Karen v. Loftus, 210 Conn. App. 289 (2022) (legal standard for motion to open for fraud)
Officially released January 25, 2022.
In Short: In addressing a motion to open after 120 days, the trial court incorrectly applied the standard for newly discovered evidence rather than the standard for fraud to a motion to open. Although “magic words” are not necessary, it is helpful to plead “fraud” when you are seeking to overturn on the basis of fraud.
The parties were married in 2007 after entering into a Prenuptial Agreement (“Prenup”). The Prenup provided, in relevant provision (“Provision”), that if Husband left his present employer in any arrangement tantamount to a sale of his interest, including any transaction where Husband receives anything of value to work for another entity, then Husband would be entitled to set aside $75,000 from the funds received, and the remainder shall be divided between the parties according to the allocation set forth in the Prenup.
In December 2014, Wife commenced a dissolution action seeking to enforce the Prenup. The parties disagreed as to whether Husband was obligated to pay Wife pursuant to the Provision. The terms provided that if Husband’s separation from his employer was determined to be tantamount to a sale of his interest, Wife would be entitled to one-half of the sale proceeds after the $75,000 set-aside. If it was not, then Wife would not receive any of those proceeds. In 2016, the parties entered into a stipulation resolving all issues excepting the Provision and referring the matter to arbitration for resolution of the Provision.
The arbitrator held a two-day hearing where both parties testified. The arbitrator issued a decision in which he concluded that Husband’s departure from his employer was not tantamount to a sale. The arbitrator found that Husband had left with three colleagues and invested his own money in a new business. Shortly after the business was formed, another company purchased an option to buy the interest for $2m, which was shared equally among the partners. That company later exercised its option and Husband received $1,665,000, shares of stock and some options. The arbitrator concluded that the Provision was drafted in contemplation of Husband leaving his employer to go to a competitor who would compensate him for the forfeited benefits and the business he would bring, but that, instead, Husband founded a new company and invested his own money into that venture. In June of 2017, the trial court incorporated the arbitrator’s decision into a final judgment of dissolution.
In April 2018, more than 120 days after the Judgment, Wife filed a “Motion to Open-Post Judgment” (“Motion to Open”). Wife asserted that subsequent legal proceedings between Husband and his partners “clearly indicate” that representations which Husband made during the arbitration were false. Wife claimed Husband falsely represented that (1) he did not contemplate taking his contacts and clients with him when he left his employer, (2) he did not contemplate the option agreement or transaction until after the execution of the agreement between the parties, and (3) the option agreement and transaction were not a “sale.” The essence of Wife’s claim in her Motion to Open was that Husband testified falsely during the arbitration and the arbitrator relied on that false testimony in his conclusion.
Husband filed a memorandum in opposition to the Motion to Open. Husband argued that Wife was seeking to relitigate the same argument from the arbitration and that Wife failed to meet the elements to prevail on her motion, which he characterized as a motion for a new proceeding on the basis of newly discovered evidence. Wife filed a reply in which she argued that Husband committed a fraud based on material perjury. Husband filed a surreply arguing that Wife failed to allege the essential elements of fraud.
The trial court held a hearing on and denied the Motion to Open. The trial court found that Wife was attempting a second bite at the apple beyond the 120-day window based on newly discovered evidence and held that Wife failed to demonstrate that the evidence could not have been uncovered by the exercise of due diligence. The trial court also held that it was not persuaded that the result of a new trial would be different.
Wife appealed the decision of the trial court denying the Motion to Open, arguing that the trial court applied an incorrect legal standard, using the standard for a motion for a new proceeding on the basis of newly discovered evidence rather than the standard for a motion to open for fraud.
The Appellate Court applied the plenary standard of review to whether the court applied an incorrect legal test. The Appellate Court reviewed C.G.S. § 52-212a and the common law authority to open a judgment beyond the four-month limitation, citing Bruno v. Bruno, 146 Conn. App. 214, 230 (2013) and Oneglia v. Oneglia, 14 Conn. App. 267, 269-70 (1988). The Appellate Court then reviewed the standard for newly discovered evidence, which is that (1) the proffered evidence is newly discovered and could not have been discovered earlier by the exercise of due diligence, (2) that it would be material for a new proceeding, (3) it would not merely be cumulative, and (4) it would be likely to produce a new result in a new proceeding.
The Appellate Court noted that pleadings should be read broadly and realistically rather than narrowly and technically. The Appellate Court concluded that the Motion to Open was based on fraud. Although Wife did not use the word “fraud” in her motion, the motion clearly addressed the elements of a fraud action. Wife’s reply memorandum also unambiguously asserted the basis of fraud and asking the court to set aside the judgment explicitly on that basis. The trial court applied the wrong standard, including the obligation of due diligence which has been eliminated from fraud analyses in Billington v. Billington, 220 Conn. 212 (1991). Under the fraud standard the trial court was required to make a preliminary determination as to whether there was probable cause for fraud before it could consider the merits of the claim, and then conduct an evidentiary hearing to determine whether there was fraud.
The Appellate Court concluded the trial court applied the incorrect legal standard and reversed and remanded for further proceedings including the requisite preliminary hearing.