Judge Spares Church Street South’s Shell Corporations

Church Street South’s former tenants can sue the executive in charge of the company that ran their apartments into the ground, but not the shell corporations hidden by another state’s laws.

Connecticut Superior Court Judge Linda Lager made that determination on Wednesday, as she sorts through procedural issues before the parties meet for their first major showdown later this month over whether the tenants can argue their case together as a class action, rather than as hundreds of individual lawsuits.

Five named plaintiffs and their children filed a case in state court in November 2016, seeking monetary damages for the respiratory problems, skin disorders, migraines, loss of furniture, dislocation and homelessness suffered by the all the families at the 301-unit, federally subsidized complex because of rampant mold, leaking ceilings and other hazards. Those problems led the government to condemn the 301-unit apartment complex across from Union Station, which is now being demolished to make way for a larger mixed-income, mixed-use development.

In filing suit, the tenants went after one businessman and a web of four related corporations. The primary defendants are Northland Investment Corp., the real-estate development company behind Church Street South, and Lawrence Gottesdiener, the company’s chief executive and chairman.

But between the actual deed-holder and the controlling executive, there are three shell companies.

First, there’s Church Street New Haven, LLC, a limited-liability company set up in Delaware that has only one asset, the title to the property, and only one controlling member. That member is Northland Fund II LP, a limited partnership also set up in Delaware. In turn, that company’s main operative is Northland Fund II Partners, LLC, another limited-liability company set up in Delaware that’s also controlled by just one member: Northland, the actual business.

All of them share the same business address in Newton, Massachusetts.

David Rosen, a civil-rights lawyer who’s representing the tenants, argued that all the shell companies are just a front for Northland. (Click here to read his interpretation of the law.)

“The shell defendants have no separate identity or ability to act separate from Northland and the control that Northland exerts over them,” Rosen argued. They were created ​“for the sole purpose of acquiring, operating and leasing Church Street South as Northland’s alter ego.”

He pointed out that they shared the same officers, managers and employees; that Northland managed their assets, revenues, liabilities and expenses; and that Northland effectively created them ​“as conduits … for decision-making.”

The defendants’ lawyers have used Delaware’s strict laws to distance the companies from responsibility. (Click here to read their arguments.)

Marc Kurzman, the defense attorney, argued that the tenants hadn’t given any reason to ​“pierce the corporate veil and impose liability” on Gottesdiener and the two shell companies.

Judge Lager agreed with only half their argument. She said that she’d refer to Delaware’s statutes for corporate liability and Connecticut’s statutes for individual liability, leading to two very different outcomes. (Click here to read the judge’s decision.)

As Lager put it bluntly in her ruling, ​“Delaware law favors corporate structures.” Going by what’s on their books, lawsuits can get at the individuals behind a corporation only if they’re operating as a single economic unit and if there’s an allegation of ​“fraud” or ​“misuse of the corporate form.”

Rosen, in arguing the shell companies are just an alter ego, hadn’t met either burden, the judge said. It wasn’t enough to state that Northland controlled all the companies, Lager concluded, when Delaware law requires him to prove that the shell companies didn’t have their own capital or didn’t keep requisite records.

But Lager added that the shell companies aren’t entirely off the hook. Even though she’d strike them from the lawsuit, she said, Rosen might get another chance to pierce the corporate veil if the tenants win the case against the deed-holder and are unable to collect the judgement.

Under Connecticut law, Lager arrived at a different conclusion for Gottesdiener. She said that officers and shareholders can be held personally liable here if they commit a tort (an injury outside what’s detailed in a contract), regardless of whether their company is also sued.

Citing what the executive told the Independent in a 2015 interview, Rosen had argued that Gottesdiener ​“willingly accepted ownership of Church Street South; he bought it intending to replace it; and he was responsible for organizational failure there.”

Lager didn’t weigh in on whether that claim was true, but she said it was at least arguable in court. Beyond his title, Gottesdiener played a role in the management of the apartment complex. He might have ​“negligently, recklessly and deliberately acted or failed to act to maintain the premises so that conditions would deteriorate to the point that Church Street South would become uninhabitable,” Lager said.

In a separate ruling, Lager also decided it was too late for the Christian Activity Council, a nonprofit in Hartford, to submit a ​“friend-of-the-court” brief arguing that she should certify the Church Street South tenants as a class to affirm the legal remedies that low-income tenants posses to hold their landlords accountable for inadequate housing.

A hearing on Rosen’s motion to certify the tenants as a class is scheduled for Aug. 29.

Previous coverage of Church Street South:
• Spin Doctor Hired To Rebut Asthma Link
• Northland: Disaster Not Our Fault
• Church Street South Taxes Cut 20%
• The Tear-Down Begins
• Finally Empty, Church Street South Ready To Disappear
• Northland’s Insurer Sues To Stop Paying
•Who Broke Church Street South?
•Amid Destruction, Last Tenant Holds On
• Survey: 48% Of Complex’s Kids Had Asthma
• Families Relocated After Ceiling Collapses
• Housing Disaster Spawns 4 Lawsuits
• 20 Last Families Urged To Move Out
• Church St. South Refugees Fight Back
• Church St. South Transfers 82 Section 8 Units
• Tenants Seek A Ticket Back Home
• City Teams With Northland To Rebuild
• Church Street South Tenants’ Tickets Have Arrived
• Church Street South Demolition Begins
• This Time, Harp Gets HUD Face Time
• Nightmare In 74B
• Surprise! Now HUD Flunks Church St. South
• Church St. South Tenants Get A Choice
• Home-For-Xmas? Not Happening
• Now It’s Christmas, Not Thanksgiving
• Pols Enlist In Church Street South Fight
• Raze? Preserve? Or Renew?
• Church Street South Has A Suitor
• Northland Faces Class-Action Lawsuit On Church Street South
• First Attempt To Help Tenants Shuts Down
• Few Details For Left-Behind Tenants
• HUD: Help’s Here. Details To Follow
• Mixed Signals For Church Street South Families
• Church St. South Families Displaced A 2nd Time — For Yale Family Weekend
• Church Street South Getting Cleared Out
• 200 Apartments Identified For Church Street South Families
• Northland Asks Housing Authority For Help
• Welcome Home
• Shoddy Repairs Raise Alarm — & Northland Offer
• Northland Gets Default Order — & A New Offer
• HUD, Pike Step In
• Northland Ordered To Fix Another 17 Roofs
• Church Street South Evacuees Crammed In Hotel
• Church Street South Endgame: Raze, Rebuild
• Harp Blasts Northland, HUD
• Flooding Plagues Once-Condemned Apartment
• Church Street South Hit With 30 New Orders
• Complaints Mount Against Church Street South
• City Cracks Down On Church Street South, Again
• Complex Flunks Fed Inspection, Rakes In Fed $$
• Welcome Home — To Frozen Pipes
• City Spotted Deadly Dangers; Feds Gave OK
• No One Called 911 | ​“Hero” Didn’t Hesitate
• ​“New” Church Street South Goes Nowhere Fast
• Church Street South Tenants Organize