SLSJ, LLC v. Kleban et al
Filing
132
RULING (see attached) granting 87 Defendants' Motion for Partial Summary Judgment and denying 113 Plaintiff's Cross-Motion for Partial Summary Judgment. Signed by Judge Charles S. Haight, Jr. on October 6, 2020. (Dorais, L.)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
SLSJ, LLC,
Plaintiff,
Civil Action No.
3:14-cv-390 (CSH)
v.
ALBERT J. KLEBAN and THE LE RIVAGE
LIMITED PARTNERSHIP,
OCTOBER 6, 2020
Defendants.
RULING ON MOTIONS FOR PARTIAL SUMMARY JUDGMENT [Doc. 87 & 113]
HAIGHT, Senior District Judge:
The subject matter of this diversity action is the sale by Plaintiff SLSJ, LLC (“SLSJ”), a
limited liability company, of its one-third interest in Sun Realty Associates, LLC (“Sun Realty),
whose sole asset was Black Rock Shopping Center (“Black Rock”) in Fairfield, Connecticut, to
Defendant Albert Kleban and Kleban’s assignee, Defendant Le Rivage Limited Partnership (“Le
Rivage”).
Plaintiff’s theory of the case is that in selling its interest in Sun Realty to Defendants,
Plaintiff relied upon Kleban’s fraudulent statements and misrepresentations regarding the value of
Black Rock. Following extensive discovery, the parties filed cross-motions for partial summary
judgment under Fed. R. Civ. P. 56(a). This Ruling decides those motions.
I
This is, at several levels, a family dispute. The managing member of Plaintiff SLSJ, Lois
Jeruss, an Illinois citizen, is a cousin of Defendant Albert J. Kleban, a Connecticut citizen. The
entity known as Sun Realty was established by Kleban Properties, LLC, originally owned by three
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Kleban brothers: Leon, Harry and Irving. Lois Jeruss is the daughter of Leon, and the principal
partner owner of Plaintiff SLSJ. Albert Kleban is the son of Irving. Sun Realty owned Black Rock.
A time came when SLSJ sold its interest in Sun Realty to Albert Kleban and his assignee, Defendant
Le Rivage Limited Partnership. Jeruss alleges in this action that her cousin Albert tricked her in that
sale by misrepresenting the value of Sun Realty’s only asset, Black Rock, which Kleban sold shortly
thereafter to a third party for what Jeruss regards as a suspiciously larger sum.
SLSJ’s complaint alleges five claims: breach of fiduciary duty, securities violation, and fraud
against Albert Kleban; and aiding and abetting breach of fiduciary duty and fraud against Le Rivage.
Defendants moved [Doc. 87] for summary judgment to dismiss all these claims. Plaintiff opposed
that motion, and cross-moved [Doc. 113] for summary judgment finding Defendant Albert Kleban
liable on Plaintiff’s first claim, breach of a fiduciary duty Albert owed to SLSJ.
The cross-motions were thoroughly briefed and scheduled for oral argument. The hearing
was preceded by the Court’s memorandum and order, Doc. 119, which identified, as “of core
importance to the rights and liabilities of the parties,” the question whether “at the pertinent times
and in connection with the subject transaction, a fiduciary relationship existed between Defendant
Albert Kleban on the one hand, and Plaintiff SLSJ and/or Lori Jeruss on the other.” Id. at 2. The
Court directed counsel to be prepared to discuss whether a fiduciary relationship existed; if so, what
fiduciary duties resulted from the relationship; and what burdens of proof are imposed by the
relationship. Id. at 5.
The attorneys for the parties focused on those questions during a hearing that consumed the
morning and afternoon sessions. The Court granted the parties leave to file supplemental posthearing briefs. Both parties did so. See Defendant’s Supplemental Brief [Doc. 130] and Plaintiff’s
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Supplemental Brief [Doc. 131]. Not surprisingly, given the Court’s pre-hearing memorandum and
the resulting focus of the oral arguments, these briefs concentrate on the questions relating to the
existence vel non of a fiduciary relationship between the parties, and the effect of a fiduciary
relationship if it existed.
II
When one considers the manner in which the presentation of these motions has developed,
it is sensible to treat them as cross-motions for partial summary judgment: specifically, limited to
the fiduciary relationship and related fiduciary duty issues. Rule 56 sanctions that approach. Rule
56(a) provides: “A party may move for summary judgment, identifying each claim or defense – or
the part of each claim or defense – on which summary judgment is sought.” Fed. R. Civ. P. 56(a)
(emphasis added). The Advisory Committee Notes to the 2010 Amendment to Rule 56 state: “The
first sentence is added to make clear at the beginning that summary judgment may be requested not
only as to an entire case but also as to a claim, defense, or part of a claim or defense.” (emphasis
added). The fiduciary issues in the case at bar lend themselves to separate analysis and decision.
For these reasons, the Court construes Defendants’ present motion as one for a partial
summary judgment which, if granted, would hold that no fiduciary relationship existed between
Albert Kleban and SLSJ and/or Lori Jeruss, or alternatively, if such relationship existed, Kleban did
not breach it. The Court construes Plaintiff’s cross-motion as one for partial summary judgment
which, if granted, would hold that a fiduciary relationship existed between Albert Kleban on the one
hand and SLSJ and/or Lori Jeruss on the other, and Kleban breached that relationship.
III
The Court has issued three prior opinions in this case. They are reported at 2015 WL
3
1973307 (denying Defendants’ motion to dismiss the complaint for lack of personal jurisdiction or
alternatively, to compel arbitration); 2016 WL 11527095 (compelling Defendants to produce certain
documents in discovery); and 277 F. Supp. 3d 258 (excluding aspects of proposed testimony of
Defendants’ expert). The rather complex factual background of the case is recited in those opinions,
familiarity with which is assumed. That background is recounted and expanded upon herein only
to the extent necessary to reflect recent discovery, and to explicate the Court’s resolution of these
motions.
The facts recounted in this Part III are derived from facts the Court may judicially notice;
exhibits attached to the pleadings; depositions conducted and exhibits produced during discovery;
and the parties’ Local Rule 56(a) statements of purportedly undisputed facts. Those last-named
statements, prepared by counsel and to some degree exercises in advocacy, list the evidentiary
material upon which the facts in question are said to be based.
The background facts recited in this Part are undisputed or are undisputable, with the
exception of one aspect of the case, discussed in Part III.B, infra.
A.
Communications between Albert Kleban and Third Parties
The Kleban family is prominent in the world of commercial real estate development in the
state of Connecticut. I will quote the current website of Kleban Properties, LLC:
Kleban Properties, LLC is a real estate development firm
headquartered in Fairfield, CT. The firm manages the properties of
the Kleban family and their partners in Connecticut as well as real
estate nationwide.
The Kleban family has been involved in real estate development in
Connecticut for five generations, principally in Fairfield County.
. . . The company currently manages over 1.5 million square feet of
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commercial and residential property.
See https://www.klebanproperties.com/about/ (“About Us”) (visited October 6, 2020). The present
Kleban generations, whose ranks descend from the brothers Leon, Harry and Irving, include
Defendant Albert Kleban (son of Irving) and Lois Jeruss (daughter of Leon).
Lois Jeruss, now a widow, lives in Chicago. She inherited non-controlling real property
interests from her father Leon Kleban, and together with her late husband formed SLSJ, a limited
liability company, to hold them. In 2013, the year of the transactions in suit, Lois Jeruss owned 70
percent of SLSJ’s membership interests and her two daughters owned the balance. Neither Lois
Jeruss nor her daughters had knowledge or experience in managing a business or dealing with
commercial real estate.
Defendant Albert J. Kleban is a lawyer who practiced in Connecticut, and also, during the
past several decades, has been a prominent commercial real estate developer in the state. He is the
self-identified “Founder and Principal” of Kleban Properties, LLC. Albert Kleban is currently the
Chairman of Kleban Properties. His son, Kenneth Kleban, is the President.
As of 2013, when the transactions in suit took place, Kleban Properties had formed Sun
Realty, whose sole business was to own, operate, manage and lease real estate comprising the Black
Rock Shopping Center. Sun Realty was an LLC whose principal equity members were Kleban
family descendants. Plaintiff SLSJ, headed by Lois Jeruss, held a 33.33 percent interest in Sun
Realty. Albert Kleban and certain Kleban cousins also owned interests in Sun Realty.
Pursuant to Sun Realty’s Operating Agreement, Sun Realty – SMP, Inc. (“SMP”) was
appointed as Sun Realty’s manager, with power “to make all decisions affecting such business and
affairs” of Sun Realty. SMP was a corporation owned by Albert Kleban and his wife, Alida. Albert
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Kleban alone managed and controlled SMP, which had no offices and employees of its own. Albert
Kleban also managed and controlled Sun Realty through the vehicle of the Operating Agreement
between Sun Realty and SMP.1
The parties do not dispute Albert Kleban’s dominant role in conducting the business of Sun
Realty. A letter dated August 5, 2005, from Jackie Campbell, an employee authorized by Albert
Kleban to speak for him, to Carolyn Schreder, the Chicago attorney for SLSJ and Jeruss, states that
Albert Kleban “feels that Lois Jeruss has benefit[t]ed from all his actions on behalf of Sun Realty”
since he “took over management of Sun Realty,” and was “desirous of cooperating with Lois Jeruss
to enhance any additional opportunities that may be presented to Sun Realty Associates.” Campbell
added, in a letter dated August 8, 2005, to Schreder: “Mr. [Albert] Kleban [took] on the role of
managing member of Sun Realty . . . to insure the financial welfare of his family, his sister’s families
and uncles’ families, which include Lois Jeruss.” On November 14, 2011, Albert Kleban himself
stated in an email to SLSJ and Schreder: “I know how difficult it is but at this point in time your
investment in Sun Realty is secure. . . . You can count on us to do everything in our power to try to
enhance the value of the property and your interest.” In an admission germane to a core issue in the
case, Albert Kleban acknowledged in his deposition that he “owed fiduciary duties to members of
Sun Realty Associates in [his] role as the president of the company that was managing Sun Realty
Associates.” Albert Kleban was referring to SMP.
On April 6, 2013, Albert Kleban said in an emailed status report to SLSJ members: “You can
be assured that every bit of energy [and] creativity is directed to the mutual interests of every single
1
This paragraph in text is derived from the Court’s prior opinions and from depositions and
documentary evidence cited in Plaintiff’s Main Brief [Doc. 103] at 8-13.
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partner and every location as long as Ken, Jackie and I are involved.” That status report also painted
a gloomy picture, which Albert Kleban coupled with an expression of hope:
What I report to you now, contains some negative aspects of the
property but it is not much different than what other realtors are
experiencing across our area with small tenants. The economic
situation for these type [sic] of tenants is somewhat bleak. Hopefully,
in the course of the next two years, when our mortgage comes due we
will be able to present a brighter picture.
Doc. 89-14 (¶ 10). That last sentence is a reference to a $15.8 million mortgage, which fell due two
years after Kleban’s April 6, 2013 status report.
As this chain of correspondence reflects, the stock market reversals and attendant recession
of the year 2008 created major difficulties for large shopping malls such as Black Rock. The
lingering effects of the economic downturn caused some of Black Rock’s retail commercial tenants
to default on their obligations to Black Rock as landlord. Smaller companies went out of business.
Branches of larger chains – the Gap, Old Navy – threatened to leave or sought to reduce their rent
payments. Reductions in rent payments by tenants of Black Rock put pressure on Sun Realty, Black
Rock’s owner, which as noted was carrying a $15.8 million mortgage loan of its own.
To reiterate: Albert Kleban said to Sun Realty LLC members in his April 6, 2013 status
report that the “economic situation” for Black Rock’s “small tenants” was “somewhat bleak,” but
added: “Hopefully, in the course of the next two years, when our mortgage becomes due we will be
able to present a brighter picture.” However, pre-trial discovery reveals that during this period of
time, Kleban did not content himself with passively hoping the fortunes of Black Rock’s small
tenants would recover. Albert Kleban and Kenneth Kleban were also actively engaged, with the
assistance of a real estate broker, in searching for, and negotiating with, prospective purchasers of
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Black Rock and Sun Realty.
On February 11, 2013, Albert Kleban and Kenneth Kleban met with an executive of Federal
Realty, a nationwide real estate investment trust, who advised that Federal had identified Black Rock
as an acquisition “target.” The Klebans responded affirmatively to Federal’s expression of interest,
and began negotiations with Federal, whose executives toured Black Rock twice, the second time
on June 20, 2013. Federal conducted due diligence and received proprietary business and financial
information from Kenneth Kleban. On July 9, 2013, Federal submitted to the Klebans a written
proposal to acquire Black Rock and two other Kleban-controlled properties in a joint venture
transaction, subject to further negotiations on terms. Ultimately, Federal Realty and the Klebans
could not agree on a purchase price or underlying valuation, and their negotiations came to an end
on July 29, 2013, a date on which the Klebans advised Federal that they had begun working with a
real estate broker called HFF.
At the same time that Albert Kleban and Kenneth Kleban were negotiating a possible sale
of Black Rock and Sun Realty to Federal Realty, which had approached the Klebans in February
2013, the Klebans were pursuing that subject with Kimco Realty, another national real estate
investment trust, whose chief executive officer was asked by Albert Kleban if Kimco might have an
interest in Black Rock. Albert and Kenneth Kleban met with Kimco executives in March 2013. The
Klebans told the Kimco executives that they intended to market Black Rock and another Fairfield
property for sale, touting Black Rock as a “superior property” at a “superior location.” Discussions
between the Klebans and Kimco continued, without agreement. On July 31, 2013, immediately after
the Klebans reached an impasse with Federal Realty about a sale of Black Rock, the Klebans notified
Kimco that they would abandon their effort to continue managing Black Rock, and would now
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consider a straight sale of the property. That concession produced, on August 26, 2013, an offer by
Kimco to purchase Black Rock for $39 million (including two additional smaller parcels owned by
Kleban-related entities other than Sun Realty).
The Klebans rejected Kimco’s offer as insufficient. They continued their efforts to market
Black Rock through the broker, HFF. On August 15, 2013 the Klebans engaged HFF to market Sun
Realty and other properties owned by the Kleban family to prospective buyers. In September 2013
an HFF broker contacted an executive at Regency Centers Corporation, yet another national real
estate investment trust, to discuss the possibility of Regency purchasing interests in Sun Realty and
other Kleban family properties. Regency had not been previously aware that Sun Realty and other
Kleban family properties were for sale.
The ensuing negotiations succeeded. By December 2013, Regency and certain Kleban
entities (herein “Kleban Entities”) entered into an agreement by which Regency purchased an 80
percent interest in Sun Realty and two other Kleban family-owned shopping centers. The Kleban
Entities maintained a 20 percent stake in and continued to operate and manage the properties.
The agreement between Regency and the Kleban Entities recited that Regency purchased the
three Kleban properties for $119,589,000. Regency and Albert Kleban, on behalf of Sun Realty,
agreed that the value of Sun Realty’s entire 100 percent interest in Black Rock was $30,609,665.
Of the $119,589,000 purchase price paid by Regency for the three properties, $24,487,793 was suballocated as the purchase price for Regency’s newly acquired 80 percent interest in Sun Realty, that
amount being 80 percent of the agreed value of Sun Realty’s 100 percent interest in Black Rock.
Regency and the Kleban Entities signed their agreement on October 17, 2013. One day later,
on October 18, 2013, Albert Kleban sent an email to the Sun Realty LLC members which stated:
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“Ken and I are extremely pleased to share with you an exciting development at Sun Realty, FBW and
KDC. We have entered into a transaction with Regency Centers. . . . This has been a work product
of many months and it is the fulfillment of all that could have [been] desired from this property.”
Plaintiff’s Ex. 8 [Doc. 105], at 113 (emphasis added). Albert Kleban’s reference to “many months”
presumably reflects the fact that Albert and Kenneth Kleban began their efforts to sell Sun Realty
to third parties in February 2013.
B.
Communications between Albert Kleban and Plaintiff SLSJ
It is now necessary to consider Albert Kleban’s communications with SLSJ and Lois Jeruss,
within the particular context of Kleban’s simultaneous efforts to sell Sun Realty to a third party.
When Albert Kleban sent his April 6, 2013 status report to the Sun Realty members, who at
that time included SLSJ, he invited the Sun Realty members to attend a “Family Meeting” at a
Kleban-controlled office in Connecticut on April 29. Albert Kleban expressed the view that a
Family Meeting would facilitate an exchange of ideas, and achieve transparency of “family business
operations” and “solidarity as a family moving forward.” A number of Kleban cousins attended the
April 29, 2013 Family Meeting, but Jeruss decided not to attend, and stayed in Chicago.
According to Albert Kleban’s Local Rule 56(a)(1) statement of undisputed facts [Doc. 87-3]
at ¶¶ 57-60, at the Family Meeting “the prospect of selling Sun Realty to a third party was also
discussed.” Albert and Kenneth Kleban advised the attendees that “they had exploratory
conversations with certain real estate investment trusts (‘REITs’), including Kimco Realty (‘Kimco’)
about selling interests in Sun Realty or other properties owned by the Kleban family.” Doc. 87-3,
¶ 58. The Klebans also told the Family Meeting attendees that they had held “preliminary
conversations with HFF, a commercial real estate broker, about marketing Black Rock Shopping
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Center and other Kleban family properties for sale.” Id. ¶ 59. At the Family Meeting, Albert Kleban
expressed the view that Kimco was the only real estate investment trust that “presented a remotely
promising option for Sun Realty.” Id. ¶ 60.
Plaintiff SLSJ’s Rule 56(a)(2) statement [Doc. 104] denies the truth of those particular
assertions. While Plaintiff purports to base its denials upon the deposition testimony of several
witnesses, the testimony of its first-named witness partially corroborates Kleban’s account. That
witness is James Blank, an attorney and Kleban family cousin by marriage, who attended the April
29 Family Meeting. Blank was asked at his deposition whether he was ever told that “Ken Kleban
and/or Al Kleban were discussing Black Rock Shopping Center and Sun Realty Associates with
Kimco Realty Corporation in 2013.” Blank testified that “Kimco was mentioned at the meeting in
April of 2013.” Doc. 106 (Ex. 17: Blank Deposition) at 72. “And who mentioned it?” counsel
inquired. Id. at 73. “I believe Albert did,” Blank responded. Id. “What did he say?” counsel asked.
Id. Blank then testified as follows:
I believe in connection with possibilities for the property – well, a
number of things were discussed in terms of what could happen,
options for the property. And in that connection, partnering with a
REIT or having a REIT as an investor, such as Kimco, which is how
it came out, was mentioned.
Q. And what did he say about Kimco, other than what you just
testified?
A. I believe that’s it, and Kimco was specifically mentioned.
Id. Counsel put some follow-up questions about “the meeting in April 2013, where you said Kimco
was mentioned.” Id. at 75. Blank denied that Albert said “he and Ken were talking to Kimco
concerning Black Rock Shopping Center,” or that Albert said “anything about any ongoing
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communications, in 2013, with Kimco,” or that “Albert Kleban or anyone [said] anything about any
ongoing discussions with any real estate firms concerning Black Rock Shipping Center or Sun
Realty.” Id.
This testimony by James Blank, a principal witness proffered by Plaintiff, constitutes an
acknowledgment that at the April 29, 2013 Family Meeting, Albert Kleban introduced the subject
of a possible transaction involving Kleban properties like Sun Realty and a real estate investor trust
“as an investor,” and “specifically mentioned” Kimco Realty in that regard.
Blank did not acknowledge – on the contrary, he denied – that Albert told the Family
Meeting attendees he and Kenneth Kleban had engaged in specific “exploratory conversations” with
REITs, including Kimco, about selling to an REIT interests in Sun Realty or other Kleban familyowned properties. I do not regard that relatively minor point of disagreement as a dispute about a
material fact, for the purpose of summary judgment analysis. The material fact, acknowledged by
SLSJ’s witness, is Albert Kleban’s notification to attendees at the April 29 Family Meeting of the
possible option of relieving economic pressure by seeking investments from REITs like Kimco.
C.
Events Following the April 29, 2013 Family Meeting
After the April 29 Family Meeting concluded, Albert Kleban and Kenneth Kleban met with
Allan Kleban, a Kleban cousin who owned an 11 percent interest in Sun Realty. Allan Kleban
requested that meeting in order to discuss selling his interest in Sun Realty to Le Rivage, a limited
partnership whose general partners were Albert Kleban and his wife. Le Rivage held an 11.11
percent membership interest in Sun Realty. Initially, Albert and Kenneth Kleban disclaimed an
interest in buying Allan Kleban’s 11 percent interest in Sun Realty. However, the subject was
revived when Allan Kleban suggested to Albert and Kenneth Kleban that Lois Jeruss might be
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interested in selling SLSJ’s 33.33 interest in Sun Realty to Albert Kleban, on the same valuation
terms as those proposed by Allan Kleban for his interest.
This gave rise to some communications between Allan Kleban and Lois Jeruss. On April 29,
2013, Allan Kleban telephoned Jeruss and told her that Albert Kleban was considering purchasing
his interest and that of SLSJ in Sun Realty. The next day, April 30, 2013, Allan Kleban emailed
Jeruss as follows: “Here is the one page valuation that I have discussed with Ken and Albert. They
are agreeable to buying your interest and mine at this valuation.” The valuation Allan Kleban
attached to his April 30, 2013 email to Jeruss stated the market value of Sun Realty’s interest in
Black Rock as $23,082,960.
Thereafter, Albert Kleban communicated directly with Jeruss on this subject. He sent Jeruss
a letter of intent dated May 22, 2013, in which Albert Kleban offered SLSJ $2,020,540 for SLSJ’s
membership interest in Sun Realty and two promissory notes made by Sun Realty and payable to
SLSJ in an aggregate original principal sum of $914,308, representing capital contribution loans
SLSJ had previously made to Sun Realty.
SLSJ and Albert Kleban executed a Membership Interest Purchase Agreement, dated as of
June 1, 2013, between SLSJ as the Seller and Albert J. Kleban as the Purchaser. Doc. 89-20. Lois
Jeruss signed the Purchase Agreement as “Manager” of SLSJ, the Seller. Albert J. Kleban signed
in his individual capacity as the Purchaser. The Purchase Agreement recited that SLSJ owned
33.3333% of the membership interests in Sun Realty Associates, LLC, and that SLSJ had made
“preferred return capital contributions in an aggregate principal sum of $914,308.18" (for which the
two promissory notes had been given). SLSJ sold these interests to Albert Kleban, for a purchase
price of $2,020,540.41. The Purchase Agreement recites that the closing date of the transaction was
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July 31, 2013. The record does not contain any indication that the closing did not successfully occur.
This is the transaction that Plaintiff SLSJ contends was unfair to it, procured by the breach
of fiduciary duties Albert Kleban owed to SLSJ and Lois Jeruss.
At the time of the Kleban Family Meeting on April 29, 2013, Albert Kleban and Kenneth
Kleban were engaged in negotiations with Federal Realty and Kimco Realty about a possible sale
to those REITs of interests in Sun Realty. Discussions with Federal began in February 2013, and
with Kimco not later than March 2013. Those negotiations were still in progress on June 27, 2013,
when SLSJ and Albert Kleban executed the Purchase Agreement for SLSJ’s interest in Sun Realty.
The negotiations between the Klebans and Federal came to an end on July 29, 2013. Kimco
disappeared as a potential purchaser when the Klebans rejected as insufficient Kimco’s August 26,
2013 offer to purchase.
As stated supra, the Klebans subsequently conducted successful negotiations with Regency
Centers Corporation, resulting in the Regency agreement dated October 17, 2013, which on the next
day Albert Kleban described to Sun Realty members, in an email expressed with unbridled
satisfaction.
It would appear from the record that Albert Kleban’s October 18, 2013, email to Sun Realty
members, advising them of the agreement the day before with Regency, was the only communication
from Albert Kleban to Sun Realty members about selling Sun Realty during the period between the
Family Meeting on April 29, 2013, and the Kleban Entities’ execution of their agreement with
Regency on October 17, 2013.
IV
Plaintiff SLSJ’s theory of the case is that Albert Kleban breached a fiduciary duty he owed
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to Plaintiff (and derivatively, Lois Jeruss), to their detriment.
According to Plaintiff, the harm Kleban’s fiduciary breach inflicted upon SLSJ and Jeruss
is revealed by contrasting valuations of Sun Realty made or advanced by Albert Kleban in two
separate contexts: the sale of SLSJ’s interest in Sun Realty to Albert Kleban in July 2013, and the
sale of interests in Sun Realty and other properties to Regency in October 2013.
Plaintiff asserts that core claim in its briefs and the argument of counsel at the hearing on
these cross-motions. Plaintiff’s Main Brief says that on April 30, 2013, Allan Kleban emailed
Jeruss: “‘Here is the one page valuation that I have discussed with Ken and Albert. They are
agreeable to buying your interest and mine at this valuation.’ . . . The attached valuation stated the
market value of Sun Realty’s interest in Black Rock as $23,082,690.” Doc. 103, at 9. Pursuant to
the June 2013 agreement, Albert Kleban bought SLSJ’s one-third interest in Sun Realty. Thereafter,
on October 17, 2013, “Albert Kleban executed, on behalf of Sun Realty, a lucrative joint venture
agreement with Regency Centers Corporation.” Id. “Under the joint venture agreement, Sun Realty
effectively sold Regency an 80 percent share of its only asset, its interest in Black Rock, for
$24,487,793.” Id. at 9-10. Plaintiff then argues in its Main Brief:
In determining the $24,487,793 price Regency paid to purchase an
80 percent interest, Regency and Albert Kleban, on behalf of Sun
Realty, agreed that the value of Sun Realty’s entire 100 percent
interest in Black Rock was $30,609,665, a valuation approximately
$7.5 million greater than the $23,082,960 valuation of the same
property used to determine the price Kleban paid on July 29, 2013 to
purchase SLSJ’s 33.33 percent interest in Sun Realty. (Defs. Ex.
AAA, at ¶ 2 and Ex. 3.3 thereto.) In a matter of months, Albert
Kleban and his partnership, Le Rivage, thereby effectively realized a
$2.5 million dollar gain on the 33.33 interest he purchased from
SLSJ, i.e., one-third of the differential between the respective
valuations used as the basis for the pricing in the respective
transactions with SLSJ and Regency.
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Id. at 10.
Plaintiff restates this theory in its post-hearing Supplemental Brief, which argues that
“Kleban purchased SLSJ’s membership for a price established by a $23 million valuation of Sun
Realty’s interest in Black Rock Shopping Center, which Kleban furnished with his offer,” whereas
“[i]n the Regency transaction, a $30.6 million valuation was used, established by the Klebans,” a
“7.5 million greater valuation [which] generated for Kleban, in effect, a $2.5 million gain on the
33.33 percent interest he purchased from SLSJ . . . . As Kleban then well knew, the consideration
he paid SLSJ was inadequate by approximately $2.5 million.” Doc. 131, at 21-22.
At the hearing, Mr. Lieberman, counsel for Plaintiff, said that the valuation of Sun Realty that
“came from Albert and Ken via Allan . . . is what was used to price the membership agreement that’s
at the heart of this dispute,” and continued:
That valuation was 22, 23 million, something like that. . . . And our
claim is that the differential between that valuation, let’s just say 23
million, and this valuation of 30 million is 7 million. So a third of
that differential is the damage. That’s what we say Lois Jeruss and
SLSJ got cheated out of by the membership purchase agreement.
Doc. 127 (Hearing Transcript Pt.2), at 32-33.
V
The threshold question is whether, given the circumstances of the case, Albert Kleban had
a fiduciary relationship with SLSJ and Lois Jeruss. Plaintiff charges Albert Kleban with breach of
fiduciary duty. The existence of a fiduciary duty depends upon the existence of a fiduciary
relationship.
The fiduciary relationship is a creation of equity. “[E]quity has carefully refrained from
defining a fiduciary relationship in precise detail and in such a manner as to exclude new situations.”
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Konover Dev. Corp. v. Zeller, 228 Conn. 206, 222-23 (1994) (citation and internal quotation marks
omitted). The Supreme Court of Connecticut expanded upon that concept in Falls Church Group,
Ltd. v. Tyler, Cooper and Alcorn, LLP, 281 Conn. 84 (2007):
This court broadly has stated that a fiduciary or confidential
relationship is characterized by a unique degree of trust and
confidence between the parties, one of whom has superior
knowledge, skill or expertise and is under a duty to represent the
interests of the other. The superior position of the fiduciary or
dominant party affords him great opportunity for abuse of the
confidence reposed in him. We have not, however, defined that
relationship in precise detail and in such a manner as to exclude new
situations, choosing instead to leave the bars down for situations in
which there is a justifiable trust confided on one side and a resulting
superiority and influence on the other.
281 Conn. at 108 (citations, internal quotation marks and ellipses omitted). Consistent with that
deliberately imprecise and inclusive standard, “Fiduciaries appear in a variety of forms, including
agents, partners, lawyers, directors, trustees, executors, receivers, bailees and guardians.” Konover,
228 Conn. at 222. Those categories, the Connecticut Supreme Court said more recently in Iacurci
v. Sax, 313 Conn. 786 (2014), consist of actors who “are per se fiduciaries by nature of the functions
they perform,” but the Court was careful to add: “Beyond these per se categories, however, a flexible
approach determines the existence of a fiduciary duty, which allows the law to adapt to evolving
situations wherein recognizing a fiduciary duty might be appropriate,” which occurs when the
relationship “is characterized by a unique degree of trust and confidence between the parties, one of
whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the
other.” 313 Conn. at 800 (citing and quoting Falls Church Group). “With these principles in mind,
‘we have recognized that not all business relationships implicate the duty of a fiduciary.’” Id.
(quoting Hi-Ho Tower, Inc. v. Com-Tronics, Inc., 255 Conn 20, 38 (2000)). Iacurci held that a
17
fiduciary relationship did not exist between an accountant tax preparer and his client.
In the case at bar, I conclude that Albert Kleban had a fiduciary relationship with SLSJ, a
fellow interest-owning member of Sun Realty, a relationship which extended by derivation to Lois
Jeruss, the principal owner of SLSJ. The fiduciary nature of Albert Kleban’s relationship with SLSJ
and Jeruss is derived from Albert Kleban’s manifestly superior knowledge, skill and expertise,
openly displayed and unabashedly acknowledged by Albert Kleban during his management of Sun
Realty and Black Rock Shopping Center, Sun Realty’s only asset, and of SMP, Sun Realty’s titular
manager.
In correspondence with Sun Realty members, Jackie Campbell, Albert Kleban’s
representative, repeatedly referred to Albert Kleban as the “managing member” of Sun Realty.
Albert Kleban was also president of SMP, a corporation in name only, which contracted with
Sun Realty to manage Sun’s operations. At his deposition in this case, Kleban testified that the duty
of a fiduciary –
is to do everything with the greatest integrity – and I must emphasize
that – with the greatest integrity, and with all your effort that you can
possibly put together for the benefit of the company. And in this
particular situation, Sun Realty had my undivided attention and
absolute integrity throughout.
Doc. 105 (Kleban Deposition transcript), at 48. Albert Kleban then testified:
Q. Did you have an understanding that at least from the years 2006
through 2013 you owed fiduciary duties to members of Sun Realty
Associates in your role as president of the company that was
managing Sun Realty Associates?
A. Of course.
Q. And that would include SLSJ and Lois Jeruss?
A. Of course.
18
Q. And those fiduciary duties would include a duty to make full and
fair disclosure of all material information to the owners of those
interests?
A. All material information, and to answer any and all questions
they had, and to do everything I possibly could for their benefit.
Id. at 49. Albert Kleban’s able counsel, attending Kleban’s deposition in relative silence, probably
did not welcome that testimony by his client, but Kleban, himself a practicing attorney and well
versed in the management of commercial real estate, meant exactly what he said. Albert Kleban
deserves commendation for a forthright admission.
Depositions are concluded. The case now moves to the summary judgment stage. Counsel
for Albert Kleban, in an energetic exercise of advocacy, attempts to peel the “fiduciary” label off his
forthright client’s back. Counsel contends, first, that as for Sun Realty as an LLC, a Connecticut
statute then in effect precludes the characterization of Albert Kleban as a fiduciary; and second, that
as for SMP, Sun’s management contract was with SMP as a corporation, not with Kleban personally,
so Kleban cannot owe Sun a fiduciary duty. Neither argument is persuasive.
The Connecticut statute Defendant has in mind is former General Statutes § 34-141(a), which
was repealed and replaced on July 1, 2017, by General Statutes § 34-255h. That earlier statute,
which was in effect at the times relevant to this action, provided:
A member or manager [of an LLC] shall discharge his duties under
section 34-140 and the operating agreement, in good faith, with the
care an ordinary prudent person in a like position would exercise
under similar circumstances, and in the manner he reasonably
believes to be in the best interests of the limited liability company,
and shall not be liable for any action taken as a member or manager,
or any failure to take such action, if he performs such duties in
compliance with the provisions of this section.
Kleban’s Supplemental Brief (his most recent submission) calls this statute “the Connecticut LLC
19
Act,” which in Kleban’s perception precludes application of the flexible approach mandated by the
Connecticut Supreme Court in Iacurci v. Sax. Doc. 130, at 2. Kleban’s brief contends:
While the court-made flexible approach may be conclusive of
whether or not a fiduciary duty exists between members of
partnerships or in a context outside a business organization, it has no
relevance to the duties owed among members and managers of
Connecticut LLCs that have been defined by statute.
...
. . . [U]nder § 34-141 the duty owed by a manager of an LLC to
members is the duty of reasonable care, not the duty of a fiduciary.
Plaintiff’s breach of fiduciary duty claim is therefore precluded by the
governing statute and should be dismissed on that basis alone.
Id. at 2, 3.
This asserted preclusive effect of § 34-141 upon the existence of fiduciary duties among
managers and members of LLCs appears to have escaped the attention of Connecticut lower courts.
In Bongiorno v. J & G Realty, LLC, No. FSTCV126014465S, 2019 WL 1875510 (Conn. Super. Ct.
Mar. 12, 2019), pre-2017 litigation involved three generations of the Bongiorno family and LLCs
the family created to own or operate commercial real property.2 The Superior Court said: “The court
finds that a manager of a manager-managed LLC owes a fiduciary duty to the LLC and its members.”
2019 WL 1875510, at *5 (citation and internal quotation marks omitted). In the case at bar, Albert
Kleban was the self-acknowledged manager of Sun Realty, an LLC.
In Inteliclear, LLC v. Victor, No. 3:16-cv-1403, 2016 WL 5746349 (D. Conn. October 3,
2016), Judge Arterton said: “A member of a limited liability company has a fiduciary duty to the
other members of the LLC.” 2016 WL 5746349, at *7 n. 19 (citing Clinton v. Aspinwall, Docket No.
CV-13-6042758-S, 2014 WL 1190079 (Conn. Super. Ct. Feb. 24, 2014) and Yavarone v. Jim
2
Amended sub nom. Bongiorno v. J. & G. Realty, No. FSTCV126014465S, 2020 WL
4744843 (Conn. Super. Ct. July 10, 2020).
20
Moroni's Oil Service, LLC, Docket No. CV-03-0102318-S, 2005 WL 737010 (Conn. Super. Ct. Feb.
18, 2005)).
In Papallo v. Lefebvre, 172 Conn. App. 746 (2017), an LLC whose business was operating
a bar, a member of the LLC sued the other member, who managed the business, for inter alia breach
of fiduciary duty in managing the business’s assets. The trial court held that “the plaintiff and the
defendant owed fiduciary duties to one another by virtue of their membership interests in the LLC,”
172 Conn. App. at 755, a proposition that the appellate court assumed “without deciding,” id., while
noting in footnote 1: “The defendant has not participated in this appeal, and, therefore, does not
challenge the court’s finding, not reproduced in this opinion, that a fiduciary relationship existed
between the plaintiff and the defendant by virtue of their membership in the LLC. For purposes of
this appeal, we therefore assume, without deciding, that such relationship existed.” Id. n.1.
Similarly, in Clinton v. Aspinwall, No. HHDCV136042758S, 2015 WL 5438689, at *3
(Conn. Super. Ct. Aug. 20, 2015), the Superior Court held that under Connecticut law “managers
and members of limited liability companies owe each other fiduciary duties.”
While the Connecticut cases involving LLCs cited in the preceding paragraphs were decided
while § 34-141(a) was in effect, the courts involved neither held nor suggested that the statute
precluded the existence of a fiduciary duty among members or managers of an LLC. They may be
contrasted in that regard with Calpitano v. Rotundo, No. CV116008972, 2011 WL 3672092 (Conn.
Sup. Ct. Aug. 3, 2011), where the court said dismissively that “plaintiff does not provide any
authority for the proposition that members of an LLC owe a fiduciary duty to each other.” 2011 WL
3672092, at *5. The court then cited and quoted § 34-141, which, in the court’s paraphrase, “sets
forth a duty of good faith which is not the same as the duty of a fiduciary, which goes beyond good
21
faith, and requires the fiduciary to put the interests of those to whom the fiduciary duty is owed
ahead of the interests of the fiduciaries.” Id. at *6. The court reasoned in Calpitano: “Reading § 34141, it is clear that the intention was that an [sic] limited liability corporation more closely resembles
a business corporation than a partnership, and the members’ relationship to each other is more akin
to shareholders than partners,” an important distinction since it is also “clear that shareholders owe
no particular duty to each other because of their status as fellow shareholders.” Id.
Plaintiff at bar seeks to distinguish Calpitano as an “outlier,” which is to say, contrary to the
other LLC decisions previously discussed. Moreover, Calpitano considered whether fiduciary duties
existed between members of an LLC inter se; the case at bar turns on whether an LLC manager (like
Albert Kleban) is a fiduciary. Plaintiff also points out, correctly, that Kleban does not cite any
Connecticut appellate case involving an LLC which in those particular circumstances holds that
§ 34-141(a) precludes the existence of a fiduciary duty that, but for the statute, would be imposed
by equitable principles. That seems a doubtful proposition, given the broad and inclusive language
with which the Connecticut Supreme Court, in Konover and its other cited opinions, defines
“fiduciary duty” as a creation of equity.
The question posed regarding the effect of § 34-141(a) upon this case is an interesting one,
but I need not decide it. Assuming, contrary to a considerable weight of Connecticut case law, that
Albert Kleban as a member and member-manager of Sun Realty did not have a fiduciary relationship
with SLSJ, another Sun member, Kleban had that relationship with SLSJ in his capacity as president
of Sun Realty – SMP, Inc. SMP is that separate corporation Albert Kleban created to contract with
Sun Realty LLC for the management of Sun Realty’s business. I observed supra that Albert Kleban,
who owned SMP with his wife, alone managed and controlled SMP, which had no offices or
22
employees of its own. Given the expertise and experience of Albert Kleban, and the lesser skills of
Kleban cousins like Lois Jeruss who owned Sun Realty interests, it is manifest that in the conduct
of Sun Realty LLC’s business affairs, SMP and Albert Kleban had a fiduciary relationship with, and
owed a fiduciary duty to, a Sun Realty interest-owner like SLSJ, and a derivative individual like Lois
Jeruss. That is precisely the fiduciary relationship, and attendant fiduciary duty, whose existence
Albert Kleban, speaking as president of SMP, forthrightly acknowledged during his deposition,
quoted supra.
The fiduciary relationship between Albert Kleban and SLSJ is not precluded by the fact that
Sun Realty’s management contract was with SMP, a corporation, rather than with Albert Kleban,
an individual. Kleban’s contention is that he is not individually liable for any breach of a fiduciary
duty SMP owed to SLSJ. The Connecticut Supreme Court recognizes the equitable remedy of
piercing the corporate veil, whereby “justice may require the courts to disregard the corporate fiction
and impose liability on the real actor.” Zaist v. Olson, 154 Conn. 563, 574-75 (1967) (collecting
cases). See also Mirlis v. Edgewood Elm Housing, Inc., No. 3:19-cv-700, 2020 WL 4369268, at *5
(D. Conn. July 30, 2020) (collecting cases). The equitable remedy of veil piercing is applied when
an individual exercises “complete domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the corporate entity as to this transaction had
at the time no separate mind, will or existence of its own,” Zaist, 154 Conn. at 575. That description
mirrors Albert Kleban’s control over SMP. There is no substance to Kleban’s objection that Plaintiff
did not previously and specifically plead the remedy of veil piercing. Albert Kleban’s domination
of SMP appears clearly enough from his own submissions on these motions. I apply this remedy,
23
sitting as a chancellor in equity.3
For the reasons stated in this Part, I conclude that at the relevant times, a fiduciary
relationship existed between Albert Kleban as fiduciary, and SLSJ and Lois Jeruss as beneficiaries.
VI
The conclusion that a fiduciary relationship exists, between Albert Kleban as fiduciary and
SLSJ and Lois Jeruss as beneficiaries, triggers additional questions with respect to Plaintiff’s claim
for breach of a fiduciary duty.
Judge Arterton’s opinion in Inteliclear states the elements of the claim:
The essential elements to pleading a cause of action for breach of
fiduciary duty under Connecticut case law are: (1) [t]hat a fiduciary
relationship existed which gave rise to (a) a duty of loyalty on the part
of the defendant to the plaintiff, (b) an obligation on the part of the
defendant to act in the best interests of the plaintiff, and (c) an
obligation on the part of the defendant to act in good faith in any
matter relating to the plaintiff; (2) [t]hat the defendant advances his
own interests to the detriment of the plaintiff; (3) [t]hat the plaintiff
sustained damages; [and] (4) [t]hat the damages were proximately
caused by the fiduciary's breach of his or her fiduciary duty.
2016 WL 5746349, at *7 n. 19 (quoting AW Power Holdings, LLC v. FirstLight Waterbury
Holdings, LLC, No. CV146047836S, 2015 WL 897785, at *4 (Conn. Super. Ct. Feb. 17, 2015)).
The existence of a fiduciary relationship has a significant effect upon the resolution of these
issues. In Konover, the Connecticut Supreme Court held:
3
Albert Kleban cites Krys v. Butt, 486 F. App'x 153 (2d Cir. 2012), for the proposition that
a corporation’s fiduciary duties are not extended to or shared by its officers. The Second Circuit’s
summary order in Krys does not shield Kleban individually from the fiduciary duty also borne by
SMP. Krys did not involve corporate veil piercing, which was neither pleaded nor proved; and the
Second Circuit was careful to note in Krys that “nothing in the complaint suggests that any
relationship existed between plaintiffs and the [corporate fiduciary’s] individual officers.” 486 F.
App'x at 156 n. 4. The case at bar is replete with evidence of Albert Kleban’s self-acknowledged
individual managerial relationship with Sun Realty.
24
Proof of a fiduciary relationship imposes a twofold burden on the
fiduciary. First, the burden of proof shifts to the fiduciary; and
second, the standard of proof is clear and convincing evidence. Once
a fiduciary relationship is found to exist, the burden of proving fair
dealing properly shifts to the fiduciary. Furthermore, the standard of
proof for establishing fair dealing is not the ordinary standard of proof
of fair preponderance of the evidence, but requires proof either by
clear and convincing evidence, clear and satisfactory evidence or
clear, convincing and equivocal evidence.
228 Conn. at 229-30 (citations, internal quotation marks and ellipses omitted). Konover further
instructs that “the fiduciary’s responsibility to establish that the transaction was fair was to be
considered in light of all the circumstances,” and stated:
Important factors in determining whether a particular transaction is
fair include a showing by the fiduciary: (1) that he made a free and
frank disclosure of all the relevant information he had; (2) that the
consideration was adequate; and (3) that the principal had competent
and independent advice before completing that transaction.
Id. at 228 (citation omitted). To these factors, the Konover court added “the relative sophistication
and bargaining power among the parties.” Id.
Applying these principles to the case at bar, it is useful to recall that Plaintiff claims Albert
Kleban breached a fiduciary duty he owed to SLSJ and Lois Jeruss. Therefore the case turns upon
Kleban’s conduct concerning SLSJ and Jeruss. We must ask: Did Kleban breach a fiduciary duty
owing to SLSJ and Jeruss? And did such a breach proximately cause damage to SLSJ and Jeruss?
These conceptual limitations necessitate consideration of the case’s chronology. The
gravamen of SLSJ’s complaint is that Albert Kleban did not tell other Sun Realty members,
including SLSJ, the details of his attempts to sell Sun Realty and Black Rock to third parties.
Plaintiff’s Main Brief quotes Albert Kleban’s written advice to Sun Realty members on October 18,
2013, that “the Regency transaction was the culmination of ‘a work product of many months’” Doc.
25
103, at 21 (quoting Pl. Ex. 8), and then says, with the righteous indignation of advocacy:
None of those efforts, including none of the conduct and
communications set forth in sections 7(a) and (b), immediately below,
was disclosed or known to SLSJ. Had SLSJ known any of these
facts, it would not have executed the Membership Interest Purchase
Agreement at the specified contract price or would not have sold or
assigned its membership interests thereunder. As would any
reasonable person, it “would have waited” to “see what would
happen.”
Id. at 21-22 (citations omitted). Lois Jeruss’s deposition testimony is quoted in support of the latter
assertion. Section 7(a) of the Brief, referenced in this passage, is captioned “The Klebans’
Undisclosed Negotiations with Federal Realty.” Section 7(b) is captioned “The Klebans’ Additional
Undisclosed Negotiations with Kimco.” Id. at 22, 24.
The evidence in the record shows that Albert Kleban and his son, Kenneth Kleban, began
their efforts to sell Black Rock to a third party by meeting with Federal Realty executives in February
2013. As those negotiations, ultimately unsuccessful, were taking place, in March 2013 Albert
Kleban also contacted Kimco’s executives about a possible sale of Black Rock to Kimco. These
efforts by the Klebans to sell Black Rock came to nothing. Negotiations with Federal Realty ceased
on July 31, 2013, without Federal Realty ever having made an offer. Kimco made an offer on
August 26, 2013, which Albert Kleban promptly rejected as insufficient. Thereafter, Regency
emerged as the purchaser of majority interests in Sun Realty, which included Black Rock. The
Klebans’ first contact with Regency occurred through its broker in September 2013. The sale
agreement to Regency was executed on October 17, 2013.
This undisputed chronology sets the stage for the Membership Interest Purchase Agreement
between Defendant Albert Kleban and Plaintiff SLSJ, which SLSJ now challenges as the poisoned
26
fruit of Kleban’s tainted fiduciary duty breach. The Purchase Agreement is dated as of June 1, 2013.
On that date, Kleban had been trying to sell Black Rock to Federal Realty since February 2013, with
no success, and had just begun, in March 2013, to try to sell the property to Kimco. On Plaintiff’s
theory of the case, the Court is asked to conclude that if on June 1, 2013, Kleban had made these
particular circumstances known to Lois Jeruss, she would have rejected Kleban’s offer to pay in
excess of $2 million for SLSJ’s one-third interest in Sun Realty and instead “would have waited”
to “see what would happen.” When the Purchase Agreement closed, not later than July 31, 2013,
the situation was essentially the same: Federal Realty was about to drop out of the picture, and
Kimco had not yet submitted an offer (which, when made, Kleban rejected as insufficient). Plaintiff
presses for the same conclusion: if on July 31, 2013, Jeruss had known these scant additional
circumstances, she would not have sold SLSJ’s interest in Sun Realty to Albert Kleban, opting
instead to wait to see what would happen.
What actually happened in the real world was that neither Federal Realty nor Kimco bought
Black Rock or any interest in Sun Realty. As of August 26, 2013, when Albert Kleban rejected the
Kimco offer, Black Rock remained Sun Realty’s problematic only asset, with no prospective
purchasers in sight. Whether in those circumstances the hypothetical Jeruss would have continued
a policy of wait and see is interesting but irrelevant. The briefs for Plaintiff make much of the
amount Regency ultimately paid for 80 percent of Black Rock and additional Kleban-owned
properties, but these economic differentials do not play a legitimate role in this analysis.
The case at bar is concerned only with what Kleban had failed to tell Jeruss about a sale to
third parties at the time Jeruss engaged in the sale of SLSJ’s interest in Sun Realty to Kleban. That
failure of communication cannot include Regency, which was not even a gleam in the Klebans’ eye
27
when SLSJ sold its Sun Realty interest to Albert Kleban in June 2013. At that time Regency was
awaiting discovery by Kleban’s enterprising broker, which did not occur until September 2013.
VII
I have concluded that within the context of a sale of Sun Realty property like Black Rock to
third parties, Albert Kleban owed a fiduciary duty to Sun Realty interest-owning members. SLSJ’s
claim against Albert Kleban for breach of that fiduciary duty fails because SLSJ cannot show that
the conduct by Kleban constituting the alleged breach was the proximate cause of the damage SLSJ
claims to have suffered.
The damage SLSJ claims to have suffered is derived solely from a comparison of the value
ascribed to Sun Realty when Albert Kleban bought SLSJ’s one-third interest in Sun Realty in June
2013 with the allocated value of Sun Realty when the Kleban Entities (including Albert) sold an 80
percent interest in Black Rock and other Kleban-owned properties to Regency in October 2013.
SLSJ’s theory is that Albert Kleban’s breach of his fiduciary duty to SLSJ as a Sun Realty member
wrongfully deprived SLSJ of participation in the economically beneficial Regency transaction. SLSJ
would have enjoyed that participation, it theorizes, because if in June 2013 Kleban had fully
disclosed to SLSJ his efforts to sell Sun Realty to third parties, SLSJ (and Lois Jeruss) would not
have sold SLSJ’s interest in Sun Realty to Albert Kleban. Jeruss would instead have watched and
waited, with SLSJ’s Sun Realty interest intact, and consequently been able to share in the October
millions dispensed by Regency.
Thus, on Plaintiff’s theory of the case, Albert Kleban’s non-disclosure of third party
negotiations in June and July 2013 (when the sale by SLSJ to Albert Kleban closed) is the proximate
cause of an economic deprivation suffered by SLSJ in October 2013. While the Connecticut
28
Supreme Court has held that Kleban as a fiduciary bears the burden of proving his transaction with
SLSJ was fair, SLSJ as the plaintiff in this action bears the burden of proving that Kleban’s breach
of the fiduciary duty proximately caused the damage of which SLSJ complains.
SLSJ’s theory of causation would be plausible if the evidence showed that the Klebans’
favorable agreement with Regency had been reached before SLSJ agreed to sell its Sun Realty
interest to Albert Kleban; Kleban, in breach of his fiduciary duty, told SLSJ (and other Sun Realty
members) nothing about efforts to sell Sun Realty to a third party or the impending transaction with
Regency; Albert Kleban bought SLSJ’s interest in Sun Realty on, say, June 1, for a price calculated
on the basis of a valuation amount of Sun Realty as of that date; and Albert then sold his enhanced
ownership in Sun Realty to Regency on June 2, for a price calculated on that date on the basis of a
valuation amount of Sun Realty twice that of June 1. But the evidence is quite different. Albert
Kleban told the attendees at the Family Meeting on April 29 that partnering with a real estate
investment trust like Kimco might be an option for the hard-pressed Kleban-owned mall properties;
that much is acknowledged by the deposition of James Blank, a witness produced by Plaintiff.
SLSJ’s sale of its Sun Realty interest to Albert Kleban was accomplished a month before the Klebans
even learned of Regency’s possible interest in the property, and two months before the Regency
transaction was agreed to.
I will assume without deciding that Albert Kleban’s role as a fiduciary obligated him to
disclose to Sun Realty interest-owning members on a day-to-day basis Kleban’s efforts to sell the
property to third parties. The problem with SLSJ’s present action is that at the time of Kleban’s
negotiations and transaction with Regency, SLSJ was no longer a member of Sun Realty. SLSJ
closed on its agreement with Albert Kleban not later than July 31, 2013. On that day, Kleban’s
29
disclosures would have been limited to advising that Federal Realty was not going to purchase an
interest in Sun Realty and Kimco had not made an offer. SLSJ is not in a position to characterize
Albert Kleban’s failure to disclose the Regency transaction as a proximate cause of SLSJ’s
financially disadvantageous transaction with Kleban, since Regency’s financially rewarding
appearance on the scene lay well in the future. When the Klebans’ broker first introduced them to
Regency, SLSJ was no longer a member of Sun Realty, and had not been for over two months (June
1 to mid-September).
In these circumstances, I am unable to conclude that any breach by Defendant Albert Kleban
of his fiduciary duty was the proximate cause of compensable damage to Plaintiff SLSJ. I use
“proximate cause” in the classic common-law sense, defined by Justice Ginsburg in CSX
Transportation, Inc. v. McBride, 564 U.S. 685 (2011):
The term “proximate cause” is shorthand for a concept: Injuries have
countless causes, and not all should give rise to legal liability. What
we mean by the word “proximate,” one noted jurist has explained, is
simply this: Because of convenience, of public policy, of a rough
sense of justice, the law arbitrarily declines to trace a series of events
beyond a certain point.
564 U.S. at 692 (emphasis in original) (citations, some internal quotation marks, and ellipsis
omitted).
Applying these principles to the case at bar, I decline to trace Albert Kleban’s fiduciary duty
liability beyond the termination of SLSJ’s membership interest in Sun Realty, that being the interest
upon which SLSJ’s fiduciary relationship with Albert Kleban depended. It follows that Plaintiff’s
claim against Kleban for damages based on breach of fiduciary duty fails for lack of proximate
causation.
30
VIII
The briefs and arguments of the parties dispute whether Albert Kleban paid SLSJ a fair price
in July 2013, when Kleban purchased SLSJ’s one-third interest in Sun Realty.
In Part V of this Ruling, the Court held that at that time, a fiduciary relationship existed
between Albert Kleban and Sun Realty members like SLSJ. “Once a fiduciary relationship is found
to exist, the burden of proving fair dealing properly shifts to the fiduciary,” a burden which requires
proof “by clear and convincing evidence,” Konover, 228 Conn. at 229-30 (citations omitted).
The fairness vel non of what Albert Kleban paid SLSJ for its interest in Sun Realty in July
2013 may have been mooted by the Court’s conclusion in Part VII that Albert Kleban’s conduct did
not proximately cause any damage or loss triggered by Kleban’s transaction with Regency in October
2013. However, for the sake of completeness, I consider whether Albert Kleban, who owed SLSJ
a fiduciary duty in July 2013, has proved that his purchase of the Sun Realty interest from SLSJ at
that time was the product of fair dealing.
The supplemental brief for Albert Kleban vigorously defends the fairness of that
SLSJ/Kleban transaction. His argument is essentially in the alternative. Kleban denies he was ever
in a fiduciary relationship with SLSJ or Lois Jeruss, a denial I am unable to accept. Kleban’s
alternative contention is that there was nothing unfair about his purchase of SLSJ’s minority interest
in Sun Realty.
Albert Kleban’s contention that his transaction with SLSJ was fair focuses upon the sole
basis for Plaintiff’s claim that it was unfair, principally because the consideration paid by Kleban
was inadequate. Specifically, SLSJ contrasts the amount of $30,609,665, the agreed value of 100
percent of Sun Realty for purposes of the Regency transaction, with $23,082,960, the “valuation of
31
the same property used to determine the price Kleban paid on July 29, 2013, to purchase SLSJ’s
33.33 percent interest in Sun Realty,” and concludes that this “effectively realized” for Albert Kleban
“a $2.5 million dollar gain on the 33.33 percent interest he purchased from SLSJ,” that gain to
Kleban being “one-third of the differential between the respective valuations used as the basis for
the pricing in the respective transactions with SLSJ and Regency.” Doc. 103, at 10 (emphasis
added). I will refer to these amounts as “the SLSJ Valuation” and “the Regency Valuation.”
Albert Kleban’s contention on this aspect of the case is that the difference in these two
valuations of Sun Realty is not probative of the fairness of the price Kleban paid for SLSJ’s interest
in Sun Realty or the adequacy of the payment. In that regard, Kleban stresses that this is not a case
where a fiduciary buys a property from his beneficiary for a low price, and one week later sells the
same property to a third party at twice the price the fiduciary paid the beneficiary for it. That
hypothetical fiduciary might have some difficulty in persuading a court that he dealt fairly with his
beneficiary. However, the case at bar does not involve two uncomplicated sales of the same
property, where money changes hands, title passes, and the striking differential between the two paid
purchase prices supports a reasonable inference that the earlier transaction was unfair to the
beneficiary seller. In this case, Plaintiff does not ask the Court to condemn Kleban’s purchase of
SLSL’s interest in Sun Realty as unfair on the basis of a suspicious differential between purchase
prices. Rather, SLSJ relies upon a difference between valuations of that property, upon which the
purchase prices in question were calculated.
The case for Albert Kleban is that factors exist which explain why the Regency Valuation
of Sun Realty was higher than the SLSJ Valuation, while not impugning the fairness of the price
Kleban paid SLSJ. The SLSJ Valuation was generated in the relatively narrow context of Albert
32
Kleban’s purchase of SLSJ’s minority interest in Sun Realty. The Regency Valuation, Kleban notes
in his Supplemental Brief, “reflects Regency’s willingness to pay a premium to purchase Sun Realty
as part of a larger portfolio of properties that included other guarantees promised by the Klebans,”
so that “the Regency Valuation was meant to value Regency’s purchase of a majority interest in a
portfolio of properties.” Doc. 130, at 8. “The inclusion of other properties,” Kleban’s argument
continues, “resulted in a greater valuation because Regency was willing to pay a premium for
properties that housed national credit tenants not likely to be effected [sic] by the economic
downturn of the brick-and-mortar market.” Id. at 9. In addition, “the Klebans gave Regency
personal guarantees and other commitments that added further value to the Regency Valuation.” Id.
These several factors, which increased the Regency Valuation, were not present in the transaction
between Albert Kleban and SLSJ, nor were such factors reflected in the SLSJ Valuation.
These factual distinctions, which are not disputed, undermine the probative effect of the
valuation differential on the issues of the fairness of the price or adequacy of the payment Albert
Kleban made to SLSJ for the Sun Realty minority interest. Moreover, the record contains two
evidentiary indications that price was fair and the payment adequate. First, at the same time Albert
Kleban purchased SLSJ’s 33.33 percent interest in Sun Realty, he purchased an 11 percent interest
in Sun Realty from Allan Kleban, another Kleban family cousin, an attorney and construction
company executive. While the valuation and pricing terms of Allan Kleban’s sale of his Sun Realty
interest to Albert were the same as the terms of SLSJ’s sale to Albert, Allan Kleban has never
claimed that he did not receive fair value for his interest. Kleban family members do not seem
inhibited from proclaiming they were wronged. Second, when in 2012 Lois Jeruss made a gift of
a 7.4% membership in SLSJ to her daughters, she obtained for gift tax purposes a professional
33
appraisal that the value of Jeruss’s one-third interest in Sun Realty was $2,149,983, an amount not
materially different from the sum SLSJ and Jeruss received from Albert Kleban when that purchase
was consummated in July 2013. This contemporaneous payment and contemporaneous appraisal
furnish significant evidence of the fairness of the transaction in suit and the adequacy of Albert
Kleban’s payment to SLSJ for the minority interest in Sun Realty SLSJ sold to Kleban in July 2013.
An additional factor is found in Konover, which holds that determination of “whether a
particular transaction is fair” requires “a showing by the fiduciary” that “the principal had competent
and independent advice before completing that transaction.” 228 Conn. at 228. In the case at bar,
Lois Jeruss chose not to attend the Kleban Family Meeting on April 29, 2013, and accordingly did
not hear Albert Kleban’s account of possible discussions with potential third-party purchasers, but
the record shows that she was represented throughout by a Chicago attorney, Carleen Schreder, and
with respect to a possible sale of SLSJ’s interest in Sun Realty, by a Connecticut attorney, Richard
Hoffman. Schreder was active during the relevant years in the protection of Jeruss’s interests. There
is no evidence that Albert Kleban failed to answer any question or furnish any information requested
by Attorney Schreder or Attorney Hoffman. Plaintiff correctly argues that a fiduciary beneficiary’s
representation by counsel does not relieve the fiduciary from the obligation of full and frank
disclosure of relevant information about a transaction. However, the Connecticut Supreme Court
saw fit in Konover to include the beneficiary’s receipt of competent and independent advice as a
factor in determining whether the transaction is fair, and in this case that factor weights in favor of
the Defendant.
On the record in this case, I conclude that Defendant Albert Kleban, who had a fiduciary
relationship with Plaintiff SLSJ at the times when SLSJ owned a membership interest in Sun Realty,
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has proved by clear and convincing evidence that he engaged in fair dealing with SLSJ during the
course of the purchase and sale transaction in July 2013. Kleban makes that proof by (1)
undermining the probative effect of the valuation differential as support for Plaintiff’s claims that
the transaction was unfair and the consideration paid by Defendant inadequate; (2) showing that the
nature of that valuation differential, and contemporaneous amounts derived from other sources,
militate in Defendant’s favor on those issues; and (3) showing that Plaintiff was represented at the
relevant times by independent attorneys, who made no discernible objection or claim with respect
to the procedure or substance of the transaction in suit.
This conclusion necessitates summary judgment in Defendant’s behalf on the cross-motions
dealing with breach of fiduciary duty claims. It is an alternative basis to that contained in Part VII,
dealing with proximate causation.
IX
For the foregoing reasons, the Court makes this Order:
1. Defendants’ Motion for Partial Summary Judgment [Doc. 87] is GRANTED.
2. Plaintiff’s Cross-Motion for Partial Summary Judgment [Doc. 113] is DENIED.
It is SO ORDERED.
Dated: New Haven, Connecticut
October 6, 2020
/s/Charles S. Haight, Jr.
CHARLES S. HAIGHT, JR.
Senior United States District Judge
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