Opinion
No. X-08 FST CV04-4004519S
June 30, 2009
Memorandum of Decision on Motions to Reargue
This case was brought by a judgment creditor of a limited partnership, seeking to impose personal liability for its $168,838.20 judgment upon four of the fifteen limited partners of the judgment debtor limited partnership. Following a bench trial, the court entered judgment by written memorandum of decision, awarding damages of $89,396.91, including interest, plus attorneys fees to be determined at a post-trial hearing. Now before the court are three motions for reargument of some of the aspects of that judgment. The defendant Marvin Leventhal in his motion (No. 196) and the Coastal Pallet defendants in their motion (No. 199) ask the court to reconsider its calculation of damages, specifically the application of the finding of waiver, as set forth in Section G of the court's memorandum of decision. The Coastal Pallet defendants also ask the court to reconsider the calculation of statutory interest under Conn. Gen. Stat. § 37-3a in light of an amendment to that statute which took effect on October 1, 2005. The plaintiffs have also moved to reargue (No. 201) asking the court to reconsider the extent and application of the court's finding that the defendants had prevailed in part on their special defense of waiver (Memorandum of Decision, Section F). All three motions have been briefed by the moving and opposing parties.
The Coastal Pallet defendants are Coastal Pallet Corp., Peter Standish, and Bernice Donahue.
Motions to reargue decisions that are final judgments for purposes of appeal are governed by Practice Book § 11-11. Practice Book § 11-12 is also instructive as to the procedure to be followed: "The motion to reargue shall be considered by the judge who rendered the decision or order. Such judge shall decide, without a hearing, whether the motion to reargue should be granted." The purpose of a re-argument is to demonstrate to the court that there is some decision or some principal of law which would have a controlling effect, and which has been overlooked, or that there has been a misapprehension of facts. Jaser v. Jaser, 37 Conn.App. 194, 202 (1995). "A motion to reargue is not to be used as an opportunity to have a second bite at the apple . . ." Northwestern Mutual Life Insurance Company v. Greathouse, Docket No. CV98-0164835S, Superior Court, Judicial District of Stamford/Norwalk at Stamford (June 27, 2000, D'Andrea, J.) ( 2000 Ct.Sup. 7680).
The court has carefully considered the motions of the parties and the thorough briefs they have submitted for and against each of these motions, which — it seems to the court — set forth essentially the very arguments that would be advanced if a reargument were to be allowed. After extensive and careful deliberation and review of the evidence and authorities cited by the parties, the court concludes, with one minor exception to be noted below, that there is no decision or principal of law overlooked by the court nor has there been a misapprehension of facts, which would change the outcome of the court's judgment. The one exception is the Coastal Pallet defendants' point about the correct interest rate under Conn. Gen Stat. § 37-3a(a) for accruals of interest prior to October 1, 2005, to be discussed below. Each claim will be discussed.
A. Waiver and Damage Calculations
The court found in Section A of the memorandum of decision that the defendants lost their limited liability as limited partners of Morningside Partners Limited Partnership by violations of the limited partnership agreement by demanding and negotiating though their attorney and accepting in two installments on November 13 and 15, 1996 undisclosed and unauthorized side payments in the total amount of $47,704.34 from the purchaser of the partnership's sole asset, the building at One Morningside Drive in Westport. The property was sold on November 15, 1996 by a receiver for the limited partnership appointed by the Superior Court in connection with a receivership proceeding commenced by the defendant Peter Standish. The sale was conducted pursuant to a consent judgment of the receivership court which detailed the exact purchase price and the exact disbursement of all proceeds of sale to all parties in interest, including a $38,073.92 partial payment to the plaintiff and $102,295.66 to the defendants, which latter sum did not include or authorize the payment of the additional $47,704.34 from the purchaser to the defendants. The court concluded that the demand for and receipt of the unauthorized side payment violated several enumerated provisions of the limited partnership agreement, which violations, in turn caused the loss of limited liability status of the limited partners under § 3.3 of the limited partnership agreement and Conn. Gen. Stat. § 34-303. That conclusion, standing alone, would result in the defendant limited partners being, in effect, general partners of the limited partnership, making them jointly and severally liable under Conn. Gen Stat. § 34-327 for the full amount of the debts of the partnership, including liability to the plaintiff for nonpayment of the plaintiff's 1995 $150,000 Revolving Credit Agreement (Plaintiff's Ex. 2) (the "Note") which was the basis of the $163,838.20 judgment herein sued upon.
But, having so concluded, the court went on to decide the effect on that conclusion of the special defenses pleaded by the defendants, and concluded that the special defense of waiver of the plaintiff's right to assess unlimited liability on the defendants had been proved to the extent of the above-mentioned $102,295.66 disbursement which went to the defendants from the proceeds of sale of the partnership's building. The basis of that waiver was the consent given in open court in Danbury on November 14, 1996 at a hearing before Judge Grogins on a joint motion in the Standish receivership action for approval of the sale of the building to Morningside Group, LLC. At that hearing, the plaintiff Sotavento Corp. represented by its attorney Dion Moore in the presence of Sotavento's lawyer and president Samuel Braunstein expressly consented to a judgment permitting the sale, and setting the disbursement of the proceeds including the agreed disbursement of $102,295.66 to Attorney Bernard Green as attorney for the four limited partners who are the defendants in this case. (See Section F of the court's memorandum of decision.) The court then in section G applied that waiver in calculating damages to be awarded to the plaintiff, as follows:
TBTABLE April 22, 2004 Judgment $163,838.20 Less: Waiver amount ($102,295.66) Damages Awarded $61,542.54 Plus, Statutory Interest $27,854.37 TOTAL JUDGMENT ENTERED $89,396.91 TB/TABLE
The correct date of the judgment was April 25, 2004.
In seeking reargument all defendants claim that the court erred in subtracting the $102,295 waived in 1996 from the amount of the judgment entered against the partnership in 2004, and that instead, the court should have "retroactively adjusted" the judgment amount to the balance due to the plaintiff under its Note as of November 1996, which balance — they claim — was $49,176.08. Subtracting $102,295.66 from $49,176.08 would obviously result in a negative number which would be indicative of zero damages. The defendants postulate their argument on a hypothetical presentation by the plaintiffs of a "bill" to the limited partners for payment in full of the sums due under the Note in November 1996, which, they claim would have resulted in full payment of the balance of the Note, taking into account the waived amount and the $38,073.92 partial payment plaintiffs received from the proceeds of sale under the terms of the consent judgment. They argue that, under the court's analysis, the plaintiff "actually comes out better having waived its rights in November 1996 than it would have had it exercised its rights at that time." (Emphasis added) The fallacy of this argument is that the waiver was not known or acknowledged in 1996 or 2004. It first became known in 2008 when this court entered its decision in this case, as did the defendant's loss of their limited partner status. If a hypothetical bill had been presented to the defendants in 1996, or even in 2004 they would have stood on their limited partner status and paid nothing. Likewise, the partnership itself would have paid nothing in 1996 over and above the agreed partial payment from the sales proceeds of the building because it — through the derivative efforts of the defendants — was actively litigating against the validity and enforceability of the plaintiff's Note in the Debt Action and the "Standish Derivative Action." And, after 1996 the partnership could not and would not have paid anything on the Note because its last remaining asset — the building — had been sold by the receiver and all the proceeds distributed in accordance with the court order of November 14, 2006. The result was that the basic debt which resulted in the judgment has not been paid down by the primary obligor, the partnership, at any time since the $38,073.92 partial payment in 1996 as authorized by the consent judgment in the receivership action. The court has made no finding that the plaintiff has waived any rights against the partnership and in fact it reserved those rights (Coastal Pallet Defendants' Exhibits Z, AA), and the debt — now a judgment — has remained unsatisfied accumulating interest. The defendants have now been found to be jointly and severally liable for that partnership obligation to the extent that it exceeds the $102,295.66 waived amount. It would therefore not be appropriate to "retroactively adjust" the judgment amount to a hypothetical balance claimed to have existed in 1996 because the plaintiff supposedly "could have exercised its rights" and been fully compensated at that time. Any effort by the plaintiff to "exercise its rights" to collect that claimed balance or any other amount from the partnership or from the defendant partners after the sale of the property in 1996 would have been an act of futility. Defendants claim that the court's damages analysis is inconsistent with its finding that the plaintiff waived the right to assess personal liability against the defendants to the extent of the $102,296.66 disbursement of sales proceeds allowed to them in 1966 when, it is claimed, the balance of the Note was less than that amount. The court disagrees. For purposes of this action the "debt" is the amount owed to the plaintiff by the partnership. That amount was fixed at 163,838.20 plus interest accruing after April 25, 2004 by the judgment in the Debt Action which is binding on the plaintiff (who was also the plaintiff in the Debt Action) and the defendants (who were parties to the Debt Action) as a matter of collateral estoppel. The issue in this case is not the amount of the debt, but the extent, if any, of the defendants' personal liability or responsibility to pay that debt. Just as the court referred back to 1996 events to determine the abandonment of defendants' limited partner status, the court also referred back to other 1996 events to determine that the defendants' personal liability had been waived to the extent of the $102,296.66 disbursement of sales proceeds. Neither of those evidentiary look backs, however, can alter the amount of the continuing partnership debt, liability for which was at issue in this case. As our Supreme Court recently affirmed: "Waiver is based on the principle of estoppel and where applicable it will be enforced as the estoppel would be reinforced. Estoppel has its roots in equity . . ." Rosado v. Bridgeport Roman Catholic Diocesan Corp., 292 Conn. 1, 57 (2009). In this case there is no equitable consideration that is offended by charging the defendants with part of the accumulation of the debt that accrued after 1996. Despite the fact that the general partner of the partnership, Charles Lemieux, conceded the validity and enforceability of the plaintiff's Note, defendants, acting derivatively on behalf of the partnership, undertook multiple lawsuits (detailed at page 2 of the court's memorandum of decision) attempting unsuccessfully — to invalidate the Note. That this court determined defendants' partial responsibility for the payment of the Note some twelve years after the evidentiary events is largely due to their own litigation strategy. Under these circumstances any "retroactive adjustment" of the debt to set the balance back where it would have been prior to defendants' decision to contest it would be inequitable to the plaintiff.
The final judgment was entered by Judge Nadeau on April 25, 2004 in Docket No. CV96-03385385, The Sotavento Corporation v. Morningside Partners Limited Partnership, Coastal Pallet Corporation, Peter Standish, Bernice Donahue, and Martin Leventhal. (Described as the "Debt Action" in the court's memorandum of decision.) The judgment entered against the defendant Morningside Partners Limited Partnership only.
$49,176.08 was found to be the principal balance of the note by Judge Nadeau when he first entered judgment in the Debt Action against the partnership. That judgment was later reopened to add accumulated interest and attorneys fees resulting in the final judgment amount of $163,838.20. (See footnote 2 of the court's memorandum of decision.)
See p. 2 of the court's memorandum of decision for a detailed description of the litigation history of this dispute, including two appeals.
Lemieux submitted an affidavit in support of Sotavento's motion for summary judgment in the Standish Derivative Action. See Standish v. Sotavento Corporation, Superior Court, Judicial District of Fairfield at Bridgeport, Docket No. CV96-330936S (July 23, 1998, Skolnick, J.) (Memorandum of Decision granting motion for summary judgment), 1998 Ct.Sup. 7792, affirmed, 58 Conn.App. 789 (2000).
For these reasons the court disagrees that there is any inconsistency or missed principle of law of controlling effect or misapprehension of the facts in the court's calculation of damages.
B. Challenge to the Finding of Waiver
The plaintiff seeks to reargue the court's finding and conclusion that the plaintiff had waived the right to assess the defendants with unlimited liability for the partnership obligations to the extent of the $102,295.66 disbursement of part of the proceeds of sale of the building to the defendants which they consented to be included in the order granting the motion for sale in the receivership proceeding, as discussed in Part A. Plaintiffs claim re-argument (1) because they say that the $102,295.66 disbursement had been ordered by Judge Grogins to be made "pursuant to the limited partnership agreement," and was made to defendants' attorney Bernard Green as "trustee" which it interprets as trustee for the partnership, which would be inconsistent with the conclusion of waiver; and (2) because they claim that the receipt of the $102,295.66 disbursement should have been treated as a violation of the partnership agreement resulting in the loss of defendants' limited liability, but should not have been "set off" against what the plaintiff can collect from the defendants because there was no evidence of a "mutual debt" to be set off against; i.e. there was no evidence of any claim of indebtedness of Sotavento in favor of the partnership or the defendants.
As to the first point, it is true that Judge Grogins entered an "Order Appointing Temporary Receiver" on July 19, 1996 (Plaintiff's Ex 5) which authorized the receiver to seek a buyer for the property "on terms and conditions as are agreed to by counsel acting for the Limited Partners, Bernard Green and counsel acting for the General Partner, Samuel L. Braunstein, and/or as approved by the Court" and included as part (e) the power "to disburse all proceeds of sale of the real property pursuant to the limited partnership agreement except that any such proposed agreement shall first be filed with and approved by the Court." (A disbursement in accordance with the limited partnership agreement would have to satisfy partnership creditors such as the plaintiff before any distribution to partners.) (Plaintiff's Ex. 1, § 12.2.) Thereafter there was a sale approved in the fall of 1996 which failed to close because there were insufficient sales proceeds to pay off the first mortgage on the property. Then, according to the evidence, the ultimate buyer Morningside Group, LLC became interested in the property and through its attorney began to negotiate with the first mortgage holder and with the plaintiff and the defendants to obtain concessions which would satisfy the first mortgage and get the approval and consent of the attorneys for plaintiff and defendants as required by the July 19 order. Attorney Bernard Green made it clear that there would have to be a certain minimum disbursement — at first $180,000 and later reduced to $150,000 — disbursed to his clients, the four defendants herein, to obtain his consent. A mutual agreement was reached for approval of a $3.6 million sale, and presented to Judge Grogins at the November 14, 1996 hearing. The key statements from the transcript of that hearing are reproduced at pp. 25-26 of the court's memorandum of decision. The court has found based on the clear meaning of the words spoken at that hearing that the court approved, and the plaintiff expressly consented to, a disbursement of $102,296.66 to Atty. Bernard Green for the use and benefit of his clients, the defendants herein, and not in any way for the benefit of the plaintiff or the partnership. Atty. Green reported that the distribution would be "to our firm [Green and Gross, P.C., the firm of Atty. Bernard Green] on behalf of the limited partners" (Tr. P.3) and Judge Grogins approved the sale, "with the understanding that Mr. Green's clients on behalf of the limited partners will receive a hundred and two thousand two ninety five sixty six." (Tr. P.5). To the extent that the July 19 order required disbursement in accordance with the limited partnership agreement, there was an exception to that requirement: "except that any such proposed agreement shall first be filed with and approved by the court." Either as a court-approved exception to that requirement or an implied modification of the July 19 order removing or excusing that requirement by consent of all parties, it is clear to this court and supported by a preponderance of the evidence that the November 14 order as expressly approved by the plaintiff authorized the disbursement outside the restrictions of the limited partnership agreement as a payment to the attorney for the defendant limited partners for their sole benefit, which is entirely consistent with the court's conclusion of waiver. The fact that the receiver's counsel's closing disbursement sheet (Coastal Def. Ex. EE) shows the $102,295.66 disbursement as going to "Bernard Green Trustee" is of no moment. As is customary when funds are disbursed to counsel, the use of the word "trustee" with nothing more is indicative of the lawyer's receipt of the funds on behalf of his client(s). There is no evidence whatsoever indicating that Atty. Green thereby became a trustee for the plaintiff or the partnership.
As to the plaintiff's second point, the court's decision was not based on any concept of a mutual set off of debts under Conn. Gen. Stat. 52-139 or under the common law. As articulated in Part A. hereof, the finding of waiver was implied from the judicial statements and failure to object of plaintiff's counsel at the November 14, 1996 hearing and the context in which those statements were made.
For these reasons the court disagrees that there is any missed principle of law of controlling effect or misapprehension of the facts in the court's conclusion of waiver.
C. Statutory Interest Rate.
The court in a footnote to Part G of the memorandum of decision calculated statutory interest on the sum of $61,542.54: "Interest awarded at the rate for judgments per Conn. Gen. Stat. § 37a(a) (sic.) [the proper cite is § 37-3a(a)] (10% per year). Interest calculation: 10% interest on $61,542.54 April 22, 2004 [should be April 25, 2004] through October 30, 2008: 1,652 days @16.861 per day 27, 854.37). The Coastal Pallet Corp. defendants point out that § 37-3a(a) was amended effective October 1, 2005 to change the statutory rate of interest from 8% to 10% and the court therefore should have calculated the interest accruing from April 25, 2004 through September 30, 2005 at the 8% rate. The point appears to be well taken. See Laurel, Inc. v. Caldwell, 187 Conn. 171, 180 (1982). (Interest pro-rated to conform to a statutory amendment increasing the rate of interest.) Since the plaintiff has not addressed this issue in its brief, the court will allow reargument, or will recalculate the interest without argument in the absence of any objection from the plaintiff.
Order CT Page 11459
(1) The Motion to Reargue of the defendant Marvin Leventhal (No. 196) is denied.
(2) The Motion to Reargue of the defendants Coastal Pallet Corp., Peter Standish, and Bernice Donahue (No. 199) is denied except for that part of the motion which challenges the rate of interest used by the court in calculating statutory interest under Conn. Gen. Stat. § 37-3a(a) for the period April 25, 2004 through September 30, 2005 which is granted. The court will schedule reargument as to that point only if the plaintiff objects to the interest recalculation by July 8, 2009. Absent any such objection, the court will recalculate the interest without further argument. (3) The Motion to Reargue of the plaintiff (No. 201) is denied. (4) The deadline for plaintiff to file its motion for an award of attorneys fees is extended to July 31, 2009.
The court also takes this opportunity to note and correct a typographical error in its memorandum of decision. At page 12, line 11, the statutory reference should be § 34-327(a) instead of 24-327(a).