Falls Church Group, Ltd. v. Tyler, Cooper and Alcorn, LLP

This certified appeal arises from a commonlaw
and statutory vexatious litigation action1 by the
plaintiff, Falls Church Group, Ltd. (Falls Church),
against the defendant, Tyler, Cooper and Alcorn, LLP
(law firm), based upon the law firm's prosecution of a
time barred class action against Falls Church's predecessor
in interest. The law firm had brought the action
on behalf of a group of senior citizens who had lost
considerable sums of money after executing residence
agreements allowing them to live in a continuing care
retirement community that had been marketed by Falls
Church's predecessor in interest. Falls Church claimed
that the law firm had acted without probable cause and
with malice in prosecuting the underlying action well
after the limitations period had expired, contending that
the law firm reasonably could not have believed that
sufficient factual evidence existed to support any theory
under which the statutes of limitations would have been
tolled. Following a trial to the court, which resulted in
judgment for the law firm based upon the trial court's
determination that Falls Church had failed to prove a
lack of probable cause for bringing the action, Falls
Church appealed to the Appellate Court, which affirmed
the judgment. Falls Church Group, Ltd. v. Tyler, Cooper
& Alcorn, LLP, 89 Conn. App. 459, 461, 874 A.2d
266 (2005).

This court thereafter granted Falls Church's petition in this vexatious litigation lawsuit, failed to prove that
the [law firm] lacked probable cause to initiate the
underlying action?'' Falls Church Group, Ltd. v. Tyler,
Cooper & Alcorn, LLP, 275 Conn. 908, 882 A.2d 670
(2005). We conclude that the Appellate Court properly
affirmed the trial court's judgment determining that a
reasonable attorney familiar with Connecticut jurisprudence
could have believed that the applicable statutes
of limitation would have been tolled by the doctrine of
fraudulent concealment.2

The Appellate Court opinion sets forth the following
relevant facts and procedural history. ‘‘On March 1,
1988, [Falls Church's predecessor in interest] Retirement
Centers of America, Inc. (Retirement Centers),
entered into a consulting agreement and a project management
agreement with East Hill Woods, Inc. (East
Hill Woods), to provide consulting and marketing services
to East Hill Woods in connection with the development
of a continuing care retirement community in
Southbury. As compensation for its services, Retirement
Centers was to receive a consulting fee, which
East Hill Woods would disburse in portions at different
phases of the retirement community's development.

‘‘Retirement Centers had among its marketing objectives
the encouragement of prospective residents to
enter into residence agreements. Under those
agreements, an entry fee, which ranged from $117,000
to more than $300,000, entitled residents to lifetime use
of their living unit and unlimited nursing care if they
could no longer live independently. When residents left
the community, died or sold their units, they or their
estates would, subject to certain conditions and exceptions,
receive a refund of 94 percent of the entrance
fee. Upon execution of the agreements, residents were
required to pay a deposit of 5 percent of the entrance
fee, $200 of which was nonrefundable if they chose
ultimately not to move into the community.

‘‘The first residence agreement was signed on July
7, 1988, approximately thirteen months before East Hill
Woods commenced construction of the retirement community.
The last residence agreement during Retirement
Centers' tenure as East Hill Woods' marketing
consultant was executed in December, 1990. Shortly
thereafter, Retirement Centers and East Hill Woods
entered into a settlement agreement, effective January
18, 1991, terminating Retirement Centers' role in the
project. Under that agreement, East Hill Woods was to
pay Retirement Centers $222,403 when residents occupied
85 percent of the community's living units and
$192,000 pursuant to a promissory note payable at the
rate of $6000 per month for thirty-four months. As of the
settlement agreement's effective date, the retirement
community remained unoccupied. It was not until April,
1991, that the first resident moved into the community.

‘‘The first residence agreement was signed on July
7, 1988, approximately thirteen months before East Hill
Woods commenced construction of the retirement community.
The last residence agreement during Retirement
Centers' tenure as East Hill Woods' marketing
consultant was executed in December, 1990. Shortly
thereafter, Retirement Centers and East Hill Woods
entered into a settlement agreement, effective January
18, 1991, terminating Retirement Centers' role in the
project. Under that agreement, East Hill Woods was to
pay Retirement Centers $222,403 when residents occupied
85 percent of the community's living units and
$192,000 pursuant to a promissory note payable at the
rate of $6000 per month for thirty-four months. As of the
settlement agreement's effective date, the retirement
community remained unoccupied. It was not until April,
1991, that the first resident moved into the community.

‘‘Six years later, financial difficulties forced East Hill Woods into bankruptcy, which compromised the right
of residents to receive their refund of 94 percent of the
entrance fee. The next year, on January 7, 1998, the
law firm commenced the underlying action by filing a
complaint on behalf of 177 plaintiffs (residents, former
residents or their estates)3 against several defendants,
including Retirement Centers. The counts directed
toward Retirement Centers were made on behalf of
fifty-three plaintiffs who had signed residence
agreements before the effective date of Retirement Centers'
settlement agreement with East Hill Woods.
Although those counts present different factual theories,
each one stems from Retirement Centers' alleged
failure to satisfy its statutory disclosure duty under
General Statutes § 17b-529,4 the statute that creates a
cause of action in favor of any person contracting with
a continuing care facility who, before signing the contract,
is provided either with a misleading disclosure
statement or not provided with a disclosure statement
at all. On May 4, 1998, Falls Church, Retirement Centers'
successor in interest, was substituted as a defendant
by stipulation of the parties.

‘‘When the law firm initiated the underlying action,
it was fully cognizant that the statutes of limitation
had run on the plaintiffs' claims against Falls Church.
Indeed, before the law firm filed the complaint in that
action, it had undertaken to induce the legislature to
modify the limitations period set forth in § 17b-529. The
law firm sought to enlarge the limitations period in
§ 17b-529 from six to seven years and to change the
date on which the limitations period would begin to
run, from the date the residence agreement was signed
to the date the resident moved into the facility. Its
legislative efforts ultimately proved unsuccessful.

‘‘On September 8, 1998, Falls Church filed a motion
for summary judgment, arguing that the plaintiffs'
claims were barred by the applicable statutes of limitation.
The law firm filed an objection, asserting various
tolling arguments.5 The court, Hodgson, J., rejected the
law firm's attempts to evade the statutes of limitation
and rendered summary judgment in favor of Falls
Church on all counts.

‘‘Falls Church then brought the vexatious litigation
action that is the subject of this appeal. Falls Church
asserted claims for both common-law and statutory
vexatious litigation in its complaint, the thrust of which
was that the law firm instituted the underlying action
without probable cause and with malice because it
knew that Retirement Centers had ended its involvement
with East Hill Woods in January, 1991 - seven
years before the law firm initiated the action - and that
it knew, or should have known, that all of the . . .
claims were barred by statutes of limitation.

‘‘The law firm filed a motion to bifurcate the probable
cause issue from the issues of malice and damages. The court, Berger, J., granted the motion and conducted a
multiday evidentiary hearing, after which it issued a
thirty-seven page memorandum of decision. In its decision,
the court discussed, in detail, the evidence submitted
at the hearing, stating, inter alia, that East Hill
Woods was created by Retirement Centers, had its
board and officer ranks stacked with employees of
Retirement Centers, but did not have a single employee
of its own until 1991; that employees of Retirement
Centers had signed the project management and consulting
agreements on behalf of East Hill Woods; that
those agreements, which listed Retirement Centers'
myriad duties, attested to Retirement Centers' clear
understanding and control of the retirement community's
development; that employees of Retirement Centers
required the plaintiffs in the underlying action, individuals
in their 80s and 90s, who were called ‘clients,' to
complete a confidential data application that asked
them to list assets, income, health problems or conditions,
etc.; and that the plaintiffs received disclosure
statements that contained misleading information
about the retirement community's financial well-being.6

‘‘The court then addressed whether it was reasonable
for the law firm to believe that sufficient factual evidence
existed to support a tolling of the statutes of
limitation on the basis of the following tolling doctrines
and related arguments: (1) fraudulent concealment, (2)
continuing course of conduct, (3) aiding and abetting,
(4) equitable estoppel, (5) General Statutes § 52-5907
and (6) the law firm's effort to persuade the legislature
to modify § 17b-529. The court concluded that the law
firm had probable cause to rely on three of its tolling
arguments (i.e., fraudulent concealment, continuing
course of conduct, and aiding and abetting) and ruled,
therefore, that Falls Church failed to prove that the law
firm lacked probable cause to initiate the underlying
action.'' Falls Church Group, Ltd. v. Tyler, Cooper &
Alcorn, LLP, supra, 89 Conn. App. 461–65.

Falls Church then appealed from the trial court's
judgment in favor of the law firm to the Appellate Court,
which determined that the trial court properly had concluded
that the law firm had probable cause to prosecute
the action and affirmed the court's judgment.8 This
certified appeal followed.

On appeal to this court, Falls Church challenges the
Appellate Court's judgment affirming the trial court's
finding of probable cause, as well as the standard the
Appellate Court applied in arriving at its decision. Specifically,
Falls Church contends that the Appellate Court
improperly established a new standard of probable
cause applicable to vexatious litigation actions brought
against attorneys that is more stringent than the standard
applied to such actions against litigants generally.
Falls Church further contends that the Appellate Court's
determination regarding fraudulent concealment was improper. Finally, Falls Church contends that this court
should reverse the judgment of the Appellate Court
because the trial court's conclusions regarding the continuing
course of conduct doctrine and the aiding and
abetting theory also were improper.

The law firm contends in response that the standard
applied by the Appellate Court, as well as its judgment
affirming the trial court's determination that the law
firm had probable cause to assert a claim of fraudulent
concealment, were proper. Additionally, the law firm
contends that the trial court properly concluded that
probable cause existed with respect to the continuing
course of conduct doctrine and the law firm's aiding
and abetting theory. We agree with Falls Church that
the Appellate Court articulated an improper standard,
but nevertheless agree with the law firm that the Appellate
Court properly affirmed the trial court's decision
that the law firm had probable cause to assert a claim
of fraudulent concealment.9

I

To address Falls Church's claim as to the appropriate
standard of proof, we begin with our well established
case law outlining the essential elements of a commonlaw
claim for vexatious litigation. ‘‘A vexatious suit is
a type of malicious prosecution action, differing principally
in that it is based upon a prior civil action, whereas
a malicious prosecution suit ordinarily implies a prior
criminal complaint. To establish either cause of action,
it is necessary to prove want of probable cause, malice
and a termination of suit in the plaintiff's favor. Calvo
v. Bartolotta, 112 Conn. 396, 397, 152 A. 311 [1930];
Schaefer v. O. K. Tool Co., 110 Conn. 528, 148 A. 330
[1930]. Probable cause is the knowledge of facts sufficient
to justify a reasonable person in the belief that
there are reasonable grounds for prosecuting an action.
Paranto v. Ball, 132 Conn. 568, 571, 46 A.2d 6 [1946];
McGann v. Allen, 105 Conn. 177, 186, 134 A. 810 [1926].
Malice may be inferred from lack of probable cause.
Zenik v. O'Brien, 137 Conn. 592, 596–97, 79 A.2d 769
[1951]; Thompson v. Beacon Valley Rubber Co., 56
Conn. 493, 496, 16 A. 554 [1888]. The want of probable
cause, however, cannot be inferred from the fact that
malice was proven. McGann v. Allen, supra, 187.'' Vandersluis
v. Weil, 176 Conn. 353, 356, 407 A.2d 982 (1978).
A statutory action for vexatious litigation under General
Statutes § 52-568; see footnote 1 of this opinion; differs
from a common-law action only in that a finding of
malice is not an essential element, but will serve as
a basis for higher damages. In either type of action,
however, ‘‘[t]he existence of probable cause is an absolute
protection against an action for malicious prosecution,
and what facts, and whether particular facts,
constitute probable cause is always a question of law.''
Brodrib v. Doberstein, 107 Conn. 294, 296, 140 A. 483
(1928). Accordingly, our review is plenary. State v. Gibson, 270 Conn. 55, 66, 850 A.2d 1040 (2004).

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