In Munn v. The Hotchkiss School, the Second Circuit certified two questions to the Connecticut Supreme Court to help it decide an appeal from a $41.5 million jury verdict awarded to a student who contracted a serious tick-borne disease while on a month-long study abroad program in China:  (1) does Connecticut public policy support imposing a duty on a school to warn or protect against the risk of serious insect-borne disease when it organizes a trip abroad; and (2) if so, does an award of approximately $41.5 million in favor of the plaintiff, $31.5 million of which are  noneconomic damages, warrant remittitur?  For our prior coverage of the arguments, click here.

On August 11, 2017, the Connecticut Supreme Court issued its decision, concluding that Connecticut public policy supports a school’s duty to warn and protect students from serious tick-borne disease on a school-sponsored trip abroad. The Court reiterated the well-established duty of Connecticut schools with custody of minor children to use reasonable care to protect those children from foreseeable harms during school sponsored activities.  The Court found no compelling reason to create an exception to this rule for “foreseeable insect-borne diseases.”

In deciding whether to create such an exception, the Court evaluated four public policy factors: (1) the normal expectations of the participants; (2) balancing the public policy of encouraging participation in the activity against the safety of the participants; (3) avoidance of increased litigation; and (4) decisions in other jurisdictions.

Continue Reading Connecticut Supreme Court Upholds Duty of Schools to Warn or Protect Against Insect-borne Diseases in Travel Abroad Programs

Ruling Recap: Gold v. Rowland, SC 19585

Last October, we reported on the issues at stake in Gold v. Rowland, the class action that claims that Connecticut state employees were members entitled to shares of stock when their insurer, Anthem, demutualized in 2001.  The employees had asked the Supreme Court to reverse the trial court’s ruling that (1) Anthem’s Articles of Incorporation should be considered together with other documents in the Anthem-Blue Cross merger, (2) those documents were ambiguous on the issue of whether the employees were members, and (3) extrinsic evidence showed that the parties intended for only the state, as the policyholder, to be a member.  Alternatively, the employees had argued that even if the documents were ambiguous, the trial court should not have considered extrinsic evidence and instead should have directly applied the rule of contra proferentem to interpret the documents against the drafter, Anthem, and in favor of the employees.  In a decision with an official release date of April 11, 2017, the Supreme Court rejected the employees’ arguments and affirmed the trial court.

Continue Reading The $100 Million Question is Answered With Extrinsic Evidence, Not Contra Proferentem

The Supreme Court has issued it decision in the case of Jefferson Allen, et al. v. Commissioner of Revenue Services, SC 19567.  The case decided the issue of the constitutionality of Connecticut’s taxation of the exercise of qualified stock options by former residents when the options had no readily ascertainable value when received as part of compensation for work performed in Connecticut.  However, when exercised during a period of time when the taxpayers were nonresidents of Connecticut, the combined options at issue resulted in over 50 million dollars of income.  As part of this question, the Court was asked to interpret certain tax regulations referencing the applicable time period for taxing income derived from or connected with sources within this state.  Finally, because the nonresidents actually filed and paid income taxes within Connecticut for income from the exercise of qualified stock options in 2002, but later tried to amend and get a refund of those taxes, the Court was asked to address the issue of whether the statute of limitations is jurisdictional and equitably tolled by the existence of an audit.

The Court’s decision, written by Justice Eveleigh, decided all of the issues in favor of the defendant, the Commissioner of Revenue Services.

As to the proper interpretation and application of the tax regulation governing taxation of stock options, the Court held that the regulation is unambiguous. The regulation at issue provides in relevant part:  “Connecticut adjusted gross income derived from or connected with sources within this state includes income . . . in connection with a nonqualified stock option if, during the period beginning with the first day of the taxable year of the optionee during which such option was granted and ending with the last day of the taxable year of the optionee during which such option was exercised, . . . the optionee was performing services within Connecticut . . . . “  Regs, Conn. State Agencies §12-711(b)-18(a).  As applied to the circumstances of this case, the regulation requires only that the taxpayer have been performing services in Connecticut at the time the options were granted.  The Court applied the well-established rules of statutory construction to conclude that the meaning of “during” within the regulation is “at some point in the course of . . . .” and does not require, as the Plaintiffs argued, that the taxpayer be a resident throughout the entire timeframe referenced in the regulation.  The meaning of “during” proposed by the Plaintiffs would create disharmony within the regulation and lead to bizarre results, both of which are to be avoided.  Alternatively, the Commissioner’s interpretation is a reasonable construction which “comports comfortably with the due process principle that a state may tax the compensation of nonresidents who perform services within the taxing state.”  The Court held that because Mr. Allen was performing services solely within Connecticut when he earned the stock options in 2005, the income derived from the exercise of those option in 2006 and 2007 is properly taxable under § 12-711(a)-18(a) of the regulations.

The Court also concluded that Connecticut’s imposition of taxes on the nonresident’s exercise of stock options did not violate the due process clause of the federal constitution. Due process requires satisfaction of a two part test: “(1) there exist some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax, as well as (2) a rational relationship between the tax and the values connected with the taxing state.”  The Court agreed with the Commissioner that “the fact that Allen was granted the stock option as compensation for performing services in Connecticut serves as a sufficient nexus to the state to satisfy the requirements of the due process clause.”  The Court rejected the arguments that the jurisdictional nexus was severed when the Allens moved out of the state and that the income was not as a result of performing services in Connecticut, but the result of appreciation in the value of the underlying stock.  The “rational relationship” prong, which has typically been applied to determine apportionment of income for multistate business enterprises, was deemed inapplicable to the constitutional analysis, because it was undisputed that Allen was awarded the stock options for performing services only in Connecticut.

As to the statute of limitations, the Court held that the statutory scheme setting forth the time frame within which a taxpayer may claim a tax refund and the appeal process creates a limited waiver of the state’s sovereign immunity from claims. “Compliance with the refund statute is a condition precedent to availing oneself of the limited statutory waiver of sovereign immunity provided by the appeal statute [Conn. Gen. Stat. 12-730].”  The requirement that a taxpayer timely pursue a refund comports with the “intertwined principles of sovereign immunity and exhaustion of administrative remedies.”  Additionally, the statute specifically provides that the “[f]ailure to file a claim within the time prescribed in this section constitutes a waiver of any demand against the state on account of overpayment.”  Thus, the failure to file a claim within the prescribed three year period under Conn. Gen. Stat. 12-732(a)(1) prevents the trial court from obtaining subject matter jurisdiction to consider that claim.  The statutory scheme is jurisdictional is cannot be equitable tolled.  Therefore, the Court directed the trial court to dismiss the taxpayer’s appeal to the Superior Court for lack of subject matter jurisdiction (and reverse the improper form of the judgment that had entered summary judgment in favor of the defendant on this issue).

The Connecticut Supreme Court has issued its decision in the appeal of Lackman v. McAnulty, a case in which two nieces sued their two aunts in a battle over real estate after the death of their grandfather.  The underlying question was whether the “Property” should pass through the grandfather’s revocable trust – in which case the aunts shared in the Property – or whether the property should pass by specific bequest in the grandfather’s will – in which case only the nieces and their father would get the Property. The Supreme Court affirmed the trial court’s ruling that once the grandfather transferred the Property to his trust, he no longer had any interest in the property that he could devise in a will.

The Supreme Court rejected the nieces’ argument that, because the quitclaim deed to the Property from the grandfather to himself “as trustee” was filed on the land records without a document that identified the trustee’s powers, the transfer to the trust was a nullity under Conn. Gen. Stat. § 47-20. Looking at the entire statute, rather than just the first sentence of § 47-20, the Supreme Court concluded that the clear legislative intent was to protect innocent third parties to whom property is conveyed during the grantor’s lifetime.  That statute was inapplicable because there was no second transfer by the grandfather during his lifetime.  Because the transfer of the Property to the trust was valid, the bequest of the Property in the will was ineffective.

In our earlier post about the argument in this case, we noted some questions posed by the Justices that took the parties slightly off the heart of their arguments. Both Justices Eveleigh and McDonald inquired about the importance of evidence of the grandfather’s intent, noting that the will, which was executed after the last amendment to the trust, was the last indication of the grandfather’s intent.  The Justices apparently accepted the nieces’ counsel view that the intent of the grandfather was not germane to the construction of § 47-20, and did not address it in the opinion.

You can read the full opinion here. https://www.jud.ct.gov/external/supapp/Cases/AROcr/CR324/324CR30.pdf

The Connecticut Supreme Court is now open and in session…

September brings with it the beginning of a new year at the Connecticut Supreme Court. It also marks the start of “Appellate Insights,” a blog by the Appellate Practice Group at Murtha Cullina. Our goal is to analyze and discuss civil appeals pending before the Connecticut Supreme Court and particularly those with issues of interest to the business community.

At the start of each month, we will provide a brief summary of the issues and cases that are scheduled to be argued during the month before the Connecticut Supreme Court. For the September term, those previews will be posted next week on Tuesday (September 6th) and Thursday (September 8th). The September term runs from September 12th – 23rd.

As the term proceeds, you will see regular updates on developments before the Supreme Court with an emphasis on those civil cases that could affect the business community. After the appeal has been argued, we will provide an analysis of the issues with insight into how the case could affect the practice of law and the business community in Connecticut.  When the decision is released, we will follow-up on our preview with a summary of the decision and the import of the case.

We hope that lawyers, businesses, journalists, and the general public will find Appellate Insights to be a useful resource for staying abreast of developments in Connecticut law. If you have any comments or suggestions, please drop us a line at AppellateInsights@murthalaw.com.

Happy Labor Day weekend and we will see you next week!