Posts tagged with "assets"

Enforcing Non-Competes Associated with Sale of Company and Goodwill

Ms. Dorothy Rogers owned a hair salon in Higganum, Connecticut called Dotties Creative Cuts and entered into an agreement to sell the company’s “assets, goodwill, and client lists” to Kim’s Hair Studio, LLC for the amount of $20,000.  This transaction essentially made Ms. Rogers a new employee of Kim’s hair Studio and as such, she was required to sign a non-compete agreement that prohibited her from offering competing services for twelve months after her termination within ten miles of 323 Saybrook Road, the primary work location of Kim’s Hair Studio.

The parties executed non-compete and confidentiality agreements on August 23, 2004.  Ms. Rogers did not like how the salon was being run by the company’s management and voluntarily terminated her employment in order to work at a new hair salon that was located a mere one-half mile away.  Ms. Rogers additionally removed a rolodex containing Kim’s Hair Studio’s client information and began to contact them to solicit their business.  Kim’s Hair Studio sued Ms. Rogers and requested that the court enforce the non-compete and confidentiality agreements.

The Court’s Decision

The court granted the request for an injunction and ordered the enforcement of the agreements’ provisions.  It concluded that the restrictions were reasonable in scope and that Ms. Rogers’ action had amounted to a breach of the covenant between the two parties.  Kim’s Hair Studio had legitimate interests in executing non-compete agreements with its employees because its goodwill and client clients were essential assets that Kim’s Hair Studio invested resources in to acquire and maintain.  The restrictive covenants were designed to prevent the loss or infringement of these assets and ensure that Kim’s Hair Studio was not negatively affected due to an employee’s termination, whether voluntary or involuntary in nature.

The court reasoned that a party is entitled to an injunction restraining further breach of a restrictive covenant when it demonstrates that the other party has or is very likely to breach the agreement.  Additionally, the court noted Connecticut courts’ willingness to enforce a non-compete agreement when it is made in connection with the sale of a company and its goodwill.  These legal principles, in conjunction with reasonable and limited restrictions, allowed the court to conclude that the non-compete agreement between Ms. Rogers and Kim’s Hair Studio was valid and enforceable under Connecticut law.

The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at

Connecticut Supreme Court Protects Corporate and Personal Assets By Denying Reverse Piercing of the Corporate Veil

Commissioner of Environmental Protection, et al., v. State Five Industrial Park, Inc., et al, 304 Conn. 128,  37 A.3d 724 (2012)

In a case before the Supreme Court of Connecticut,  State Five Industrial Park, Inc., (“State Five”) and Jean L. Farricielli (“Jean”) appealed a trial court judgment holding them liable for a $3.8 million judgment rendered in 2001 against Jean’s husband, Joseph J. Farricielli (“Joseph”) and five corporations (assets) that he owned and/or controlled.

The Supreme Court transferred the case from the appellate division, reversed the lower court judgment and remanded the case with direction to render judgment in favor of State Five. Although the Supreme Court concluded that the facts of this specific case did not support the application of reverse veil piercing, the court refused to address whether that doctrine should be disallowed in Connecticut under any and all circumstances.

Commissioner of Environmental Protection’s Case Against State Five

In 1999, the Commissioner of Environmental Protection (“commissioner”), the town of Hamden (“town”) and the town’s zoning enforcement officer (collectively, “the plaintiffs”) brought an environmental enforcement action against Joseph and the five corporations that he owned and/or controlled alleging egregious violations of state solid waste disposal statutes.

A bench trial took place in 2000 and, in 2001, a memorandum of decision was issued awarding the plaintiffs all relief sought, including civil penalties for each day of each alleged violation, which totaled approximately $3.8 million.  Joseph appealed and, in 2004, the Supreme Court affirmed the trial court judgment against him and the five corporations.

In 2005, the civil penalties of approximately $3.8 million were still largely unpaid; therefore, the plaintiffs initiated the present action.  They argued that principles of reverse piercing of the corporate veil should be applied to hold State Five liable for the 2001 judgment against Joseph and that principles of traditional piercing of the corporate veil should be applied thereafter to hold Jean liable for the resulting judgment against State Five.

The Court’s Ruling

The trial court concluded that reverse veil piercing was warranted because Joseph used State Five to hide assets and used State Five funds to pay thousands of dollars in personal expenses; both actions complicated the plaintiffs’ normal efforts to collect their judgment. Once Joseph’s liability was imputed to State Five, the trial court concluded that traditional veil piercing principles applied to Jean, who was the majority shareholder in State Five.  Therefore, the lower court held both State Five and Jean liable for the 2001 judgment against Joseph, plus pre-judgment interest on the outstanding amount, for a total liability of over $4.1 million.

The appeal raised the question of whether the equitable doctrine of reverse piercing of the corporate veil is a viable remedy in Connecticut.  State Five and Jean argued that the trial court improperly applied veil piercing principles because that remedy should not be recognized in Connecticut under any circumstances.  In the alternative, State Five and Jean argued that the trial court should not have applied veil piercing principles given the facts of the instant case.

A corporation generally is a distinct legal entity, and stockholders are not personally liable for the acts and obligations of the corporation.  Saphir v. Neustadt, 177 Conn. 191, 209, 413 A.2d 843 (1979).  This corporate shield of liability is pierced in only exceptional circumstances, such as where the corporation is a “mere shell, serving no legitimate purpose, and used primarily as an intermediary to perpetuate fraud or promote injustice.”  Angelo Tomasso, Inc. v. Armor Construction & Paving, Inc., 187 Conn. 544, 557, 447 A.2d 406 (1982). (internal quotation marks omitted.)

Veil Piercing vs. Reverse Veil Piercing

In veil piercing cases, the party seeking to disregard the corporate form bears the burden of proving that there is a basis to do so.  In a traditional veil piercing case, the corporate veil shields a majority shareholder or other corporate insider who is abusing the corporate fiction in order to perpetuate a wrong; therefore, the claimant requests that the court disregard the corporate form in order to reach this individual’s assets. C.F. Trust, Inc. v. First Flight, L.P., 266 Va. 3, 10, 580 S.E.2d 806 (2003).

In a reverse veil piercing case, however, the corporate form protects the corporation which gets used by a dominant shareholder or other corporate insider to perpetuate a fraud or defeat a rightful claim of an outsider; therefore, the claimant seeks to reach the assets of the corporation to satisfy claims or a judgment obtained against the corporate insider.  Tomasso, 187 Conn. at 557, 447 A.2d 406.

What to Consider Before Implementing A Reverse Veil Piercing

Three specific concerns have been identified in the distinction between these two doctrines:

  1. reverse piercing bypasses normal judgment collection procedures, prejudicing the rightful creditors of the corporation who relied on the entity’s separate corporate existence
  2. reverse piercing prejudices the rights of the non-culpable shareholders
  3. when the judgment creditor is a shareholder or other insider, their other legal remedies are potentially available to obviate the need for the more drastic remedy of corporate disregard.

Therefore, a court contemplating reverse veil piercing must weigh the impact of this action on innocent investors and creditors, and consider the availability of other remedies to satisfy the debt. C.F. Trust, 266 Va. at 12–13, 580 S.E.2d 806.

The Identity and the Instrumentality Rule

In Connecticut jurisprudence, two rules form the legal standard for the application of traditional veil piercing doctrine and reverse veil piercing doctrine:  the identity rule and the instrumentality rule.  The instrumentality rule requires proof of three elements:

  1. control, equivalent to the complete domination of finances, policy and business practice such that the corporate entity had no separate mind, will or existence of its own with respect to the contested transaction
  2. that such control was used to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of the plaintiff’s legal rights
  3. that such control and breach of duty proximately caused the injury or unjust loss complained of.  Naples v. Keystone Building & Development Corp., 295 Conn. 214, 232, 990 A.2d 326 (2010) (internal quotation marks omitted.)

The identity rule requires that the plaintiff show that there was such a unity of interest and ownership between the shareholder and the corporation that the independence of the corporation had in effect ceased or had never begun, and adhering to the legal fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability. Id.

The Trial Court’s Decision

Whether the circumstances of a particular case justify the piercing of the corporate veil presents a question of fact.  Therefore, the Supreme Court defers to the trial court decision to pierce the corporate veil, as well as any subsidiary factual findings, unless these factual findings are clearly erroneous, which means that either the record contains no evidence to support the findings or the reviewing court is left with the “definite and firm conviction” that a mistake has been made.

The Supreme Court concluded that, in the present matter, the trial court should not have applied reverse veil piercing, regardless of whether it is a viable theory in Connecticut.  Certain subsidiary factual findings related to crucial factors that necessarily render reverse veil piercing inequitable lacked evidentiary support and, therefore, were clearly erroneous.  Furthermore, after reviewing the trial court’s application of the instrumentality and identity rules, the Supreme Court was left with the definite and firm conviction that a mistake has been made.

The Supreme Court determined that the trial court did not adequately ensure that third party creditors did not exist or, if they did, that these creditors would not be harmed by applying reverse veil piercing principles that made all of the corporation’s assets available to satisfy the 2001 judgment.  Permitting direct attachment of corporate assets to satisfy an individual insider’s debt undermines corporate viability, reasonably relied upon by creditors, with no forewarning.

Wrongful Application of a Reverse Veil Piercing

Testimony and printed statements in evidence at trial indicated that State Five had a line of credit with a local bank; however, the trial court concluded that this bank would not be harmed by the reverse piercing because the line of credit had been paid off in 2007 and the line was secured with Jean’s personal assets rather than corporate property.

The Supreme Court determined that this finding was clearly erroneous because the record was silent as to the outstanding balance on the line of credit as of the date of trial and the precedent in Connecticut is that a lender in this context extends credit in reasonable reliance on the existence of both a viable borrower in possession of assets and the additional security provided by a secondary obligor.

Evidence that certain State Five shareholders were not involved in running the corporation, making necessary business decisions or suggesting changes did not support the trial court’s factual finding that these shareholders were complicit in Joseph’s activities.  Because the plaintiffs did not establish that these shareholders were not innocent, the Supreme Court determined that it was improper for the trial court to apply reverse piercing without regard to whether the interests of these individuals would be impacted.

Fulfillment of the Instrumentality Rule

Finally, the Supreme Court was convinced that the trial court improperly concluded that the equitable remedy was warranted in this case.  To justify any veil piercing action pursuant to the instrumentality rule, it must be shown that the insider debtor exercised complete control over the subject corporation and used such control “to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of [the plaintiffs’] legal rights; and … that the aforesaid control and breach of duty … proximately cause[d] the injury or unjust loss complained of.” Tomasso, 187 Conn. at 553, 447 A.2d 406.

To justify imposing the entire obligation of the 2001 judgment on State Five, the plaintiffs needed to show that Joseph exercised his control over State Five to divert or hide assets that belonged to him personally or to his corporations and that otherwise would have been available to satisfy that judgment.

Additionally, the plaintiffs needed to demonstrate that these maneuvers were the proximate cause of the plaintiffs’ inability to collect $3.8 million that it otherwise would have been able to recover. The Supreme Court found that the trial court’s analysis failed to specifically establish the necessary connection between Joseph’s improper actions in relation to State Five and the plaintiffs’ inability to collect on the 2001 judgment.

Fulfillment of the Identity Rule

The Supreme Court found that the identity rule was not satisfied in the present case.  It was neither unjust nor inequitable to permit State Five to avoid liability for the judgment against Joseph and his other corporations when State Five received little in the way of assets from those parties and much in the way of liabilities.  Additionally, in paying personal expenses for Joseph, State Five has been caused to pay other expenses for which it is not legally obligated.

The Supreme Court’s Final Decision

Because the Supreme Court concluded that the trial court improperly applied reverse veil piercing, Joseph’s liability for the 2001 judgment could not be imputed to State Five.  Therefore, there was no liability to transfer from State Five to Jean.

The Supreme Court had a definite and firm conviction that a mistake has been made because the trial court’s application of the equitable remedy of reverse veil piercing was based in part on unsupported factual findings, and the court employed improper reasoning when analyzing other facts.  Therefore, the Supreme Court set aside the trial court’s factual determinations as clearly erroneous, reversed the lower court judgment, and remanded the case with direction to render judgment in favor of State Five and Jean Farricielli.

Protecting Your Interests in a High-Asset Divorce

Whether or not you consider yourself a high earner or a high worth individual, if you have considerable assets at stake and divorce is knocking at the door, we are here to help. At Maya Murphy, we deal with divorces every day, whether they include athletes, businesses, famous individuals, those with large amounts of wealth or just the average person. Our divorce practice has been established for over a decade and is built on experience gained in both New York and Connecticut tribunals.

We can help you take proactive steps to position yourself for a fair allocation. Not every high-asset divorce is destined for trial. We will explore mediation to resolve or narrow the issues and out-of-court negotiations for everything from IRA, 401(k) and pension savings and alimony to child custody and child support. However, if needed, the high asset divorce attorneys of Maya Murphy are proven litigators who are ready and able to bring a case to trial.

Factors in Settling a High Asset Divorce

When it comes to high asset divorce, there are many more factors that must be considered when reaching an appropriate settlement. Here at Maya Murphy, we are familiar with every nuance of high net worth divorces, including:

  • Valuation of a business or professional license
  • Valuation and sale/refinancing of the marital home
  • Other real estate (vacation homes, rental property)
  • Valuation and division of investment property
  • Variable or seasonal income, as from pro athletes
  • Verification of income from all sources
  • Stock options and deferred compensation
  • The marital portion of IRA, 401(k) and pension savings
  • Validity (enforceability) of prenuptial agreements
  • Other issues of separate property versus marital property
  • Distribution of joint liabilities, and
  • Discovering hidden assets.
High-Asset Divorce Considerations

We realize there are additional considerations in a high-asset divorce beyond the division of assets such as privacy of the individuals, goodwill of a business, or unwanted media attention. We can cater our representation to your needs and your busy schedule. At the onset of representation, we will listen to your goals and come up with a plan to best achieve them. You will be kept informed each step of the way and involved in this process as little or as much as you would like.

So if you are considering divorce, or divorce proceedings have already begun, feel free to contact the high asset divorce group at Maya Murphy today to discuss your options. We are available anytime at 203-221-3100 or by email at Schedule your free consultation today!

My Wife Moved out and Wants a Divorce. Can She Leave and Take Everything?

You may be able to address the issue of assets and debts in court, if your wife has moved out and took all of your marital possessions with her.  When you formally file for divorce, it is the court’s job to assign assets and debts.  It is unlikely that a court would find you entitled to spousal support, but this depends on certain facts of the case.  Among the considerations of a court are what the assets are, what money each party had before the marriage, what each party earns.  It would be beneficial to sit down with an experienced divorce attorney to sort out the facts of the case and to receive adequate advice on how to proceed.

If you have any questions regarding divorce in Connecticut, please contact Joseph C. Maya, Esq. at (203) 221-3100 or e-mail him directly at

Should I File For Bankruptcy in Connecticut if I Also Have an Ongoing Divorce in Connecticut?

If you have an ongoing divorce action in a state, you are better off filing for bankruptcy in that same state.  You cannot file for divorce in a state unless you have resided in the state for a certain period of time.  The same applies when filing for bankruptcy.

In Connecticut, you may not be eligible for file for bankruptcy unless you have lived in the state for over 90 days.  It would be best to consult with an experienced attorney who has dealt with these issues in the past.  An experienced attorney can consider the specific facts of your case and educate you on the best course of action to take.

If you have any further questions regarding divorce or bankruptcy law in Connecticut, please contact Joseph C. Maya, Esq. at (203) 221-3100 or e-mail him directly at

In Divorce Action, Court Penalizes Husband for Deceptive Conduct During the Discovery Process

Case Background

In a decision rendered in the Superior Court for the Judicial District of Fairfield at Bridgeport, the Court took a hard stance against a husband that dissipated assets, doctored bank statements and intentionally hid accounts during the pendency of his divorce.  The parties were married in India in 2009.  The wife claimed that after moving to the United States, she lived a life of total isolation.  The husband allegedly left for work very early each morning, and returned home late each night, while the wife had no friends and no knowledge of American practices or culture.  The wife further claimed that the husband failed to fulfill her basic needs, such as providing her with food and clothing.

The Court’s Findings

The husband denied the wife’s allegations; however, due to the husband’s conduct during the discovery process, the court found his testimony to be lacking credibility, and ultimately held him responsible for the breakdown of the marriage.  More specifically, the court found that after receiving notice of the pending divorce, the husband withdrew over $100,000.00 from a bank account, transferring the money to an unknown and undisclosed location.  The court ordered the husband to obtain bank account statements demonstrating to where the monies had been transferred, however, he never complied.

The court further found that, while self-represented, the husband provided doctored account statements on which he “whited out” numbers and inserted new ones.  Additionally, during trial, the wife’s attorney revealed that the husband maintained a bank account in New York which he never included on his financial affidavit, and which he claimed under oath did not exist.  The court also found that the husband intentionally got himself fired from a job which was paying him $150,000.00 per year and that, as a result, he was in arrears on his alimony.

Based on the husband’s deceptive conduct and failure to follow court orders, the court awarded the wife lump sum (as opposed to periodic) alimony from his share of the marital estate.  The court also awarded the wife the entirety of several bank/retirement accounts as well as $15,000 in counsel fees.

Should you have any questions about divorce proceedings, or family matters in general, please do not hesitate to contact Attorney Joseph Maya.  He can be reached in the firm’s Westport office at (203) 221-3100 or by e-mail at

Policy of Enforcing Connecticut Non-Compete Agreements to Protect Employer’s Interests

Torrington Creamery, Inc. v. Davenport, 126 Conn. 515 pertains to a dispute regarding a non-compete agreement between an employer and employee in the dairy products industry in 1940.  While this case is by no means recent, it is a seminal case that lays the groundwork for the policy of enforcing non-compete agreements in Connecticut on the grounds of protecting the employer’s interest.  Specifically, this is one of the first Connecticut cases to address the enforceability of a company’s non-compete agreements when another company acquires it.

Case Background

The High Brook Corporation employed Mr. Preston Davenport as a farm manager and superintendent beginning in 1932 at its Torrington, Connecticut location.  The company produced and distributed dairy products in the towns of Torrington, Litchfield, Winsted, Thomaston, New Milford, New Preston, and Greenwich, all towns in western or southwestern Connecticut.  High Brook changed its name to The Sunny Valley Corporation in March 1938 and on April 15, 1938, had Mr. Davenport sign an employment contract.

The contract specified that Mr. Davenport would receive a fixed compensation with no set duration and that he would be subject to several restrictive covenants.  A non-solicitation clause prohibited Mr. Davenport from soliciting, either directly or indirectly, Sunny Valley or its successor’s customers for a period of two years.  Meanwhile, a non-compete clause prohibited Mr. Davenport from engaging in the dairy production and distribution industry in the towns where Sunny Valley operated.

Another clause in the employment agreement stipulated that a court’s invalidation of a portion of the agreement would not affect the legally binding nature of the other provisions.  Sunny Valley sold its operations and assets to Torrington Creamery, Inc. in October 1938 and the company discharged Mr. Davenport from employment on October 18, 1938.  He proceeded to start his own dairy production and distribution business in February 1939 in the towns of Torrington and Litchfield.

The Court’s Decision 

Torrington Creamery sued Mr. Davenport to enforce the duration and geographical limitations of the restrictive covenant he had signed with Sunny Valley Corporation.  The Superior Court in Litchfield County found in favor of Torrington Creamery, Mr. Davenport appealed the decision, and the case went on to the Connecticut Supreme Court where it affirmed the lower court’s decision.

The Supreme Court found the terms of the non-compete agreement to be reasonable and necessary for the protection of Torrington Creamery’s business interests.  The notion of “protecting an employer’s business interests” is a driving force and major policy concern when deciding whether to enforce a non-compete agreement under Connecticut law.  Restrictive covenants become valuable assets of the employer and courts generally hold that the employer is entitled to the right to safeguard these assets.

Equally as important, the court held that the employer benefits contained in a restrictive covenant can be assigned to a purchaser in the event of the sale of the business and its assets.  Thus, when a company acquires another company, it gains the legal authority to enforce the acquired company’s valid non-compete agreements.  Courts view restrictive covenants as valuable business assets that provide for the necessary protection of the employer and any successor company.

The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  If you have any questions relating to your non-compete agreement or would to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at

What Is a Living Trust in Connecticut?

A living trust is a trust is set up by an individual using his or her own property that is active during their lifetime.  The person setting up the trust can use the assets and may revoke the trust and put the property back in their own name at any time.  If the trust remains in effect at the time of the settlor’s death, the remaining assets will pass from the settlor to the remainder beneficiaries of the trust.

If you have any questions related to trusts in Connecticut, please contact Joseph C. Maya, Esq. at (203) 221-3100 or e-mail him directly at

What Does a Court Consider When Deciding an Educational Support Order in Connecticut?

In determining whether to enter an educational support order in Connecticut, the court considers all relevant circumstances.  Under the bill, these circumstances include the parent’s income, assets, and other obligations; the child’s need for support; the availability of financial aid; the reasonableness of the higher education to be funded (the court looks to the child’s academic record); the likelihood that the parents would have provided support to the child for higher education if the family were still intact; and the child’s preparation and commitment to higher education.

The bill also requires that both parents discuss and agree on the school, and imposes obligations on the child who is to receive the assistance.  The student must be enrolled in an institution of higher education on at least a half-time basis, maintain good academic standing, and share all academic records with both parents during the term of order.

If you have any questions related to education law in Connecticut, please contact Joseph C. Maya, Esq. at (203) 221-3100 or e-mail him directly at