The named defendant, Connecticut Resources Recovery Authority,
The following facts, as found by the trial court, and procedural history are relevant to the appeals. The defendant is a quasi-public entity established by statute in 1973 to implement Connecticut's solid waste management plan and to assist Connecticut municipalities in managing, recycling and disposing of their solid waste. See General Statutes § 22a-261 et seq. The defendant operates four separate, geographically based solid waste disposal "projects," each financially independent of the others and servicing a distinct group of municipalities. The plaintiffs are the municipalities serviced by the Mid-Connecticut Project (project), which generally covers the center and northwest portions of the state.
When the project was formed in the early 1980s, a processing facility was constructed on certain property in the South Meadows section of the city of Hartford. The construction was financed through the issuance of $309 million of tax-exempt bonds.
Pursuant to the parties' contracts, the plaintiffs agreed to process all of their solid waste at the defendant's facility and pledged their full faith and credit to ensure payment of the amounts that they owed to the defendant under the contracts. The amounts owed are based on the project's "net cost of operation," which is computed by deducting the project's revenues from its operating expenses, including the principal and interest due on the facility construction bonds, for each fiscal year
By the mid-1990s, the project was operating very efficiently, leading to both decreasing tip fees and multimillion dollar operating surpluses. The defendant, however, failed to credit those surpluses to the budget in subsequent years as required by the parties' contracts. At trial, the defendant admitted that from fiscal year 1997 through fiscal year 2004, it improperly failed to credit approximately $25,600,000 in project operating surpluses, making tip fees higher than they otherwise would have been.
By the late 1990s, the defendant's energy purchase agreement with the power company had become very lucrative due to a low market price for steam, producing over $20 million annually for the project in above market rate revenues. In 1998, the General Assembly enacted the Electric Restructuring Act, Public Acts 1998, No. 98-28 (P.A. 98-28), which, inter alia, required the power company to make good faith efforts to divest itself of above market contracts such as the energy purchase
The defendant wanted to find a use for the buy down proceeds that would offset the loss of the annual revenue that it had previously received pursuant to the energy purchase agreement. Because those proceeds represented an advance payment of what otherwise would have been future project revenues, the only proper use for them was in connection with the project. Moreover, the defendant's authority to enter into loan transactions and to make investments was restricted by its enabling legislation,
Despite the foregoing restrictions on the use of the buy down proceeds, the defendant, in March or April of 2001, used $220 million of those proceeds to make what it since has admitted was an illegal, ultra vires unsecured loan to Enron Power Marketing, Inc., a subsidiary of Enron Corporation (collectively Enron).
When the defendant received and disbursed the buy down proceeds, the project's debt service on the remaining construction bonds was approximately $26 million annually. The defendant, at that time, could have used $202,724,437 of the buy down proceeds to defease all of the remaining bond obligations and to eliminate that annual expense for the life of the project.
Pursuant to the terms of the illegal loan, Enron was to make fixed monthly payments to the defendant of $2,375 million per month for eleven and one-half years. Of each payment, $175,000 was to be diverted to the nonproject ventures account. Enron made eight of the required monthly payments, from April, 2001, through November, 2001, then ceased making any further payments to the defendant. In December, 2001, Enron filed for bankruptcy. The loss of payments from Enron caused the project to sustain an annual revenue loss of $28.5 million, bringing it to the brink of financial ruin.
Initially, the revenue shortfalls were covered by increased tip fees
The defendant's out-of-pocket loss from the failure of the Enron transaction was at least $201 million. Over time, however, the defendant was able to recover a sizable portion of that loss through litigation
The defendant did not use any of the foregoing receipts to provide direct reimbursement to the plaintiffs for the increased tip fees that they had paid. From the funds received for the sale of the Enron bankruptcy claim, the defendant used $91 million to partially defease project bonds and approximately $19 million to repay the loan from the state; none was rebated to the plaintiffs or used to restore the surpluses or overfunded reserves that had been depleted in the wake of Enron's failure.
The named plaintiff filed this action on January 23, 2004, and thereafter, the trial court certified it as a class action. See footnote 3 of this opinion. In an amended revised complaint dated October 20, 2006, the plaintiffs asserted claims against the defendant
A trial to the court was held on diverse dates in November, 2006, through January, 2007. On June 19, 2007, the trial court issued a comprehensive memorandum of decision wherein it ruled in favor of the plaintiffs on their claim of unjust enrichment.
In determining that the defendant would be unjustly enriched by the retention of the settlement proceeds, the trial court reasoned that the impact of the annual revenue shortfalls resulting from the failure of the Enron transaction had been borne entirely by the plaintiffs and the private haulers who used the defendant's project facilities. Citing the testimony of the defendant's president, Thomas Kirk, the court noted that the defendant itself, as a corporate entity, had not sustained any financial loss. The court found that the defendant had avoided loss by increasing
The trial court rejected as "strain[ing] credulity" the defendant's argument that it was not unjustly enriched at the plaintiffs' expense because all settlement funds were used for the plaintiffs' benefit. The court noted that Kirk and the chairman of the defendant's board of directors (board), when testifying, both had refused to commit to returning the full lawsuit proceeds to the plaintiffs, although the evidence showed that the defendant already had adequate reserves and funding for defeasement. The court also cited testimony from the board chairman and the defendant's chief financial officer that the defendant intended to use some of the lawsuit recoveries for purposes that extended beyond the period of the parties' current contractual relationship.
The trial court further concluded that the settlement funds constituted an identifiable res,
THE FIRST APPEAL
The defendant claims first that the trial court improperly found in favor of the plaintiffs on the theory of unjust enrichment. It argues that the plaintiffs could not recover on that theory because express contracts between the parties govern the subject matter of this dispute. Moreover, the defendant claims, because its board voted to rebate a portion of the settlement funds to the plaintiffs but was prevented from doing so by the trial court, it cannot be held to have wrongfully retained those funds. We disagree with each of these claims.
We begin with an overview of general principles. "[W]herever justice requires compensation to be given for property or services rendered under a contract, and no remedy is available by an action on the contract, restitution of the value of what has been given must be allowed." 26 S. Williston, Contracts (4th Ed. 2003) § 68:4, p. 57. Under such circumstances, "the basis of the plaintiff's recovery is the unjust enrichment of the defendant." Id., § 68:5, at p. 58. "A right of recovery under the doctrine of unjust enrichment is essentially equitable, its basis being that in a given situation it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another.... With no other test than what, under a given set of circumstances, is just or unjust, equitable or inequitable, conscionable or unconscionable, it becomes necessary in any case where the benefit of the doctrine is claimed, to examine the circumstances and the conduct of the parties and apply this standard.... Unjust enrichment is, consistent with the principles of equity, a broad and flexible remedy.... Plaintiffs seeking recovery for unjust enrichment must prove (1) that the defendants were benefited, (2) that the defendants unjustly did not pay the plaintiffs for the benefits, and (3) that the failure of payment was to the plaintiffs' detriment." (Citations omitted; internal quotation marks omitted.) Hartford Whalers Hockey Club v. Uniroyal
"This doctrine is based upon the principle that one should not be permitted unjustly to enrich himself at the expense of another but should be required to make restitution of or for property received, retained or appropriated.... The question is: Did [the party liable], to the detriment of someone else, obtain something of value to which [the party liable] was not entitled?" (Citations omitted.) Franks v. Lockwood, 146 Conn. 273, 278, 150 A.2d 215 (1959).
Our review of the trial court's conclusion that the defendant was unjustly enriched is deferential. The court's "determinations of whether a particular failure to pay was unjust and whether the defendant was benefited are essentially factual findings ... that are subject only to a limited scope of review on appeal.... Those findings must stand, therefore, unless they are clearly erroneous or involve an abuse of discretion.... This limited scope of review is consistent with the general proposition that equitable determinations that depend on the balancing of many factors are committed to the sound discretion of the trial court." (Citations omitted.) Hartford Whalers Hockey Club v. Uniroyal Goodrich Tire Co., supra, 231 Conn. at 283, 649 A.2d 518.
The defendant claims first that the trial court improperly permitted the plaintiffs to recover on the theory of unjust enrichment because express contracts between the parties govern the subject matter of this dispute. It argues specifically that this action basically concerns the proper calculation of tip fees, a topic addressed by provisions of the parties' contracts. Furthermore, according to the defendant, a limitation of remedies clause in the contracts applies to preclude the restitutionary relief afforded the plaintiffs. We do not agree.
We will address the defendant's two arguments in turn. As to the first argument, the following additional facts and procedural history are pertinent. In finding for the plaintiffs on their unjust enrichment claim, the trial court disagreed that this claim should be barred because it conflicts with § 401 of the parties' contracts, which governs the calculation of tip fees and directs that they reflect the project's net cost of operation. The court reasoned: "The claim for unjust enrichment, contrary to [the defendant's] contention,
The defendant takes issue with the foregoing determination. It argues that the plaintiffs' claims and the trial court's findings make clear that the present dispute is all about what the tip fees should have been, a subject contemplated by the parties' express contracts. According to the defendant, "the [plaintiffs] alleged and argued at trial, and the trial court concluded, that [the defendant] was unjustly enriched by charging tip fees set to cover a portion of the revenue shortfall caused by Enron's default." As we explained previously in this opinion, the amount of the trial court's award was based, in part, on the increase to the plaintiffs' tip fees in the wake of the failure of the Enron transaction. The plaintiffs argue in response that the parties' contracts do not bar their recovery in unjust enrichment because no provision of those contracts addresses what should occur when the defendant recovers a settlement reimbursing losses previously borne by the plaintiffs through higher tip fees. We agree with the plaintiffs.
"It is often said that an express contract between the parties precludes recognition of an implied-in-law contract
In Klein v. Arkoma Production Co., supra, 73 F.3d at 786, a case with a dynamic remarkably similar to the present one, the United States Court of Appeals for the Eighth Circuit concluded that express agreements between the parties did not preclude the plaintiffs' recovery in unjust enrichment because they did not address the matter at issue, namely, the rights to certain lawsuit settlement proceeds. The plaintiffs were royalty owners of natural gas rights who leased production rights to the named defendant. Id., at 782. Pursuant to the parties' lease agreements, the named defendant was to pay the plaintiffs "market value" of one eighth of the gas the named defendant ultimately produced and sold. Id., at 782, 786. A pricing dispute developed with one of the named defendant's contract purchasers, giving rise to the named defendant's contract claim against the purchaser for failing to pay approximately $36 million. Id., at 783. The named defendant and the purchaser subsequently settled that claim by effecting a complex series of transactions pursuant to which, inter alia, the purchaser became owner of the named defendant. Id. The named defendant's two shareholders received $173 million, part of which, the Court of Appeals determined, represented a premium for the settlement of the named defendant's claim against the purchaser. Id. The shareholders, however, did not forward a portion of that premium to the plaintiffs. Id., at 786.
The Court of Appeals concluded that the shareholders were unjustly enriched by their retention of one eighth of the settlement premium that, under the circumstances, rightly belonged to the plaintiffs. Id., at 786-87. In so concluding, the Court of Appeals disagreed that the parties' lease agreements, although they addressed the topic of what the named defendant was required to pay the plaintiffs, also governed the determination of whether the plaintiffs were entitled to a portion of the settlement funds. Id., at 786. Specifically, the lease agreements did "not address whether [the] settlement fits within the definition of the `market value' of gas produced and sold under the leases." Id. Accordingly, the rightful disposition of the settlement funds properly was the subject of a claim in unjust enrichment. Id.
Given Klein's similarity to the present case, we find the Court of Appeals' conclusion to be instructive. In Klein, the payments due to the plaintiffs, pursuant to a fee setting provision in the parties' express lease agreements, were affected directly by a third party's wrongful failure to pay
In Klein, the parties' lease agreements, although they addressed the calculation of lease payments, did not answer the question of the proper disposition of settlement funds received by the named defendant from a third party when those settlement funds represented payments previously due to the defendant from the third party, and the nonpayment, by extension, had affected the amount of the lease payments due to the plaintiffs. Similarly, in this case, the parties' contracts, although they address the calculation of tip fees, simply do not answer the question of the proper disposition of settlement funds received by the defendant from third parties when those settlement funds represent payments previously due from Enron, and the nonpayment, by extension, had factored into a determination of the tip fee charged to the plaintiffs.
The amount by which the trial court found that the defendant was unjustly enriched was based, in part, on a consideration of how much the plaintiffs' tip fees had increased.
The defendant also argues that the relief granted by the court was inconsistent with a limitation of remedies provision in the parties' contracts that disallowed the plaintiffs from recovering "damages." According to the defendant, the ordinary meaning of "damages" is monetary relief, regardless of its basis. We are not persuaded.
The following additional facts and procedural history are relevant. In finding that
Courts and commentators long have recognized the conceptual distinction between damages and restitution. Damages are "intended to provide a victim with monetary compensation for an injury to his person, property or reputation"; Bowen v. Massachusetts, 487 U.S. 879, 893, 108 S.Ct. 2722, 101 L.Ed.2d 749 (1988); whereas restitution aims to deprive a defendant of unjustly obtained benefits. See Leisure Resort Technology, Inc. v. Trading Cove Associates, 277 Conn. 21, 40, 889 A.2d 785 (2006). "The restitution claim stands in flat contrast to the damages action.... The damages recovery is to compensate the plaintiff, and it pays him ... for his losses. The restitution claim, on the other hand, is not aimed at compensating the plaintiff, but at forcing the defendant to disgorge benefits that it would be unjust for him to keep." D. Dobbs, Remedies (1973) § 4.1, p. 224.
It is equally clear that "[t]he recovery of restitution may take several forms, including the return of the specific property conveyed or the payment of the monetary value of the defendant's gain." (Emphasis added.) Leisure Resort Technology, Inc. v. Trading Cove Associates, supra, 277 Conn. at 40, 889 A.2d 785; see also D. Dobbs, supra, § 1.1, at p. 1 ("restitutionary remedy may or may not involve a money recovery"). Simply put, "[t]he fact that a judicial remedy may require one party to pay money to another is not a sufficient reason to characterize the relief as `money damages.'" Bowen v. Massachusetts, supra, 487 U.S. at 893, 108 S.Ct. 2722. Rather, the proper characterization of a monetary remedy turns on what that remedy represents. "[T]he money recovery called damages is based upon the plaintiff's loss, and in that respect stands in bold contrast to the money recovery called restitution, which is based upon the defendant's gain." D. Dobbs, supra, § 3.1, at p. 137.
It is abundantly clear that the monetary relief awarded in this case is restitutionary in nature and, therefore, the awarding of it is not contrary to any express contract provision. As we have explained, the trial court did not find that the defendant had been unjustly enriched by charging the plaintiffs increased tip fees, but rather, because the defendant had retained the settlement funds that it recovered from third parties after charging those increased tip fees. The monetary relief awarded as restitution reflects this distinction. Although the $35,873,732 awarded
The defendant claims next that the trial court improperly found that it had been unjustly enriched by its retention of $14.8 million of the settlement funds because its board voted to rebate that portion of the funds to the plaintiffs but was prevented from doing so by an order of the court. We disagree.
The following additional facts and procedural history are relevant. On December 6, 2006, while the trial in this matter was ongoing, the defendant's board voted to approve a $21 million settlement of its claims against Hawkins (Hawkins funds). Shortly thereafter, the plaintiffs filed a motion to enjoin the defendant from utilizing the Hawkins funds without prior approval of the court. Contemporaneous with the filing of that motion, the plaintiffs' counsel argued to the court that the Hawkins funds were directly traceable to the Enron transaction and, therefore, an identifiable res potentially subject to the imposition of a constructive trust. See part I B of this opinion. The plaintiffs' counsel argued further that, in the past, the defendant purposefully had dissipated other litigation recoveries that potentially could have been subject to a constructive trust. The trial court decided to defer any hearing on the plaintiffs' motion until the defendant's board approved a specific plan for use of the Hawkins funds. The defendant's counsel agreed to apprise the court when that occurred.
The trial concluded on January 9, 2007, and, on February 2, 2007, before the trial court issued its memorandum of decision, the defendant filed a "Notice of the Board-Approved Plan for Use of Settlement Funds." Therein, the defendant indicated that it intended to rebate $14.8 million of the Hawkins funds to the plaintiffs, but also that it would use the balance of that settlement, as well as $2.8 million received in connection with other Enron related litigation, for other purposes. On February 8, 2007, the plaintiffs applied for a prejudgment remedy attaching, inter alia, the Hawkins funds and future settlement funds traceable to the Enron transaction.
At a February 9, 2007 hearing
The defendant now argues that the trial court improperly concluded that it was unjustly enriched by its retention of $14.8 million of the Hawkins funds subject to the attachment, because it intended to return that amount to the plaintiffs but was thwarted by the court's attachment order. The plaintiffs argue in response that the $14.8 million properly was a subject of the trial court's unjust enrichment finding because the defendant offered to return it only after this case had been fully litigated, the defendant had refused to commit to its return previously and the offer to return it was conditioned on the plaintiffs' agreeing to forgo pursuit of an attachment on the remaining settlement funds contemplated by the board approved plan. We agree with the plaintiffs.
The foregoing summary of the circumstances surrounding the attachment order demonstrates that the defendant was not willing to return $14.8 million of the Hawkins funds to the plaintiffs unless the remainder of the existing settlement funds remained in its control, to dispose of as it preferred. The trial court had before it voluminous evidence regarding the defendant's financial resources and obligations and its historical budgeting decisions, as well as the representations of its counsel indicating that the board's approved distribution plan for the settlement funds was, in essence, a package deal. The court apparently relied on the evidence and representations to conclude that the defendant's offer was conditional and that the plaintiffs' concern that the defendant was attempting at the eleventh hour to dissipate the only remaining funds potentially available for a constructive trust, was a legitimate one.
We agree that, if the defendant truly had intended to return the $14.8 million to the plaintiffs with no conditions attached, the trial court's decision to thwart that plan by imposing an attachment and its subsequent finding that the defendant was unjustly enriched by its retention of the funds would be illogical. Nevertheless, because the defendant intended to go forward with the proposed rebate only if it were coupled with the right to expend the remainder of the existing settlement funds, thus lessening the identifiable res at which
The defendant claims next that the trial court improperly imposed a constructive trust over the settlement proceeds obtained from the law firms. Relying on the Appellate Court's holding in the related case of West Hartford v. Murtha Cullina, LLP, 85 Conn.App. 15, 857 A.2d 354, cert. denied, 272 Conn. 907, 863 A.2d 700 (2004), the defendant argues that, because that case established that the town of West Hartford, also a plaintiff in this case, lacked standing to bring a direct action against Murtha and Hawkins, from which the settlement proceeds were obtained by the defendant, the settlement proceeds are not an identifiable res in which the plaintiffs have a direct interest. We disagree that the Appellate Court's opinion in West Hartford v. Murtha Cullina, LLP, supra, at 22-23, 857 A.2d 354, precludes the imposition of a constructive trust.
"A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee.... The imposition of a constructive trust by equity is a remedial device designed to prevent unjust enrichment.... Thus, a constructive trust arises where a person who holds title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it." (Citations omitted; internal quotation marks omitted.) Cohen v. Cohen, 182 Conn. 193, 203, 438 A.2d 55 (1980); see also Restatement (Third), Restitution and Unjust Enrichment § 55 (Tentative Draft No. 6, 2008). "A claimant entitled to restitution from property may obtain restitution from any traceable product of that property, without regard to subsequent changes of form." Id., at § 58(1). A claimant seeking a constructive trust "must identify property in the hands of the [defendant] that represents or embodies... property obtained at the claimant's expense or in violation of the claimant's rights." Id., § 58, comment (a), p. 1256.
In West Hartford v. Murtha Cullina, LLP, supra, 85 Conn.App. at 20, 857 A.2d 354, the Appellate Court affirmed the dismissal of an action brought by the town of West Hartford directly against Murtha and Hawkins for damages resulting from their negligent representation of the defendant in connection with the Enron transaction.
In affirming the trial court's dismissal, the Appellate Court in West Hartford noted three considerations articulated by this court in Ganim v. Smith & Wesson Corp., 258 Conn. 313, 353, 780 A.2d 98 (2001), for determining whether a party's injuries are direct enough to confer standing to sue: "First, the more indirect an injury is, the more difficult it becomes to determine the amount of [the] plaintiff's damages attributable to the wrongdoing as opposed to other, independent factors. Second, recognizing claims by the indirectly injured would require courts to adopt complicated rules apportioning damages among plaintiffs removed at different levels of injury from the ... acts, in order to avoid the risk of multiple recoveries. Third, struggling with the first two problems is unnecessary where there are directly injured parties who can remedy the harm without these attendant problems." (Internal quotation marks omitted.) West Hartford v. Murtha Cullina, LLP, supra, 85 Conn.App. at 21-22, 857 A.2d 354. The Appellate Court, however, ultimately rested its decision entirely on the third consideration, noting that the defendant already was pursuing litigation against Murtha and Hawkins and concluding that the defendant, the "more directly injured party ... can vindicate [West Hartford's] rights through direct litigation." (Emphasis added.) Id., at 22-23, 857 A.2d 354.
In so concluding, the Appellate Court did not hold that West Hartford, or, by extension, the plaintiffs in this case, had no interest whatsoever in the proceeds of the malpractice actions against Murtha and Hawkins. Rather, it acknowledged that West Hartford had an interest in a potential recovery, but held nevertheless that that interest already was being represented effectively by the defendant. The defendant does not cite any authority for the proposition that the interest necessary to bring an action against a third party directly is coextensive with the interest necessary to seek a constructive trust over proceeds obtained from that party in litigation pursued by another, and we are unaware of any. Our research suggests that the opposite is true.
Although unjust enrichment typically arises from a plaintiff's direct transfer of benefits to a defendant, it also may be indirect, involving, for example, a transfer of a benefit from a third party to a defendant when the plaintiff has a superior equitable entitlement to that benefit. See, e.g., Restatement (Third), Restitution and Unjust Enrichment § 48, comment (d)(1) (Tentative Draft No. 5, 2008) (discussing "cases in which the defendant has been compensated or reimbursed by a third party for costs or expenditures incurred by the claimant"). "If a payment to [a] defendant is an asset to which the claimant (as against defendant) has the paramount entitlement, the law of restitution and unjust enrichment supplies a claim to recover the amount in dispute." Id., § 48, comment (a).
Thus, in Estes v. Thurman, 192 S.W.3d 429, 432 (Ky.App.2005), the plaintiffs, installment purchasers of property destroyed by fire during the installment period, were awarded a constructive trust over insurance proceeds in excess of the remaining amount owed under the installment contract after those proceeds had been collected and retained by the seller. The seller had procured the policy, paid the premiums and was the named beneficiary and, therefore, was the only party having a contractual right to collect the proceeds. Id. Nevertheless, the plaintiffs, as equitable owners
In In re Estate of Turer, 27 Wis.2d 196, 198, 133 N.W.2d 765 (1965), the respondent, the decedent's second husband, had paid for the support and maintenance of the decedent's two children, the issue of her first marriage, while she pursued an action against her first husband for child support. The decedent died before recovering anything in the action, and her will devised all of her property in trust for the children. Id. Thereafter, the decedent's estate recovered from her first husband a sum that represented support payments that had been due during the period in which the second husband had contributed to the children's upkeep. The Supreme Court of Wisconsin upheld the second husband's recovery in unjust enrichment from the decedent's estate on the ground "that an identifiable fund was in the hands of the executor, that the fund represented the accrued obligation of the children's father to contribute to the support of the children in the past, and that [the second husband] had furnished more than that amount of money in order to support them." Id., at 200, 133 N.W.2d 765. Accordingly, the second husband had an equitable claim upon the fund. Id. Again, the second husband's restitutionary claim against the decedent's estate was not precluded merely because he personally could not have pursued the support action against the decedent's first husband.
Finally, in Klein v. Arkoma Production Co., supra, 73 F.3d at 779, discussed in part I A 1 of this opinion, the plaintiff lessors could not have asserted legal claims directly against the purchaser who contracted with their lessee when that purchaser failed to abide by the contract. Nevertheless, because the amount of the payments due under the parties' lease agreement were calculated on the basis of the lessee's sales, when the lessee and the purchaser settled their contract dispute, the lessor was held to have an interest in the settlement funds pursuant to a theory of unjust enrichment. Id., at 786-87.
The reasoning of the foregoing cases is persuasive. We conclude, therefore, that although the plaintiffs lacked standing to pursue claims directly against Murtha and Hawkins, they had an equitable interest in the settlement funds recovered from the law firms by the defendant. Consequently, the trial court's imposition of a constructive trust over those funds was proper.
The defendant claims next that the trial court improperly certified the plaintiffs as a class because the certification criteria of Practice Book § 9-7 were not satisfied. Specifically, the defendant argues that the requirement of numerosity — that is, that the class was so numerous that joinder of all parties was impracticable — was unmet. For that reason, according to the defendant, even if this court concludes that there is no other impropriety in the trial court's judgment, it nevertheless should vacate that judgment, decertify the class and remand this matter for further proceedings as to the named plaintiff only. We are not persuaded.
"[I]n determining whether to certify the class, a [trial] court is bound to take the substantive allegations of the complaint as true.... That does not mean, however, that a court is limited to the pleadings when determining whether the requirements for class certification have been met. On the contrary ... [t]he class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the [plaintiffs'] cause of action ... and ... it [sometimes] may be necessary for the court to probe behind the pleadings before coming to rest on the certification question.... In determining the propriety of a class action, [however] the question is not whether the plaintiff or plaintiffs have stated a cause of action or will prevail on the merits ... but rather whether the requirements of [the class action rules] are met.... Although no party has a right to proceed via the class [action] mechanism ... doubts regarding the propriety of class certification should be resolved in favor of certification....
"The rules of practice set forth a two step process for trial courts to follow in determining whether an action or claim qualifies for class action status. First, a court must ascertain whether the four prerequisites to a class action, as specified in Practice Book § 9-7, are satisfied. These prerequisites are: (1) numerosity — that the class is too numerous to make joinder of all members feasible; (2) commonality — that the members have similar claims of law and fact; (3) typicality — that the [representative] plaintiffs' claims are typical of the claims of the class; and (4) adequacy of representation — that the interests of the class are protected adequately....
"Second, if the foregoing criteria are satisfied, the court then must evaluate whether the certification requirements of Practice Book § 9-8 are satisfied. These requirements are: (1) predominance — that questions of law or fact common to the members of the class predominate over any questions affecting only individual members; and (2) superiority — that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.... Because our class certification requirements are similar to those embodied in rule 23 of the Federal Rules of Civil Procedure, and our jurisprudence governing class actions is relatively undeveloped, we look to federal case law for guidance in construing the provisions of Practice Book §§ 9-7 and 9-8." (Emphasis added; internal quotation marks omitted.) Artie's Auto Body, Inc. v. Hartford Fire Ins. Co., 287 Conn. 208, 212-15, 947 A.2d 320 (2008). "Finally, we give greater deference to a trial court's decision to certify a class than to its decision declining to do so." Macomber v. Travelers Property & Casualty Corp., 277 Conn. 617, 628, 894 A.2d 240 (2006); see also Marisol A. v. Giuliani, 126 F.3d 372, 375
The following additional procedural history is relevant. After a hearing held on March 3, 2006, the trial court, on March 21, 2006, granted the named plaintiff's motion for class certification. In its memorandum of decision granting certification, the court found that the named plaintiff had satisfied all of the requirements of Practice Book §§ 9-7 and 9-8 for maintaining a class action.
The trial court proceeded, however, to analyze certain precertification communications that representatives of the defendant had made to potential class members in regard to the pending litigation, and concluded that the effect of those communications tipped the balance in favor of a finding that the numerosity requirement had been established. In particular, the defendant's management, in an August 17, 2005 letter and at a series of meetings, had attempted to dissuade class members from participating in the lawsuit, and Kirk, in a March 18, 2004 letter, had advised class members that the lawsuit ultimately would cost them more in tipping fees such that, in effect, they would be "suing themselves." The trial court found Kirk's assertion to be misleading because indemnification provisions in the legal services agreements between the defendant and its counsel for the Enron transaction potentially were applicable to satisfy a judgment in favor of the plaintiffs. Additionally, the court found, the defendant had informed class members of the legal fees it was incurring, but failed to explain that they were covered, in large part, by insurance. The court found further that statements made by the defendant to class members, indicating that the lawsuit was impeding settlements in other litigation which would lead to rebates to class members, were contrary to the defendant's official position, as reflected in Kirk's testimony, that it would not reimburse the plaintiffs from proceeds of its pending claims against third parties until the annual shortfall resulting from the Enron transaction was fully offset. Finally, the court found that Kirk's statement in his August 17, 2005 letter, that this litigation precluded the distribution of an arbitration award obtained in a dispute unrelated to the Enron transaction, was inconsistent with his deposition testimony, in which he had testified that he made a personal decision to set aside the proceeds of that award as an undesignated reserve for contingent costs unrelated to this litigation.
The trial court concluded that the foregoing communications were misleading and that they constituted an "additional circumstance ... militat[ing] in favor of the [named] plaintiff regarding the impracticability of joinder." According to the court, "the existence of these [misleading]
The defendant argues that the trial court's approach for finding the numerosity requirement satisfied was improper because there is no Connecticut authority to support it, and, as the trial court acknowledged, its finding of numerosity was a close call. The plaintiffs disagree and direct us to several cases from other jurisdictions in which a class action defendant's misleading communications or coercive behavior factored into the court's certification order. We agree with the plaintiffs that the trial court did not abuse its discretion in considering the defendant's communications to potential class members to find the numerosity requirement established.
To begin, pursuant to Connecticut's limited jurisprudence concerning the numerosity requirement, as well as analogous federal decisions to which we look for guidance, it is clear that a proper determination of numerosity is not through application of any rigid formula, but rather, by a flexible inquiry taking into account the entirety of the particular action. "There is no magic number for determining whether, in a particular case, joinder of all putative parties will be impracticable.... [Rather] [t]he issue is one to be resolved in light of the facts and circumstances of the case." (Citations omitted.) Walsh v. National Safety Associates, Inc., 44 Conn.Sup. 569, 583, 695 A.2d 1095 (1996), aff'd, 241 Conn. 278, 282, 694 A.2d 795 (1997) (adopting trial court's opinion);
In reviewing a trial court's action for an abuse of discretion, "every reasonable presumption should be given in favor of its correctness.... In determining whether there has been an abuse of discretion, the ultimate issue is whether the court could reasonably conclude as it did." (Internal quotation marks omitted.) Wyszomierski v. Siracusa, 290 Conn. 225, 233, 963 A.2d 943 (2009). "[R]eversal is required [only] where the abuse is manifest or where injustice appears to have been done." (Internal quotation marks omitted.) Rivera v. Veterans Memorial Medical Center, 262 Conn. 730, 743, 818 A.2d 731 (2003). We conclude that the
In sum, the trial court properly certified the plaintiffs as a class, found that the defendant was unjustly enriched at the plaintiffs' expense and imposed a constructive trust as a remedy. Accordingly, as to the defendant's first appeal, the judgment is affirmed.
THE SECOND APPEAL
We now turn to the defendant's second appeal, in which it challenges an order issued by the trial court subsequent to its judgment awarding a constructive trust. In this appeal, the defendant claims that the trial court improperly ordered it to alter its budget and to reduce tip fees to the plaintiffs for fiscal year 2008 because the court's order: (1) was issued in response to an improperly amended complaint alleging a new cause of action and requiring an additional hearing; and (2) was based on a clearly erroneous factual finding. We disagree with each of these claims.
The defendant claims first that the trial court improperly ordered it, posttrial, to make adjustments to its fiscal year 2008 budget, thereby reducing the tip fees charged to the plaintiffs. According to the defendant, that order was issued in response to an improperly amended complaint alleging a new cause of action and requiring an additional hearing. We conclude that the trial court acted within its discretion when it permitted amendment of the complaint and issued the contested order.
The following additional procedural history is relevant. On March 6, 2007, after the trial in this matter had concluded but before the court had rendered judgment, the plaintiffs filed an application to enjoin the defendant "from implementing [an] improper, inflated and retaliatory budget." In the application, the plaintiffs argued that the project budget for fiscal year 2008, which had been adopted by the defendant's board on March 1, 2007, and was to take effect July 1, 2007, contained improper expenses that were not permitted by the parties' contracts and failed to include certain revenues. According to the plaintiffs, the defendant intentionally had inflated budgeted expenses in retaliation for the plaintiffs' pursuit of this litigation and their securing of a prejudgment remedy. The plaintiffs provided detailed allegations in support of these claims, arguing in particular that the defendant was overfunding various reserve accounts and including expenses that would not be incurred in fiscal year 2008. The plaintiffs also cited testimony of the defendant's management at trial regarding its preference to maintain a "`stable'" tip fee, and argued that such a practice was not permitted by the parties' contracts. They claimed that the fiscal year 2008 budget was a product of that approach. In short, the plaintiffs maintained that the defendant improperly was demanding present payments for operating expenses that might be incurred in future years and was manipulating the budget toward the end of maintaining a particular tip fee, contrary to the contract provisions limiting charges to the net cost of operation.
On April 11, 2007, the defendant moved to dismiss the plaintiffs' application, arguing that it raised claims unrelated to those raised in the operative complaint and litigated at trial and, therefore, that the trial
On June 19, 2007, the trial court rendered judgment on the operative complaint, finding in favor of the plaintiffs on their claims of breach of contract and unjust enrichment and awarding restitutionary relief. The court also awarded injunctive relief to the plaintiffs to "prevent further unjust enrichment...." Specifically, it barred the defendant "from imposing any of the costs of the Enron [t]ransaction on the [plaintiffs], commencing with the [fiscal year 2008] budget and relating to all budget years through the [end of the parties' contractual relationship]." Thereafter, the plaintiffs requested an evidentiary hearing on the application, which the court held on September 5 and 6, 2007. On October 25, 2007, the trial court issued an order enjoining the defendant from implementing the fiscal year 2008 budget as formulated and directing it to reduce four line items by specific amounts, thereby lowering the tip fees charged to the plaintiffs.
The defendant argues that the trial court improperly allowed the amendment of the operative complaint and heard the application for injunctive relief because by doing so, it permitted the plaintiffs, posttrial, to add to the case an entirely new cause of action having no factual nexus to the original claims raised. According to the defendant, the gravamen of the plaintiffs' action was their challenge to the inflated tip fees resulting from the Enron transaction, not from other forms of budgetary impropriety. Additionally, the defendant
The applicable standard of review is well settled. Whether to allow a party to amend its complaint "is a matter left to the sound discretion of the trial court. This court will not disturb a trial court's ruling on a proposed amendment unless there has been a clear abuse of that discretion." (Internal quotation marks omitted.) Intercity Development, LLC v. Andrade, 286 Conn. 177, 190, 942 A.2d 1028 (2008); see also Hanson Development Co. v. East Great Plains Shopping Center, Inc., 195 Conn. 60, 67, 485 A.2d 1296 (1985) ("[a] trial court has wide discretion in granting or denying amendments to the pleadings and rarely will this court overturn the decision of the trial court"). It is the defendant's burden to show that the trial court clearly abused its discretion in allowing the plaintiffs to amend their complaint to encompass the allegations of the application. Intercity Development, LLC v. Andrade, supra, at 190, 942 A.2d 1028.
Additionally, "[i]t is a well-recognized practice in equity to permit new matter arising subsequent to the complaint to be alleged in a supplemental pleading." Kelsall v. Kelsall, 139 Conn. 163, 167, 90 A.2d 878 (1952). Furthermore, the new matter need not arise, necessarily, from the same group of facts as the claims alleged in the original pleading. See id., at 165, 90 A.2d 878 (holding later filed claim of desertion raised new cause of action, not relating back to original claim of intolerable cruelty, because claims arose from separate and distinct groups of facts). The requirement that an amendment relate back to the factual allegations of the original complaint is of primary importance only when a statute of limitations is implicated.
The purpose of supplemental pleading "is to promote as complete an adjudication of the dispute between the parties as is possible." 6A C. Wright, A. Miller & M. Kane, supra, § 1504, p. 177. Nonetheless, the newly raised matter should not be entirely unrelated to the existing allegations. Although "a party may assert separate or additional claims or defenses arising after commencement [of the action] ... the courts typically require some relationship between the original and the later accruing material." Id., p. 183; see, e.g., Keith v. Volpe, 858 F.2d 467, 474 (9th Cir.1988) (finding adequate relationship between original action concerning state's provision of adequate replacement housing for persons displaced by freeway construction as condition of construction and later, supplemental pleading contesting city zoning entities' refusal to approve housing developments intended to provide such replacement housing), cert. denied sub nom. Hawthorne v. Wright, 493 U.S. 813, 110 S.Ct. 61, 107 L.Ed.2d 28 (1989). In deciding whether to permit supplementation, a court first should decide "whether the supplemental facts connect [the supplemental pleading] to the original pleading." (Internal quotation marks omitted.) Weeks v. New York, 273 F.3d 76, 88 (2d Cir.2001). If there is a relationship between the two pleadings, the court should permit the requested supplementation if it "will promote the economic and speedy disposition of the controversy between the parties, will not cause undue delay or trial inconvenience, and will not prejudice the rights of any other party." Bornholdt v. Brady, 869 F.2d 57, 68 (2d Cir.1989); see also Practice Book § 10-60(b); Weeks v. New York, supra, at 88.
After reviewing the operative complaint, we agree with the trial court that it includes allegations pertaining to general budgetary impropriety and not just claims that the defendant wrongfully burdened the plaintiffs with Enron related losses and, further, that the plaintiffs alleged continuing as well as past improprieties.
Finally, we are not convinced that the trial court abused its discretion in ruling on the application simply because that application contested actions of the defendant that indisputably occurred subsequent to the filing of the plaintiffs' original and amended complaints. The plaintiffs' application and the original action clearly were related. Both concerned the inclusion of improper expenses and the exclusion of applicable revenues in the project's annual budget, resulting in inflated tip fees to the plaintiffs. Additionally, given the lengthy trial that only recently had concluded and the trial court's consequent familiarity with the extraordinarily complex record, particularly through its "exhaustive" examination of several past years budgets and related documents, we cannot find fault with the court's assessment that "it was in the interests of the parties and the ends of justice that it address the claims raised in the application." See Keith v. Volpe, supra, 858 F.2d at 476 (noting that judicial economy favors supplemental pleading when "[a]ll involved — [the] plaintiffs, [the] defendants, and [the court] — were familiar with the underlying action"). Moreover, the hearing and decision on the application were not unduly delayed, nor did the defendant press for an earlier resolution.
The defendant argues additionally that the trial court's order to reduce the tip fees charged to the plaintiffs was based on
"The law governing [our] limited appellate review [of this claim] is clear. A finding of fact is clearly erroneous when there is no evidence in the record to support it ... or when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.... Because it is the trial court's function to weigh the evidence and determine credibility, we give great deference to its findings.... In reviewing factual findings, [w]e do not examine the record to determine whether the [court] could have reached a conclusion other than the one reached.... Instead, we make every reasonable presumption ... in favor of the trial court's ruling." (Internal quotation marks omitted.) State v. Lawrence, 282 Conn. 141, 154-55, 920 A.2d 236 (2007).
In its October 25, 2007 memorandum of decision on the plaintiffs' application, the trial court analyzed various line items of the project's fiscal year 2008 budget to determine, pursuant to a standard agreed upon by the parties, whether each figure represented a good faith estimate of the amount that line item was expected to be. The court found that five of nine line items challenged did not meet that standard, and ordered that the estimates for those items be modified. The defendant challenges the court's finding and order as to one line item only, specifically, that the Hartford landfill closure reserve was improperly inflated by $4,885 million and, accordingly, must be reduced by that amount. In making this finding, the trial court relied explicitly on Kirk's testimony, which, the defendant stipulated, reflects its position and the views of its board. The defendant argues, however, that other evidence shows that the landfill closure reserve was not overfunded as the court found. In so arguing, the defendant provides a detailed explanation of the budgeting decisions underlying the estimate at issue and insists that the trial court misconstrued the evidence.
The problem with the defendant's argument as to this claim is that it is entirely dependent on the crediting of evidence that the trial court did not credit, and on subsidiary factual findings that the court did not make. Additionally, it ignores the fact that the trial court made contrary findings on the basis of conflicting evidence, the existence and reliability of which the defendant does not contest directly on appeal.
We conclude that the trial court did not abuse its discretion in allowing the plaintiffs to amend their complaint and by ordering injunctive relief in response to the plaintiffs' application, and we disagree that the court's order was based on clearly erroneous factual findings. Accordingly,
The judgment is affirmed.
In this opinion the other justices concurred.
"The net effect of the Enron transaction documents was that Enron ... was to receive [more than $220] million of buy down proceeds (from [the power company]), and agreed to make fixed monthly payments to [the defendant] totaling [$2,375 million per month] for [eleven and one-half] years ($2.2 [million per month for] a so-called steam capacity charge and [more than $175,000] for so-called operating and maintenance charges). These payments were required, on the first day of each month, irrespective of whether [Enron] received any steam or electricity from [the defendant]. The amount of Enron's fixed payments was to be adjusted, based on the actual date of the buy down proceeds being received by [Enron] so that the payments provided [the defendant] with precisely a 7.38 percent return on the buy down proceeds received by [Enron]. [Enron's] energy obligations were illusory. Whatever steam [Enron] purchased from [the defendant] was instantaneously returned to [the defendant] at no cost. Whatever electricity [Enron] purchased from [the defendant] was instantaneously sold to [the power company] at precisely the same price [Enron] paid [to the defendant]. [The power company] was billed by [the defendant] for the electricity sold to [Enron], and [the power company's] payments to [Enron] were immediately paid over to [the defendant]. [The power company], in fact, purchased all of the electricity generated by [the defendant's facility] and paid [the defendant] either directly or through [Enron], for the electricity at the reduced buy down prices agreed to in March, 1999."
The court ruled in favor of the defendant on the plaintiffs' claim of breach of fiduciary duty after concluding that the circumstances surrounding the parties' contractual relationship did not give rise to such a duty. It further rejected the plaintiffs' claim that the defendant had violated a duty of good faith and fair dealing after finding that there was no evidence that the defendant had acted in a fraudulent manner or with a dishonest purpose.
The trial court found the use of the nonproject venture account funds distinguishable from the dissipation of the other reserves and surpluses in that the defendant had "sued the law firms claiming the losses of both the nonproject ventures account funds and the increased tipping fees to the [plaintiffs]. The lawsuit itself constituted the identifiable res [from] which any proceeds ... are subject to the imposition of a constructive trust...."
"103A. In adopting the [p]roject's annual budgets, as required by its contracts with [the] plaintiffs, [the defendant] has improperly manipulated the determination of the [p]roject's necessary annual operating expenses and the amount of required reserve contributions to maintain a [p]roject tip fee at an artificial level, instead of determining the tip fee based upon the [p]roject's true [n]et [c]ost of [o]peration, and continues to do so to date and asserts its right to do so in future [p]roject years.
"103B. [The defendant's] improper manipulation of the [p]roject's expenses and reserves in the determination of the [p]roject's annual budgets has not only had the effect of wrongly inflating [the] plaintiffs' annual tip fee payments, but further has and will in the future continue to have the effect of denying [the] plaintiffs the full benefit of [the defendant's] Enron-related recoveries."