Date: 01-30-2007

Case Style: Falls Church Group, Ltd. v. Tyler, Cooper and Alcorn, LLP

Case Number: SC 17489

Judge: Katz

Court: Supreme Court of Connectucit

Plaintiff's Attorney:

Mike Walsh of Moukawsher & Walsh LLC, Hartford, Connecticut with whom was Ann Walsh Henderson, for the appellant (plaintiff).

Defendant's Attorney:

Patrick M. Noonan, with whom, on the brief, was Matthew H. Geelan, for the appellee (defendant).

Description:

This certified appeal arises from a commonlaw and statutory vexatious litigation action1 by the plaintiff, Falls Church Group, Ltd. (Falls Church), against the defendant, Tyler, Cooper and Alcorn, LLP (law firm), based upon the law firm's prosecution of a time barred class action against Falls Church's predecessor in interest. The law firm had brought the action on behalf of a group of senior citizens who had lost considerable sums of money after executing residence agreements allowing them to live in a continuing care retirement community that had been marketed by Falls Church's predecessor in interest. Falls Church claimed that the law firm had acted without probable cause and with malice in prosecuting the underlying action well after the limitations period had expired, contending that the law firm reasonably could not have believed that sufficient factual evidence existed to support any theory under which the statutes of limitations would have been tolled. Following a trial to the court, which resulted in judgment for the law firm based upon the trial court's determination that Falls Church had failed to prove a lack of probable cause for bringing the action, Falls Church appealed to the Appellate Court, which affirmed the judgment. Falls Church Group, Ltd. v. Tyler, Cooper & Alcorn, LLP, 89 Conn. App. 459, 461, 874 A.2d 266 (2005).

This court thereafter granted Falls Church's petition in this vexatious litigation lawsuit, failed to prove that the [law firm] lacked probable cause to initiate the underlying action?'' Falls Church Group, Ltd. v. Tyler, Cooper & Alcorn, LLP, 275 Conn. 908, 882 A.2d 670 (2005). We conclude that the Appellate Court properly affirmed the trial court's judgment determining that a reasonable attorney familiar with Connecticut jurisprudence could have believed that the applicable statutes of limitation would have been tolled by the doctrine of fraudulent concealment.2

The Appellate Court opinion sets forth the following relevant facts and procedural history. ‘‘On March 1, 1988, [Falls Church's predecessor in interest] Retirement Centers of America, Inc. (Retirement Centers), entered into a consulting agreement and a project management agreement with East Hill Woods, Inc. (East Hill Woods), to provide consulting and marketing services to East Hill Woods in connection with the development of a continuing care retirement community in Southbury. As compensation for its services, Retirement Centers was to receive a consulting fee, which East Hill Woods would disburse in portions at different phases of the retirement community's development.

‘‘Retirement Centers had among its marketing objectives the encouragement of prospective residents to enter into residence agreements. Under those agreements, an entry fee, which ranged from $117,000 to more than $300,000, entitled residents to lifetime use of their living unit and unlimited nursing care if they could no longer live independently. When residents left the community, died or sold their units, they or their estates would, subject to certain conditions and exceptions, receive a refund of 94 percent of the entrance fee. Upon execution of the agreements, residents were required to pay a deposit of 5 percent of the entrance fee, $200 of which was nonrefundable if they chose ultimately not to move into the community.

‘‘The first residence agreement was signed on July 7, 1988, approximately thirteen months before East Hill Woods commenced construction of the retirement community. The last residence agreement during Retirement Centers' tenure as East Hill Woods' marketing consultant was executed in December, 1990. Shortly thereafter, Retirement Centers and East Hill Woods entered into a settlement agreement, effective January 18, 1991, terminating Retirement Centers' role in the project. Under that agreement, East Hill Woods was to pay Retirement Centers $222,403 when residents occupied 85 percent of the community's living units and $192,000 pursuant to a promissory note payable at the rate of $6000 per month for thirty-four months. As of the settlement agreement's effective date, the retirement community remained unoccupied. It was not until April, 1991, that the first resident moved into the community.

‘‘The first residence agreement was signed on July 7, 1988, approximately thirteen months before East Hill Woods commenced construction of the retirement community. The last residence agreement during Retirement Centers' tenure as East Hill Woods' marketing consultant was executed in December, 1990. Shortly thereafter, Retirement Centers and East Hill Woods entered into a settlement agreement, effective January 18, 1991, terminating Retirement Centers' role in the project. Under that agreement, East Hill Woods was to pay Retirement Centers $222,403 when residents occupied 85 percent of the community's living units and $192,000 pursuant to a promissory note payable at the rate of $6000 per month for thirty-four months. As of the settlement agreement's effective date, the retirement community remained unoccupied. It was not until April, 1991, that the first resident moved into the community.

‘‘Six years later, financial difficulties forced East Hill Woods into bankruptcy, which compromised the right of residents to receive their refund of 94 percent of the entrance fee. The next year, on January 7, 1998, the law firm commenced the underlying action by filing a complaint on behalf of 177 plaintiffs (residents, former residents or their estates)3 against several defendants, including Retirement Centers. The counts directed toward Retirement Centers were made on behalf of fifty-three plaintiffs who had signed residence agreements before the effective date of Retirement Centers' settlement agreement with East Hill Woods. Although those counts present different factual theories, each one stems from Retirement Centers' alleged failure to satisfy its statutory disclosure duty under General Statutes § 17b-529,4 the statute that creates a cause of action in favor of any person contracting with a continuing care facility who, before signing the contract, is provided either with a misleading disclosure statement or not provided with a disclosure statement at all. On May 4, 1998, Falls Church, Retirement Centers' successor in interest, was substituted as a defendant by stipulation of the parties.

‘‘When the law firm initiated the underlying action, it was fully cognizant that the statutes of limitation had run on the plaintiffs' claims against Falls Church. Indeed, before the law firm filed the complaint in that action, it had undertaken to induce the legislature to modify the limitations period set forth in § 17b-529. The law firm sought to enlarge the limitations period in § 17b-529 from six to seven years and to change the date on which the limitations period would begin to run, from the date the residence agreement was signed to the date the resident moved into the facility. Its legislative efforts ultimately proved unsuccessful.

‘‘On September 8, 1998, Falls Church filed a motion for summary judgment, arguing that the plaintiffs' claims were barred by the applicable statutes of limitation. The law firm filed an objection, asserting various tolling arguments.5 The court, Hodgson, J., rejected the law firm's attempts to evade the statutes of limitation and rendered summary judgment in favor of Falls Church on all counts.

‘‘Falls Church then brought the vexatious litigation action that is the subject of this appeal. Falls Church asserted claims for both common-law and statutory vexatious litigation in its complaint, the thrust of which was that the law firm instituted the underlying action without probable cause and with malice because it knew that Retirement Centers had ended its involvement with East Hill Woods in January, 1991 - seven years before the law firm initiated the action - and that it knew, or should have known, that all of the . . . claims were barred by statutes of limitation.

‘‘The law firm filed a motion to bifurcate the probable cause issue from the issues of malice and damages. The court, Berger, J., granted the motion and conducted a multiday evidentiary hearing, after which it issued a thirty-seven page memorandum of decision. In its decision, the court discussed, in detail, the evidence submitted at the hearing, stating, inter alia, that East Hill Woods was created by Retirement Centers, had its board and officer ranks stacked with employees of Retirement Centers, but did not have a single employee of its own until 1991; that employees of Retirement Centers had signed the project management and consulting agreements on behalf of East Hill Woods; that those agreements, which listed Retirement Centers' myriad duties, attested to Retirement Centers' clear understanding and control of the retirement community's development; that employees of Retirement Centers required the plaintiffs in the underlying action, individuals in their 80s and 90s, who were called ‘clients,' to complete a confidential data application that asked them to list assets, income, health problems or conditions, etc.; and that the plaintiffs received disclosure statements that contained misleading information about the retirement community's financial well-being.6

‘‘The court then addressed whether it was reasonable for the law firm to believe that sufficient factual evidence existed to support a tolling of the statutes of limitation on the basis of the following tolling doctrines and related arguments: (1) fraudulent concealment, (2) continuing course of conduct, (3) aiding and abetting, (4) equitable estoppel, (5) General Statutes § 52-5907 and (6) the law firm's effort to persuade the legislature to modify § 17b-529. The court concluded that the law firm had probable cause to rely on three of its tolling arguments (i.e., fraudulent concealment, continuing course of conduct, and aiding and abetting) and ruled, therefore, that Falls Church failed to prove that the law firm lacked probable cause to initiate the underlying action.'' Falls Church Group, Ltd. v. Tyler, Cooper & Alcorn, LLP, supra, 89 Conn. App. 461–65.

Falls Church then appealed from the trial court's judgment in favor of the law firm to the Appellate Court, which determined that the trial court properly had concluded that the law firm had probable cause to prosecute the action and affirmed the court's judgment.8 This certified appeal followed.

On appeal to this court, Falls Church challenges the Appellate Court's judgment affirming the trial court's finding of probable cause, as well as the standard the Appellate Court applied in arriving at its decision. Specifically, Falls Church contends that the Appellate Court improperly established a new standard of probable cause applicable to vexatious litigation actions brought against attorneys that is more stringent than the standard applied to such actions against litigants generally. Falls Church further contends that the Appellate Court's determination regarding fraudulent concealment was improper. Finally, Falls Church contends that this court should reverse the judgment of the Appellate Court because the trial court's conclusions regarding the continuing course of conduct doctrine and the aiding and abetting theory also were improper.

The law firm contends in response that the standard applied by the Appellate Court, as well as its judgment affirming the trial court's determination that the law firm had probable cause to assert a claim of fraudulent concealment, were proper. Additionally, the law firm contends that the trial court properly concluded that probable cause existed with respect to the continuing course of conduct doctrine and the law firm's aiding and abetting theory. We agree with Falls Church that the Appellate Court articulated an improper standard, but nevertheless agree with the law firm that the Appellate Court properly affirmed the trial court's decision that the law firm had probable cause to assert a claim of fraudulent concealment.9

I

To address Falls Church's claim as to the appropriate standard of proof, we begin with our well established case law outlining the essential elements of a commonlaw claim for vexatious litigation. ‘‘A vexatious suit is a type of malicious prosecution action, differing principally in that it is based upon a prior civil action, whereas a malicious prosecution suit ordinarily implies a prior criminal complaint. To establish either cause of action, it is necessary to prove want of probable cause, malice and a termination of suit in the plaintiff's favor. Calvo v. Bartolotta, 112 Conn. 396, 397, 152 A. 311 [1930]; Schaefer v. O. K. Tool Co., 110 Conn. 528, 148 A. 330 [1930]. Probable cause is the knowledge of facts sufficient to justify a reasonable person in the belief that there are reasonable grounds for prosecuting an action. Paranto v. Ball, 132 Conn. 568, 571, 46 A.2d 6 [1946]; McGann v. Allen, 105 Conn. 177, 186, 134 A. 810 [1926]. Malice may be inferred from lack of probable cause. Zenik v. O'Brien, 137 Conn. 592, 596–97, 79 A.2d 769 [1951]; Thompson v. Beacon Valley Rubber Co., 56 Conn. 493, 496, 16 A. 554 [1888]. The want of probable cause, however, cannot be inferred from the fact that malice was proven. McGann v. Allen, supra, 187.'' Vandersluis v. Weil, 176 Conn. 353, 356, 407 A.2d 982 (1978). A statutory action for vexatious litigation under General Statutes § 52-568; see footnote 1 of this opinion; differs from a common-law action only in that a finding of malice is not an essential element, but will serve as a basis for higher damages. In either type of action, however, ‘‘[t]he existence of probable cause is an absolute protection against an action for malicious prosecution, and what facts, and whether particular facts, constitute probable cause is always a question of law.'' Brodrib v. Doberstein, 107 Conn. 294, 296, 140 A. 483 (1928). Accordingly, our review is plenary. State v. Gibson, 270 Conn. 55, 66, 850 A.2d 1040 (2004).

* * *

Outcome: The judgment of the Appellate Court is affirmed.

Plaintiff's Experts: Unknown

Defendant's Experts: Unknown

Comments: None