Pursuit Partners, LLC v. Reed Smith, LLP

PURSUIT PARTNERS, LLC v. REED SMITH, LLP

No. FSTCV155015213S

Superior Court of Connecticut, Judicial District of Stamford-Norwalk, Stamford

March 26, 2018

UNPUBLISHED OPINION

MEMORANDUM OF DECISION RE MOTION FOR SUMMARY JUDGMENT (# 159.00) ^[1]

POVODATOR, J.

Nature the Proceeding

This is but one of a number of cases brought by and against the Pursuit Partner entities (and their principals), in state courts in Connecticut and New York, and in arbitration. The Pursuit Partner entities have been described in an aggregate sense, including by their own principals, as hedge funds. (Hereafter, the court will refer to the Pursuit Partner entities collectively as Pursuit Partners or the plaintiffs.)

Virtually all of the pending litigation is directly or indirectly related to the resolution of litigation having origins in the financial market meltdown in 2007-08. Pursuit Partners sued UBS and Moody’s, and the disposition of funds obtained in settlement of that litigation provides the primary focus of litigation. Secondary litigation, including this case, relate to other aspects of the relationships among the various parties, including the claimed breach of a confidential settlement agreement reached between Pursuit Partners and Alpha Beta Capital Partners L.P. (Alpha Beta is one of two investors/investor groups making claims for a share of those proceeds.) The defendant in this case, Reed Smith, is a law firm that represented Alpha Beta in much of the litigation involving Pursuit Partners in New York, and in particular was involved in the negotiation and execution of the confidential settlement agreement. Indeed, a key point, and a critical basis for this lawsuit, is that Reed Smith is identified as a party to the confidential settlement agreement at least with respect to confidentiality, and signed the agreement for that purpose.

Three of the Pursuit Partners entities have sued Reed Smith and one of its attorneys; the third defendant is identified in the complaint as a principal of Alpha Beta. The plaintiffs contend that the defendants have violated the confidential settlement agreement’s provisions relating to confidentiality by cooperating with the Claridge/Schneider group, the other investor group claiming entitlement to a share of the UBS/Moody’s settlement proceeds. During the course of these proceedings, the case was withdrawn as to the two individuals, such that the law firm is the only remaining defendant.

As noted earlier, there has been extensive litigation in at least three forums, i.e., state courts in Connecticut and New York as well as arbitration proceedings (including at least one unsuccessful attempt to compel arbitration via proceeding in Connecticut state court). The defendant contends that the outcome of other/prior litigation, and especially the Alpha Beta litigation in this courthouse,^[2] is determinative of the outcome of this case, primarily based on theories of res judicata and collateral estoppel. The defendant also contends that there is a fatal defect with respect to the claim for damages, which the defendant claims is an additional basis for judgment in its favor. The plaintiffs, of course, contend that none of the arguments advanced by the defendant entitles the defendant to summary judgment.

Discussion

I. Preliminary Issues

Before addressing in detail the merits of the defendant’s claim, the court feels compelled to identify issues raised by the parties that can be addressed in relatively summary fashion due to inherent or patent problems/inadequacies, or otherwise should be addressed at the outset.

A. The Defendant’s Submission

The defendant repeatedly refers to the proceedings in a related matter, the Alpha Beta litigation, which is not improper in and of itself- but further refers to proceedings in connection with a prejudgment remedy in that matter, and particularly findings/conclusions of the court with respect to the application for a PJR. It is well-established however, that the court cannot give any weight to any determination made in connection with a PJR hearing or other similar preliminary proceeding; see, Gateway, Kelso & Co v. West Hartford No. 1, LLC, 126 Conn.App. 578 (2011). There are a number of practical reasons for such an approach including the fact that the burden of proof is probable cause, the record is not a full trial but rather an abbreviated hearing, and typically there has been little or no opportunity for discovery.^[3] In the Alpha Beta case itself, the PJR determinations would have been entitled to no weight at the time of trial; they cannot be given any weight in the context of a separate proceeding. Arguably trumping all of the foregoing reasons, the decision on the merits in Alpha Beta necessarily supersedes anything that may have been decided in connection with the interlocutory decision relating to an earlier PJR application.^[4]

The defendant has identified issues raised in a special defense as part of its analysis of res judicata, but defenses are irrelevant to a determination of applicability of res judicata. Res judicata is predicated on affirmative claims made or which could have been made, not defenses. That is especially so in Connecticut, as Connecticut is not a compulsory counterclaim jurisdiction, such that assertion of a defense does not identify an affirmative claim that potentially should have been pursued, or otherwise require or in any way affect a party’s right to pursue (or not pursue) an affirmative claim, either as a counterclaim or as a separate claim- that is a matter of that party’s choice.

In an effort to establish that the plaintiffs have not alleged legally-recoverable damages, the defendant has made an essentially unqualified statement relating to damages recoverable in a breach of contract action under New York law: " attorneys fees cannot form the basis for a damages claim in a breach-of-contract action." The cited authorities appear to stand for the unremarkable proposition that a party cannot assert a claim for attorneys fees incurred in connection with pursuing the breach of contract action itself. In effect, it is nothing more than a contractual-focused assertion of the so-called " American rule" whereby each litigant bears litigation expenses, absent a statute or contract (or other recognized basis) shifting that liability.

Even before reading the plaintiffs’ response on this issue, the court was concerned about the mismatch between the issue and the claimed authorities- the issue at hand is not whether the plaintiffs can recover attorneys fees in this case for litigation costs in this case, but rather whether they can assert attorneys fees incurred due to litigation expenses incurred in other cases as a claimed result of the breach at issue. Are the defendants suggesting that under New York law, if there were a confidentiality agreement pertaining to trade secrets, the cost of litigation seeking to enjoin third parties from using improperly revealed information would not be recoverable as damages in an action against the improperly-disclosing party? If an insurer or indemnitor were to decline to provide a defense or reimbursement for defense costs in an underlying matter, would New York law categorically deny any recovery for attorneys fees incurred in the underlying dispute? In such situations, litigation costs in the underlying litigation, not the fees incurred in the direct breach-of-contract claim, would be presumptively available, and might well be a substantial if not dominant element of damages; if New York law truly does not allow such claims, then appropriate and specific authority needs to be identified, not generalized references to authorities articulating the American rule. The defendant does not appear to have cited any authority relating to that narrower and more accurately particularized framing of the issue, i.e., unavailability of a claim for damages based on litigation expenses in connection with earlier/antecedent litigation.

Somewhat related, the discussion of legal sufficiency of allegations appears to rely on this misfocused claim. Further, it is far from clear that if the court had been presented with the issue by way of motion to strike, and if the court had agreed with the defendant, the plaintiffs would have been unable to assert any other possible claim for damages. See, e.g., Larobina v. McDonald, 274 Conn. 394, 404-05 (2005). The court is limited to issues actually raised by the moving party, Greene v. Keating, 156 Conn.App. 854 (2015), such that the court cannot venture into areas not explicitly raised by the moving party.

The defendant also contends that a dismissal of an action in New York- explicitly determined by an appellate panel to implicate insufficient allegations of compensable injuries- is a determination entitled to collateral estoppel or res judicata treatment. The defendant does not cite any authority that such a disposition constitutes a determination on the merits, sufficient to support either doctrine.^[5]

In Connecticut, our Supreme Court recently had occasion to address the distinction between a party who prevails, and prevailing on the merits. Again, in Connecticut, a plaintiff may withdraw a complaint/action prior to commencement of trial, without permission or involvement of the court; other jurisdictions require a variation on a motion to dismiss (which may or may not be explicitly with or without prejudice). In Connecticut Housing Finance Authority v. Alfaro, 328 Conn. 134, 143, 176 A.3d 1146, 1152 (2018), the court reversed an Appellate Court decision, deeming a voluntary withdrawal of an action to be, at least presumptively, a situation in which the defendant was the prevailing party, even if not necessarily " on the merits."

The burden is on the...