Principal May Not Be Held Liable Under “Joint Action” Theory for Breach of Contract By Company, But May Have Individual Liability for Unfair or Deceptive Trade Practices

The Connecticut Supreme Court recently issued an opinion in Joseph General Contracting, Inc. v. Couto, (SC 19209) that preserved the limited liability of a principal for breach of contract claims against the company, but opened the door to individual liability for principals for unfair or deceptive trade practice act violations. The Connecticut Supreme Court reversed the trial court and first level appellate court decisions finding that the principal of a company could be held liable for breach of contract under a “joint action” theory with his companies. In a somewhat unprecedented action, the Connecticut Supreme Court rejected the factual findings of the trial court and concluded that there was no “blurring” of the distinction between corporate and personal liability for the original construction contract. It held that the trial court (and appellate court) improperly looked to other agreements to draw such a conclusion. Finding that the subsequent agreements between the principals and plaintiffs clearly distinguished between the principal’s personal obligations and the construction contract with the principal’s company, the court found no basis for imposing personal liability for breach of the construction contract.

On the other hand, the Connecticut Supreme Court found that the principal could be held personally liable under Connecticut’s version of the unfair trade practices act. The court adopted the test employed by federal courts in construing the Federal Trade Commission Act that an individual may be held liable for an entity’s violation of the unfair trade practices act if the individual “either participated directly in the entity’s deceptive or unfair acts or practices, or that he or she had the authority to control them.” It then concluded that “[a]n individual’s status as controlling shareholder or officer in a closely held corporation creates a presumption of the ability to control.” Since the principal in Joseph General was the sole shareholder exercising control over the company, the court concluded that he could be held personally liable.