Sojitz America Capital Corp. v. Keystone Equipment Finance Corp.
A party may be entitled to attorneys' fees, pursuant to Connecticut General Statutes §33-726, if the party proves that a plaintiff lacked reasonable cause to bring a shareholder derivative action and was motivated by an improper purpose. Sojitz America Capital Corp. filed a shareholder derivative action against Todd Kaufman, for the nominal defendant, Keystone Equipment Finance Corp., alleging that Kaufman, the defendant's president, provided false certification to financial institutions that furnish lines of credit. The plaintiff's complaint alleged Keystone Equipment Finance Corp. was exposed to risk of liability in the form of allegations of bank fraud and common-law fraud. The plaintiff asserted that board members acted in reckless disregard of Kaufman's actions and were not in a position to decide objectively whether litigation was in Keystone's best interests. The court granted the defendants' motion to dismiss pursuant to C.G.S. §33-724. After the Connecticut Appellate Court affirmed, the defendant moved for attorneys' fees, pursuant to C.G.S. §33-726, arguing that the plaintiff lacked reasonable cause to bring the shareholder derivative action and was motivated by an improper purpose. The court did not find other Connecticut state court decisions directly on point. The court found that the defendant failed to prove that the plaintiff lacked reasonable cause or that the complaint was not well grounded in fact, after a reasonable inquiry, or was not merited, pursuant to existing law. The plaintiff's representative on the board of directors submitted an affidavit that substantiated many of the allegations in the complaint. "The substantive portion of the derivative action, that Kaufman injured the defendant by falsifying certifications provided to third parties," wrote the court, "appears to be supported, at least arguably, by the facts before the court." Absent proof of an improper purpose for the shareholder derivative action, the court denied the motion for attorneys' fees.