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 Connecticut Supreme Court’s Seventh Term begins today and ends on Thursday, April 6th. Here’s a look at the first week of the March/April term:

Monday, March 27, 2017

The Court starts the term by hearing oral argument in Munn v. Hotchkiss, SC 19525, which is a federal lawsuit that resulted in a $41.5 million verdict in favor of a fifteen year old student who contracted tick-borne encephalitis while on a study abroad program in China that was organized by her Connecticut high school. The Second Circuit certified to the Supreme Court the question of whether Connecticut public policy imposes a duty on schools to warn about or protect against the risk of a serious insect-borne disease when it organizes a trip abroad.  The second case of the day is State v. Holley, SC 19598, which is the State’s appeal from the Appellate Court’s decision reversing a felony murder conviction based on testimony from non-expert witnesses that went beyond the limitations on lay opinion set forth in Code of Evidence section 7-1.

Tuesday, March 28, 2017

The Court hears argument in Machado v. Taylor, SC 19838, where the State is claiming that it is shielded by sovereign immunity for injuries caused when a Department of Transportation truck hit the plaintiff’s vehicle because the plaintiff failed to prove that the State had obtained insurance coverage for its truck. In State v. Harris, SC 19649, the defendant, supported by an Innocence Project amicus brief, asks the Court to reconsider the test for eyewitness identifications in light of new scientific developments on the accuracy of such identifications.

Wednesday, March 29, 2017

The Court hears two criminal cases. The first, State v. Kelley, SC 19694, asks whether a trial court loses jurisdiction to find a defendant in violation of his probation when it fails to dispose of the charge within 120 days after the arraignment. State v. Houghtaling, SC 19510, presents a Fourth Amendment question as to whether a residential property owner has standing to object to a search when he is leasing the property.

Thursday, March 30, 2017

The first case of the day is Maturo v. State Employees Retirement Commission, SC 19831, which asks whether a retired municipal firefighter becomes ineligible for his pension when he gets elected to be the town’s mayor. The second case, James v. Commissioner of Correction, SC 19787, will address whether and how presentence confinement credits apply when the defendant’s convictions where obtained after multiple trials.

 

The Connecticut Supreme Court’s February term begins today and ends on Thursday with the Court hearing six cases this week.

Tuesday, February 21st

The Court starts the term by hearing oral argument in Lyme Land Conservation Trust, Inc. v. Beverly Platner et al., SC 19797, where the Court will consider whether the plaintiff-land trust and the Attorney General proved at trial that the defendant’s landscaping activities on residential property violated a “conservation restriction” contained in the deed to preserve the property in its natural condition.

The second case of the day is State v. Jerzy G., SC 19641, where the issue is whether a defendant who has been deported has the right to appeal his criminal conviction. In State v. Aquino, 279 Conn. 293 (2006), the Supreme Court had held that when a defendant is deported, any challenge to the conviction becomes moot because there is no “practical relief” available to the deportee. In Jerzy G., the Supreme Court is being asked to reconsider that decision.

Wednesday, February 22nd

The Court hears two cases, Sepega v. LeLaura, SC 19683, and Lund v. Milford Hospital, SC 19834, where it is being asked to interpret the scope of the “firefighters rule.” The rule holds that firefighters and police officers cannot sue a property owner for injuries suffered during the performance of their duties on the premises. In both Sepega and Lund, the plaintiff-police officers claim that the rule should be limited only to premises liability cases and should not bar claims alleging other negligence on the part of the property owner.

Thursday, February 23rd

The Court end its February term with two habeas cases. In Anthony A. v. Commissioner of Correction, SC 19565, the Court will decide whether a prisoner can use a writ of habeas corpus to seek removal of a sex offender registry requirement. In Nelson v. Commissioner of Correction, SC 19830, the Court will consider whether a prisoner’s agreement not to file future habeas petitions challenging his conviction is enforceable.

 

 

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

Argument Recap:  Channing Real Estate, LLC v. Gates, SC19575

The Connecticut Supreme Court recently heard argument in Channing Real Estate, LLC v. Gates, an appeal that rose out of a failed real estate development joint venture.  This case presents two issues of interest to Connecticut’s business community.  The first issue is whether the whole case needs to be retried after an appellate ruling that the parol evidence rule blocks evidence of prior and contemporaneous statements from varying the meaning of promissory notes.  The second issue is whether the payor on those notes can counterclaim under the Connecticut Unfair Trade Practices Act (“CUTPA”) when he was a member of a limited liability company that was working on a joint venture with the limited liability company that was the payee.  This post will focus on the application of CUTPA to joint ventures, which is an issue of first impression for the Supreme Court.

Since it was enacted in 1973, CUTPA has been the basis for countless lawsuits in part because it is one of the few vehicles that litigants can use to recover their attorneys’ fees and punitive damages. Conn. Gen. Stat. § 42-110g.  Indeed, the defendant in this lawsuit, Mr. Gates, was awarded his attorneys’ fees by the trial court even though he did not prove he was entitled to damages on his CUTPA claim.  The courts have interpreted CUTPA broadly, citing its remedial purpose, but they also have ruled that certain conduct cannot violate CUTPA because it is not “trade” or “commerce” as required under the statute.  One of those categories of conduct that is outside of the bounds of CUTPA is intra-corporate or intra-partnership disputes.  In its appeal, Channing Real Estate, LLC argues that this is a dispute between former joint venturers, and that therefore Mr. Gates cannot pursue his CUTPA counterclaim.  Although the appellate courts have ruled a few times on what is or is not an internal business dispute outside of the reach of CUTPA, this case presents a fresh opportunity to clarify whether CUTPA applies to disputes in business arrangements that are not corporations or partnerships.

Continue Reading Does CUTPA apply to negotiations?

Here’s a look at the second week of the Connecticut Supreme Court’s November 2016 term:

Monday, November 14th

The Court starts the week by hearing oral arguments in two criminal cases. In State v. Tilus, SC 19503, an appeal from a robbery conviction of a convenience store, the Court will consider whether a prosecutor equating the defendant’s claim that the victim-convenience store operated an illegal lottery with arguing that a sexual assault victim was a prostitute constituted prosecutorial impropriety. In Taylor v. Commissioner of Correction, SC 19462, the Court will decide if a trial court’s error in sealing the contents of a juror’s note without first sharing it with defense counsel is subject to harmless error analysis.

Continue Reading November Term: Week Two

The third term of the Connecticut Supreme Court’s 2016-2017 sitting begins today. Here are the cases that it will be hearing this week:

Monday, November 7th  

The Court starts the November term with CCT Communications, Inc. v. Zone Telecom, Inc., SC 19574, a case which explores whether a contract’s termination clause for filing bankruptcy is effective when the bankruptcy case is filed but subsequently dismissed. The second case is Disciplinary Counsel v. Elder, SC 19698, where the Court will consider whether a lawyer was properly suspended for misrepresenting his identity on a telephone call ten years prior to the grievance complaint, in light of the Practice Book’s six year limitations period for attorney grievances.

Continue Reading November Term: Week One

Argument Recap:  Lackman v. McAnulty, SC 19668

On October 14, the Connecticut Supreme Court heard arguments in the appeal of Lackman v. McAnulty, SC 19668, a case in which two nieces sued their two aunts in a battle over real estate from their grandfather’s estate.  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.

Continue Reading How is a decedent’s property dispersed: Revocable Trust or Will?

Argument Recap:  Jefferson Allen, et al. v. Commissioner of Revenue Services, SC 19567

The Supreme Court heard oral argument in the case of Jefferson Allen, et al. v. Commissioner of Revenue Services, SC 19567, on October 13, 2016.  The issues in the case concern 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.  As part of this question, the Court is 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 is asked to address the issue of whether the statute of limitations is jurisdictional and equitably tolled by the existence of an audit.

Continue Reading Can Connecticut tax income from certain stock options exercised after the recipient (employee) moves out of state?