ONE COUNTRY, LLC, et al. v. MICHAEL JOHNSON et al., SC 19084

Judicial District of Fairfield

 

      Guarantees; Standing; Whether Plaintiff Entitled to Bring Action to Enforce Guarantee Agreement.  Plaintiff Scott Porter and the defendants formed One Country, LLC (the company), to purchase and renovate a residential property.  The plaintiff invested money in the company through his limited liability company, Iboport.  The company obtained additional financing for the project from a bank, executing two notes secured by mortgages.  The plaintiff personally guaranteed the notes.  In turn, the defendants signed “backstop” guarantee agreements in which they agreed to reimburse the plaintiff for any payments he made to the bank resulting from a default by the company.  Following the company’s default on the loans, the bank obtained a judgment of strict foreclosure.  The bank sought a deficiency judgment against the plaintiff, as guarantor, and the plaintiff ultimately settled the claim for $300,000.  For tax purposes, the plaintiff characterized his payment to the bank as a capital contribution to Iboport.  The plaintiff brought this action to enforce the backstop guarantees.  The trial court rendered judgment in favor of the defendants, reasoning that because the plaintiff elected to contribute the obligations owed to him by the company to Iboport, he did not suffer a loss from the settlement transaction.  The plaintiff appealed, claiming that the backstop guarantees were absolute and unconditional and waived all defenses.  The defendants responded that the plaintiff, as a result of the tax treatment of his settlement payment, failed to prove that the company owed him a debt because whatever rights that he had to that payment were extinguished and belonged instead to Iboport.  The Appellate Court (137 Conn. App. 810) reversed the judgment, determining that, under the circumstances of this case, the tax treatment of the plaintiff’s payment was irrelevant to the fact that he suffered a loss when he paid the $300,000 to the bank as a result of the company’s default and that the defendants expressly agreed to reimburse him under those stated circumstances.  The Supreme Court granted defendant Michael Johnson’s petition for certification to appeal, limited to the issue of whether the Appellate Court properly concluded that the plaintiff was entitled to bring the present action to enforce the backstop guarantees.  Johnson contends that, applying General Statutes §§ 34-150 and 34-167 (a), which govern capital contributions to limited liability companies and ownership of limited liability company property, respectively, the plaintiff effectively assigned to Iboport the underlying debt.  Johnson asserts that because the plaintiff was not the owner of that debt, he had no standing to enforce the guarantees and the action should have been dismissed for lack of jurisdiction.