2d 373 (1986).

During the plea canvass, a court is required to inform a defendant of his right against compulsory self-incrimination and to inform him that he waives that right by pleading guilty. “Under Boykin, in order for a plea to be knowingly, voluntarily and intelligently made, a trial court is required to advise a defendant that his plea operates as a waiver of three fundamental constitutional rights — jury trial, confrontation and self-incrimination.” State v. Badgett, supra, 200 Conn. 418. In connection with the waiver of the defendant’s right against self-incrimination, “the federal constitution requires only that a defendant, at the time of the entry of a plea of guilty or nolo contendere, be informed by the court that ... he could not be compelled to enter that plea.” State v. Nelson, 221 Conn. 635, 640-41, 605 A.2d 1381 (1992).

The “substance” of the right against compulsory self-incrimination must be “sufficiently conveyed” by the canvassing court before a guilty plea may be accepted. State v. Badgett, supra, 200 Conn. 420. Specific words are not required to inform the defendant of his right against compulsory self-incrimination. Id. (“[l]iteral compliance, however, [with Boykin] is not constitutionally required” [emphasis in original]). Rather, our focus is directed at “all of the relevant circumstances” surrounding the canvass. State v. Domian, 235 Conn. 679, 687, 668 A.2d 1333 (1996). “[F]or protection of his privilege against self-incrimination, the federal constitution mandates only that a defendant be apprised of the fact that he does not have to enter a plea of guilty or nolo contendere and thus incriminate himself.” State v. Nelson, supra, 221 Conn. 642. The right against compulsory self-incrimination is therefore adequately conveyed when a defendant knows that he need not enter the plea of guilty and knows the effect of that plea.

In this case, the Appellate Court concluded that the plea canvass was insufficient because the trial court never apprised the defendant that he did not have to plead guilty. The defendant was told, however, that the purpose of the canvass was “to make sure that you’re giving these pleas — all five pleas that you have just rendered to the court, voluntarily and of your own free will. If you have any questions at any particular period of time, please do not hesitate to ask me.” The defendant later replied, in answer to a question, that he was entering all five pleas voluntarily and of his own free will. He denied that anyone was forcing him to enter those pleas. The court then asked the defendant, “And you understand that you could have gone to trial on each and every one of these counts? Mr. Schoenhorn, your attorney, could have represented you before a judge or jury.” The court advised the defendant of his right to go to trial, with the assistance of counsel, before either a judge or a jury, during which trial the state would be required to prove its case beyond a reasonable doubt. The court further informed the defendant of his rights to put on evidence at trial; to refrain, with counsel’s advice, from testifying; to subpoena witnesses; and to cross-examine witnesses. Thereafter, the court asked the defendant, “[A]nd basically, because you’re pleading here voluntarily before this Court today, do you understand that you’re waiving your ability to have a trial on each and every one of these counts here this afternoon?” The defendant answered, “yes.”

The transcript shows that the defendant knew that he had an alternative to pleading guilty and that this alternative permitted him to challenge the state’s factual allegations and legal theories. Defense counsel, after describing in detail two such legal theories, indicated that the defendant waived them. The court then stated, “And you’ve discussed that with Mr. Carter, and he understands that you’re waiving those particular issues that you addressed to the Court; is that accurate? Is that true, Mr. Carter?” The defendant responded, “yes.”

The defendant also knew that, had he chosen to go to trial, he could have taken the stand on his own behalf but need not have done so. The court stated, “If you so desired, you could have taken the stand on your own behalf, if that was your choice. And basically, because you’re pleading here voluntarily before this Court today, do you understand that you’re waiving your ability to have a trial on each and every one of these counts here this afternoon?” The defendant responded, “yes.”

The transcript also shows that the defendant knew that his waiver of a trial and entry of guilty pleas meant that he was admitting the underlying facts and thereby incriminating himself. When the trial court, for the second time, asked the defendant if he understood that he waived all of his constitutional privileges before the court, he replied, “yes.” Then, when asked if he had any questions of the court, the defendant stated that he did not want to be labeled as a member of a gang. He denied, supplemented by his counsel’s remarks, that he was a member of the Twenty Love gang, although he admitted that his association with it supported the conspiracy charge. The defendant’s ability to realize that a guilty plea incriminated him, in conjunction with the court’s explanation of his right to trial, shows the voluntary and knowing nature of his guilty pleas.

Although the words “voluntary waiver of the right against self-incrimination” were not used, the defendant knew that he was giving up the right to a trial, and he stated that he was doing so voluntarily and of his own free will. Although the plea canvass here was not couched in direct language that the defendant had a right to persist in his pleas of not guilty and have a trial, it is clear from the transcript that the defendant understood his waiver of that trial was brought about only by his voluntary pleas of guilty, made of his own free will and without pressure from anyone else. In State v. Suggs, 194 Conn. 223, 228, 478 A.2d 1008 (1984), this court upheld a conviction based on a guilty plea where the defendant knew “he could plead not guilty and undergo atrial,” despite the fact that during the plea canvass the trial court failed to inform the defendant, as required by Practice Book § 711 (5), that he had a right to continue in his plea of not guilty.

We conclude that the defendant’s knowledge that his voluntary, freely given pleas of guilty were a waiver of his right to trial meets the constitutional requirements of a guilty plea.

The judgment of the Appellate Court is reversed and the case is remanded to that court with direction to consider the defendant’s remaining claim on appeal.

In this opinion the other justices concurred.

       This court granted the state’s petition for certification to appeal limited to the following issue: “Whether the Appellate Court, under the circumstances of this case, improperly concluded that the defendant’s guilty pleas were not entered knowingly and voluntarily?” State v. Carter, 239 Conn. 958, 688 A.2d 328 (1997).

       General Statutes § 53-395 provides in relevant part: “(b) It is unlawful for any person, through a pattern of racketeering activity or through the collection of an unlawful debt, to receive anything of value or to acquire or maintain, directly or indirectly, any interest in or control of any enterprise or real property.
      “(c) It is unlawful for any person employed by, or associated with, any enterprise to knowingly conduct or participate in, directly or indirectly, such enterprise through a pattern of racketeering activity or through the collection of an unlawful debt. . . .”
      General Statutes § 53a-48 provides: “(a) A person is guilty of conspiracy when, with intent that conduct constituting a crime be performed, he agrees with one or more persons to engage in or cause the performance of such conduct, and any one of them commits an overt act in pursuance of such conspiracy.
      “(b) It shall be a defense to a charge of conspiracy that the actor, after conspiring to commit a crime, thwarted the success of the conspiracy, under circumstances manifesting a complete and voluntary renunciation of his criminal purpose.”
      General Statutes § 21a-277 provides in relevant part: “(a) Any person who manufactures, distributes, sells, prescribes, dispenses, compounds, transports with the intent to sell or dispense, possesses with the intent to sell or dispense, offers, gives or administers to another person any controlled substance which is a hallucinogenic substance other than marijuana, or a narcotic substance, except as authorized in this chapter, for a first offense, shall be imprisoned not more than fifteen years and may be fined not more than fifty thousand dollars or be both fined and imprisoned; and for a second offense shall be imprisoned not more than thirty years and may be fined not more than one hundred thousand dollars, or be both fined and imprisoned; and for each subsequent offense, shall be imprisoned not more than thirty years and may be fined not more than two hundred fifty thousand dollars, or be both fined and imprisoned. . . .”