Opinion
FBT-CV-06-5003257 S
April 25, 2008
MEMORANDUM OF DECISION
I INTRODUCTION
The plaintiff, Robert Utzler ("Utzler"), commenced this action against Kim Braca ("Braca"), Homes of Fairfield County, LLC ("Fairfield, LLC"), Homes of Westport, LLC ("Westport, LLC"), The Braca Family Trust ("Trust, LLC") and Patricia Braca, seeking monetary damages and other relief arising from a joint venture relating to the building of a luxury home on speculation in Westport, Connecticut. Braca is an experienced builder involved in the residential home construction business for approximately forty years. He has utilized various forms of business entities.
On August 25, 2003, Utzler and Fairfield, LLC, a Braca entity, entered into a written agreement (referred to at times as the "Agreement") concerning the construction of an approximately 6,400-square-foot residence located at 2 Moss Ledge Road, Westport, Connecticut (referred to at times as the "Project"). In accordance with the Agreement, Utzler was to invest $500,000 to be used solely for the Project, and Braca was responsible to secure construction financing and build the home. Upon the sale of the Project, Utzler was guaranteed to be repaid his investment funds and receive twenty-five percent of the net profit. Braca was to be paid the remaining seventy-five percent of the net profit.
The present action commenced when the residence located at Moss Lane was not sold despite being on the market for more than four years. Consequently, Braca and Utzler have not yet realized the profit that they anticipated receiving as a consequence of their joint venture. Utzler claims that even if the Project sells he will not receive either the amount of his initial investment or any profit pursuant to the Agreement because of wrongful conduct engaged in by Braca that has depleted the Project of any potential equity. On December 8, 2006, the owner of Moss Ledge, Fairfield, LLC, filed a voluntary petition seeking protection under Chapter 11 of the federal Bankruptcy Code. An automatic stay remained in effect at the time of trial and Utzler "makes no claim against the debtor" in his Second Amended Complaint filed on August 28, 2007. More significantly, the defendant never raised any issues relating to the stay at trial because counsel agreed that any issues involving a stay against any of the co-defendants were decided against the defendant in the bankruptcy court. Consequently, Utzler properly recognized in this proceeding the automatic stay against Fairfield, LLC.
In his operative complaint, Utzler seeks to pierce the corporate veil of Fairfield, LLC, Westport, LLC and the Trust, LLC in order to expose Braca to personal liability. In the first six counts of the complaint, Utzler alleges that Braca "with the other defendants as his alter ego" breached the subject agreement, breached his fiduciary duty, committed fraud, made intentional misrepresentations, breached the implied covenant of good faith and fair dealing and violated the Connecticut Unfair Trade Practices Act ("CUTPA"). Utzler alleges in the seventh count that each of the defendants committed theft in violation of General Statutes § 52-564. In the eighth and final count, he alleges that Patricia Braca has been unjustly enriched. The defendants deny Utzler's claims.
Utzler primarily seeks what he characterizes as expectancy damages against Braca and his business entities in the amount of his $500,000 investment and twenty-five percent of a $520,000 profit that he alleges was represented to him by Braca. He claims punitive damages and attorneys fees against Braca as part of his CUTPA claim. Additionally, Utzler claims damages against Patricia Braca in the amount of $257,508 based on her being unjustly enriched in that amount by wrongfully receiving money from Westport, LLC.
Procedurally, Utzler filed an application for prejudgment remedy on June 15, 2006. The court (Hiller, J.) granted a prejudgment remedy of attachment in the amount of $750,000 in favor of Utzler on May 7, 2007. Specifically, the court ordered that Utzler may attach Patricia Braca's personal residence located at 7 Crossbow Lane in Easton; property belonging to the Braca Family Trust, LLC; property belonging to Westport, LLC; property belonging to Braca; and the chose in action Braca v. Countrywide Home Loans. Additionally, apparently due to the dilatory nature of the litigation, the court (Hiller, J.) ordered that the defendants could not file any special defenses to the action and the matter was promptly scheduled for trial.
CT Page 6798
II FACTS A Braca's Entities and General Building Practices
The court finds the following facts credibly proven. Utzler was sixty years of age and unemployed at the time of trial. He was previously employed by various large companies in the food packaging business and was terminated from his last employment in that industry on January 1, 2003. He experienced a difficult job market since his termination, which he attributes to his age relative to the corporate position that he attained.In addition to his food packaging career, and while still employed therein, Utzler invested in a few real estate development projects involving the building of single-family homes between 1999 and 2002. For example, he invested in one development project with his neighbor and one with his son-in-law.
Utzler knew Braca for more a significant period of time prior to their venture. Braca and his wife, Patricia, currently reside at 7 Crossbow Lane in Easton. She has been the sole owner of the residence since it was purchased by them in 1988. Utzler and Braca were both Easton residents for a period of time, and their sons participated in sports in town. While they became friendly with each other, they were never close friends.
In early 2003, Utzler met Braca by happenstance in the center of Fairfield. He informed Braca that he recently lost his job and, given the realities of his age in relation to his corporate experience, he was considering getting involved in a start-up or other entrepreneurial type of business. Utzler knew that Braca was a long-time residential real estate developer and, in the course of their conversation, Utzler mentioned his comparatively limited real estate experience. Braca pursued further discussions with Utzler regarding the possibility of doing real estate development projects together. Ultimately, he informed Utzler of a potential development opportunity concerning an existing single-family residence located at 2 Moss Ledge Road in Westport.
As was his practice during the time period in question, Braca drove around Westport looking for development prospects. He would leave flyers in mailboxes indicating to property owners his potential interest in purchasing a particular piece of property. The residence on Moss Ledge had been the subject of a fire and was boarded up at the time Braca initially noticed it. The property is located on a corner lot located at the intersection of Moss Ledge Road and Long Lots Road in Westport.
Braca had developed many properties prior to Moss Ledge, and utilized various legal entities in conducting his real estate development business over the years. These include New Century Development Corp., Westport, LLC and Fairfield, LLC. New Century Development Corp. was a stock corporation formed in 1994, and Braca was its sole shareholder and president. Braca developed properties utilizing that entity until a new entity, Westport, LLC, was organized in August 17, 2000, and listed John Braca as its sole member and manager. That entity was specifically formed to develop a parcel of property located at 18 Woody Lane. Fairfield, LLC was formed to develop the Moss Ledge property on May 14, 2003, and listed Braca as its sole member and manager.
Subsequently, in March 2004, The Trust, LLC was organized by Patricia Braca, and the Braca's children, John Braca, III, Thomas Braca, Alyssa Braca and Daniel Braca as members. Braca was never a member of the Trust, LLC. On March 19, 2004, a Notice of Change of Member/Manager was filed wherein the Trust, LLC became a member of Westport, LLC and Fairfield, LLC in place of Braca. Trust, LLC was formed without a manager and still had no manager at the time of trial. Braca testified that he formed the Trust, LLC for "estate planning" purposes because of some illness that he suffered. Braca did not produce any evidence reasonably explaining the specific estate planning reasons for the changes, or the benefits to him and his family as a result of the changes. The evidence did show, however, that the changes in the membership of those two development entities were made for no consideration and effectively rendered Braca assetless at a time that he knew he was in serious financial trouble. Braca has remained the manager of both Westport, LLC and Fairfield, LLC.
Braca does not have or otherwise utilize a personal checking account. Rather, he employs a checkbook system referred to as a one-write system. Such a system allows him to use a single check book for the construction projects that he undertakes. Braca has used this system for some time and for various projects prior to the one at issue. The one-write account used by Braca for the development of Moss Ledge is in the name of Westport, LLC.
Each project is given a specific numerical code for purposes of recording transaction relating to the checking account. These particular codes allow Braca and others, such as his accountant, to track expenses on a particular project, and to account for and allocate them accordingly. For example, deposits and withdrawals concerning 2 Moss Ledge were coded as "1302" transactions, 18 Woody Lane transactions were coded as "1318" and the transaction relating to another project, 3 Grays Farm, were coded as "1303." The last two digits represent the actual address of the projects. As will be more fully discussed later, the evidence clearly shows that the checkbook funds were interchangeably used by Braca for business and personal purposes. The personal expenses were coded as 2410 expenses. All payments, deposits and withdrawals were tracked by using the assigned code. It was also Braca's established practice to periodically deposit funds into the checking account and to withdraw funds from the account on a periodic basis for personal use. In this regard, neither Braca nor his wife drew a salary or received regular distributions from Westport, LLC or Fairfield, LLC, the two entities involved in Moss Ledge. Rather, Braca took funds entirely at his discretion on an "as needed" basis.
B Officer's Loan Account
Braca never had a partner in a real estate development project prior to entering into the joint venture at issue with Utzler. There was no evidence that any member of Braca's family was consulted by him concerning his projects. Prior to Moss Ledge, Braca wholly dominated and controlled all aspects of a project. Therefore, prior to Utzler, no one ever questioned Braca's construction practices, including his method of dealing with and accounting for funds pertaining to a particular project.
Fairfield, LLC purchased Moss Ledge solely with the funds from Utzler's investment and the proceeds of the bank financing. Braca did not personally contribute any funds. As discussed, Braca had no other sources of funds available to him when he purchased the property. The lender on the project required the purchaser, Fairfield, LLC, to open a bank account, which it did on August 26, 2003. Utzler's investment funds were the source of the opening deposit.
Westport, LLC was the Braca entity that constructed Moss Ledge; in other words, Braca selected Westport, LLC as the general contractor for the Project. Braca paid all of the expenses relating to the Project from the one-write checking account and coded them as "1302" expenses. Braca did not use Fairfield, LLC's account that the lender required to be established as a condition of the loan to pay the Project's expenses. Utzler's and the bank's funds were initially deposited into Fairfield, LLC's account and, thereafter, Braca periodically transferred funds from that account to Westport, LLC's account. Braca paid from the Westport, LLC account the monthly carrying costs incurred by Fairfield, LLC for the Project and paid all of the expenses incurred by Fairfield, LLC on the Project, including those owed to laborers, vendors and material suppliers. Inexplicably, or perhaps tellingly, Braca, an experienced builder, never had Fairfield, LLC sign a general contractor's agreement with Westport, LLC containing terms such as the base contract price, change orders, retainage and payment terms. Further, Braca never required any laborers, vendors or material suppliers to provide any invoices, tickets or mechanic's lien waivers in order to be paid for their work on, or supplies provided to, the Project.
The parties do not dispute that Braca paid both business and personal expenses out of funds that were deposited into Westport, LLC's account from Fairfield, LLC's account. In addition to personal expenses, the evidence shows that Braca was paid funds that he claimed at trial were owed to him for his own labor on the Project and for credit accounts allegedly owed by Westport, LLC. Braca claimed that those credit accounts were paid either by his wife or him. Braca never discussed these issues with Utzler prior to this litigation.
The dispute surrounding the use of those funds arises from the Bracas' claim that that they had the right to personally use those funds based on an ongoing "officer's loan account." Utzler claims that the purported "officer's loan account" is another fictional creation of Braca in a "smoke and mirrors" attempt at trial to obscure the fact that he wrongfully appropriated the funds from the Project and diverted them to pay for personal expenses incurred by him and his family. Utzler asserts that the Bracas' use of the funds was a draw from the business and that there was never an "officer's loan account" that was established in conjunction with Westport, LLC's construction of Moss Ledge.
C 18 Woody Lane
At the time of his discussions with Utzler in the early part of 2003, shortly after Utzler lost his job, Braca was in the process of selling another large home he built on speculation located at 18 Woody Lane ("Woody Lane") in Westport. He acquired the property on October 3, 2000 and sold it on August 1, 2003. Westport, LLC purchased, developed and sold the property. No evidence suggests that Braca worked on any other project from the time that he purchased the property until the time that he sold it some two and a half years later. Further, there was no evidence that Braca had any source of income or funds during that time period other than from the cash flow pertaining to the Woody Lane project and a refinance of his personal residence as will be discussed later.
Woody Lane was purchased by Westport, LLC for $1,600,000. Coldwell Banker listed the property for sale for the amount of $3,800,000 prior to its completion, and ultimately sold it for $2,940,000. The court finds credible Utzler's evidence that the property sold for a loss or for a relatively modest profit. In either event, Braca admits that he owed substantial amounts of money after the closing of Woody Lane.
Wilton Bank originally loaned Westport, LLC the amount of $1,600,000 for a one-year term to construct Woody Lane and was granted a first mortgage on the property. The original loan was increased to the amount of $2,200,000 and the term of the loan was extended to October 3, 2002. The loan was further increased by the amount of $125,000, which was designated by the lender as an interest reserve. The loan was subsequently increased on December 31, 2002 by the amount of $75,000, again designated as an interest reserve, and the term of the loan was extended to April 2003. After that final refinance of the Woody Lane project, Westport, LLC failed to make the interest payment due on February 1, 2003, and Braca was unable to find another lender to further refinance the project.
Ring's End, Inc., a company that provided materials used by Braca in the construction of Woody Lane, filed a mechanic's lien in the amount of $245,097.84 against the property on July 8, 2002. During the same month as the filing of the mechanic's lien, the Bracas refinanced their existing mortgage and granted a second mortgage on their personal residence on Crossbow Lane in Easton. At that time, the Bracas personally borrowed an additional $278,000, which they used, in part, to pay for Woody Lane expenses and for their personal living expenses.
In March 2003, John Braca received his only offer for Woody Lane. On May 1, 2003, he agreed to sell the property for $2,940,000, a $755,000, or twenty percent, reduction from the listing price of $3,695,000. The closing statement relating to the sale of Woody Lane is dated July 31, 2003. The testimony indicated that the closing took place the next day. Regardless, the statement lists the buyers as David and Jennifer Pogue. Braca was required to pay the amount of $63,186.95 in cash in order to close the transaction. Wilton Bank agreed to accept less than the full amount of the debt owed by Westport, LLC. Additionally, the buyers agreed to pay at the closing an additional amount of $95,000.00 in order to obtain clear title from the bank.
At a time when the closing of Woody Lane was scheduled for the first week of June, Braca sent a letter dated May 31, 2003 to David Campbell of Ring's End that stated in pertinent part: "My balance with Rings End is $210,000. There are not enough funds from the closing to pay this bill and close the sale and it will prevent me from having the ability to move forward on another project. I would like to ask you if it would be possible for me to pay Rings End $160,000 for this sale and ask if you could wait until November 2003 for the $50,000 balance." Braca sent a subsequent letter to Lou Rita of Ring's End dated July 29, 2003 wherein he stated, in pertinent part, that "[o]n Thursday, July 31, 2003 I will pay Ring's End Lumber $160,000; however, I need to defer $50,000 of your principal payment and $8,000 of your interest due for a period of 5 months. By December 31, 2003 the balance will be paid in full." Braca further noted that Wilton Bank informed him that it would commence a foreclosure of the property in the event that he was unable to close. In view of the foregoing circumstances, the lumber company agreed to accept a partial payment at the closing of the property in the amount of $160,000. At the closing, Braca, individually, gave Ring's End a promissory note for the balance of $60,091.40 due on January 1, 2004 in consideration of Ring's End providing a release of lien to Westport, LLC.
As indicated, Braca lost money or made a relatively nominal profit on Woody Lane. As a result, Westport, LLC, the entity that developed that project, commenced an action against the lender on the project, Wilton Bank, alleging that the bank wrongfully interfered with its relationship with the realtor and the ultimate buyers. Westport, LLC further alleged that the lender's wrongful conduct caused Westport, LLC to suffer damages resulting from the low sales price relative to the listing price. In any event, Braca did not have sufficient funds after the sale of Woody Lane to undertake another project, especially the construction of another large speculation house like Moss Ledge.
Braca anticipated satisfying his personal obligation to Ring's End after the closing of the Woody Lane property from the cash flow of Westport, LLC, presumably through that entity's development of a new project. The evidence showed that the source of the cash flow used to retire the Woody Lane debt came from the Moss Ledge project. The funds consisted of Utzler's investment, the financing proceeds pertaining to Moss Ledge and the minimal personal funds of Braca. In discussing his ability to pay off the Woody Lane debt, Braca testified as follows: "Where was that money going to come from? The ongoing business relationship that I have with the companies that go from one job to another, come from the cash flow of the business whether it is my money. Whether its banks money. Whether — wherever it comes from, it comes from the cash flow of the business." It is evident that Braca viewed his entities and the monies that flowed through them as one big enterprise to fund his business pursuits and personal living expenses.
At the time of the closing of Woody Lane and thereafter, Braca was acutely aware that he was in serious financial trouble. His wife, who had been employed by the Easton Board of Education, was no longer working. She last worked in 2004 and her 2003 federal tax return shows that she only made $38,000 as an Administrative Assistant to Special Education. His construction projects were his only source of income, and he didn't make any profit or meaningful money from the sale of Woody Lane. He refinanced the mortgage on his Easton residence about a year before Woody Lane closed in order to generate some cash flow for business and personal purposes. Braca needed a project and an investor if, as he hoped, he would be able to recover financially. Moss Ledge would prove to be that project, and Utzler would prove to be that investor.
D 2 Moss Ledge
Braca's initial discussions with Utzler about a possible joint venture involving the improvement and sale of real property took place at or about the time of the sale of Woody Lane. Having sold Woody Lane for significantly less than the original listing price, Braca and Westport, LLC owed more than $140,000 post-closing relating to the construction of the project, including the amount of Braca's personal promissory note to Ring's End. Westport, LLC's bank account, however, only had a balance of $33,824.20 immediately following the closing.
The court credits Utzler's testimony that his initial general discussions with Braca concerned him investing $250,000 into a project to be developed by Braca in consideration of a twenty-five percent return on his investment. Thereafter, specifically on August 12, 2003, Braca sent a facsimile transmission under a Fairfield, LLC cover sheet to Utzler. Therein, Braca attached a draft of an agreement to be entered into between Fairfield, LLC and Utzler. Braca formed that entity for purposes of entering into the proposed agreement with Utzler, and to have that entity purchase and develop the Moss Ledge property. The agreement described a proposed venture between Fairfield, LLC, and Utzler, individually, to identify, purchase, develop and sell single-family residences. The agreement anticipated that Utzler would invest his personal funds into projects built by Braca or one of his entities. Utzler's participation was solely to be an investor, and he understood that Braca or one of his entities would assume the financial obligations related to any projects undertaken, and would be responsible to construct and sell them. Braca stated in the facsimile transmission to Utzler that he "could not make the agreement for you as a silent partner without a $500,000 investment. Looks like I made $520,000 on Woody Lane even with Wilton Bank. Without the problems of Woody Lane this new project will net $800.000 to $1,000,000." As shown by the evidence, Braca was in substantial debt after he sold that property and he commenced an action against the project lender alleging that his debt was caused by the lender's action negatively affecting the sale price.
Utzler premises his damage claim for profit on this representation by Braca. As will be more fully discussed, Braca made a knowingly false representation as to the profit he made on Woody Lane in order to induce Utzler to invest $500,000 into the project, and Utzler relied on this representation to his detriment in so doing. Braca testified at trial that, in fact, he did not make a profit in the amount of $520,000 on Woody Lane.
Braca's accountant at the time he was developing Woody Lane was Grill Partners, LLC. Braca testified that one of the partners at the firm, Kyle Lucke, informed him of that profit figure and referenced a letter prepared by the firm dated November 3, 2003. The letter stated, in part, that Braca asked them to prepare it for purposes of stating the "income from the sale of 18 Woody Lane. We have included a copy of the closing statement based on the information provided to us by John Braca. The total estimated profit on the sale of 18 Woody Lane is $533,725." (Emphasis added.) Braca testified that he asked for this letter in furtherance of a boat loan. Norm Grill, a principal in the firm, confirmed that his firm prepared the letter in anticipation of Braca's purchase of a boat. He testified that the estimated profit was based on information provided to the firm by Braca and not by information independently developed by the firm.
Kyle Lucke was the lead accountant for the Woody Lane project and reported on the file to Grill. Lucke testified, contrary to Braca, that he never discussed any profit figures with Braca during the summer of 2003, and, he would not have, under any circumstances, given Braca a verbal profit estimate relating to Woody Lane.
The court credits the testimonies of Grill and Lucke in this regard, and discredits Braca's testimony and evidence on this issue. The court finds the profit figure provided by Braca to Utzler to be one created by him without any reasonable basis in fact. Braca purposely provided Utzler with that baseless figure to entice him into investing in the development of the Moss Ledge property.
Based on Utzler's interest in investing in the Project, Braca paid an earnest money deposit on the Project by check in the amount of $8,800. The check was dated August 1, 2003, and drawn on a First County Bank account of Westport, LLC. The deposit was payable to Neil Croakin. Braca also signed another check that day drawn on the same account in the amount of $63,191.95, which represented the amount that was required to be paid in order to close Woody Lane. The checks were coded 1318, representing the one-write check system code for Woody Lane.
In view of the Project being on deposit, Braca and Utzler moved towards formalizing their nascent business relationship with a written contract. The Agreement was signed on August 25, 2003, by Braca, as a member of Fairfield, LLC, and Utzler, individually. Utzler signed above a line titled "Investor." Braca signed above a line titled "Builder-Homes of Fairfield County, LLC." Those terms aptly describe the essence of the Agreement.
The Agreement was drafted by Braca's trial attorney, Glenn Terk. Utzler had it reviewed by his own attorney, who is not trial counsel in this case. While the Agreement was intended to apply to future projects that Braca might present to Utzler, the raison d'etre for it was Braca's and Utzler's opportunity to acquire, develop and sell the property located at 2 Moss Ledge Road.
Among other things, the Agreement provided as follows.
1. Utzler was to provide as an investment between fifty and sixty percent of the cost of acquiring the land, and the funds had to be provided by him at the time of signing the binder to purchase;
2. Utzler was not required to assume any liabilities for the project, such as obligating himself on any mortgages or being responsible to any of the subcontractors. Fairfield, LLC, as the builder, was responsible to obtain any necessary financing, permits and approvals;
3. Fairfield, LLC had absolute control of any development project undertaken, including its supervision, construction and marketing;
CT Page 6807
4. Fairfield, LLC was required to "diligently pursue construction" of any project and to "cause the work to proceed in a continuous manner";
5. Paragraph 11 provided as follows. "It is understood and agreed that John Braca or any company owned and/or controlled by John Braca shall have the right to perform work in connection with the construction of any project that was undertaken." Further "[i]n the event that John Braca or any company owned and/or controlled by John Braca performs any work, they shall be paid at a rate not to exceed that which a bona fide third party would charge for such work."
6. Fairfield, LLC was to provide Utzler with a monthly budget.
7. Utzler was to be repaid his investment in any project at the time of closing and, additionally, twenty-five percent of the defined net profit.
8. Paragraph 15 of the Agreement provided as follows: "The funds provided by [Utzler] or the Construction Lender shall be used only for the Project. Any use of such funds for any other purpose whatsoever shall constitute a default hereunder on the part of [Fairfield, LLC]."
The Agreement was signed on August 25th before a notary public at Utzler's banking institution. A schedule that particularly described the Moss Ledge property was attached. The Agreement provided that Utzler would invest $500,000 into the Project, which involved the razing of the existing, fire damaged structure and the construction of a new, approximately 6,400-square-foot, single-family residence.
Braca testified that the lender for the Project, Ridgefield Bank, required him to form a new entity and open an account at the bank in that entity's name in order to proceed with the Project. Fairfield, LLC opened a bank account at Fairfield County Bank Corp. on August 26, 2003, and used Utzler's investment funds for the beginning deposit. There were no other funds deposited at that time.
There was evidence that Fairfield County Bank Corp. and Ridgefield Bank, the lender for the Project, merged and they are referred to interchangeably for purposes of this decision.
Despite earlier discussions wherein Utzler discussed investing a quarter of a million dollars, Braca demanded that Utzler invest half of million dollars in order to receive a twenty-five percent return on the project. Braca needed Utzler's funds because he knew from his prior experiences that a construction lender would require a builder to provide some of the project funds himself. With this in mind, Braca wrote a letter to Ridgefield Bank that stated that he had twenty-five percent of the land cost ($220,000) and twenty percent of the $1,346,065.98 construction costs ($269,213) shown in an attached budget concerning Moss Ledge. The source of those funds was Utzler's investment.
Specifically, two days prior to receiving Utzler's funds, Braca sent a letter to Eric Erdtmann ("Erdtmann"), vice president of Ridgefield Bank, seeking a two-year construction loan in the amount of $1,725,000 to build the Project, which amount represented eighty percent of the cost of it. As discussed, Fairfield, LLC, as the builder, was responsible for twenty percent of the construction cost. An estimated budget was attached to the letter that showed the cost to purchase the real property to be in the amount of $880,000. Braca requested that the bank finance seventy-five percent of the cost of the land, which required Fairfield, LLC to pay the remaining twenty percent in the amount of $220,000. The budget lists the Project costs to be in the total amount of $2,226,065.98, inclusive of the construction costs. Braca's request that the bank finance eighty percent of the construction costs, less the cost of the land, meant that he would have to pay the remaining approximately $270,000 of those costs. The foregoing unequivocally shows that Braca represented to Ridgefield Bank that he anticipated contributing approximately $500,000 towards the Project, which was the same amount as Utzler's investment.
Braca attached a copy of a corporate financial statement that he personally prepared in the letter to Erdtmann. It purports to be a consolidated statement of Westport, LLC and Fairfield, LLC. The statement was dated August 20, 2003 and lists assets, liabilities and equities. The statement shows, as an asset, the deposit on the Project in the amount of $8,800 that was made by Westport, LLC and also shows cash assets in the amount of $520,000. That figure primarily represents Utzler's investment, even though it had not yet been paid into Fairfield, LLC's account as of that date. The statement does not list Utzler's investment as a liability of Fairfield, LLC notwithstanding that under the Agreement it is to be repaid to him upon the sale of the Project. Moreover, in an October 21, 2003 addressed to Braca, Erdtmann requested "confirmation of the source of the cash shown on August 20, 2003 Corporate Financial Statement." Braca never disclosed to the bank that the cash listed as an asset represented Utzler's investment into the Project. The statement also does not disclose as a liability the approximately $78,000 owed by Westport, LLC to various people and entities subsequent to the closing of Woody Lane.
It is clear from his testimony that Braca did not want tenders or any other people to know that he had, for the first time, partnered with an investor on a project. Assumedly, he didn't want those in the building community to know that he needed an investor in order to develop a property, in this case, Moss Ledge, which would imply that he was having financial difficulties.
Also attached to the letter was a copy of a personal financial statement prepared by Braca dated the same date as the corporate statement. The statement shows, among other things, "available cash" in the amount of $75,000. The source of those funds was a joint bank account between Patricia Braca and her mother. The funds represented the proceeds of the sale of the mother's house. Patricia testified that her mother gave her the authority to use the money as of August 2003. The statement does not list as a liability the promissory note John Braca signed in his individual capacity in favor of Ring's End in the amount of $60,091.40. That note was satisfied at the end of December 2003. At that time, Braca signed a check drawn on the account of Westport, LLC in the amount of $50,614.87 in apparent satisfaction of the debt. As was his established custom, Braca did not make the payment by way of a personal check despite the fact that it was clearly a personal debt.
Braca did not provide a plausible explanation for these omissions in the financial statements, such omissions evinced that he was experiencing financial difficulties. He testified that he didn't believe that you had to show unsecured debt on financial statements submitted to lenders. Notwithstanding, these were omissions of standard information required by lenders in financial statements given in support of an application for a loan. Braca provided such statements to lenders on past projects.
Ridgefield Bank issued a commitment letter addressed to Braca dated September 9, 2003. The letter identified Fairfield, LLC as the borrower and required that Braca personally guarantee the loan as a condition of the commitment. The original loan was in the principal amount of $1,725,000 secured by a first mortgage on the Project and had a two-year term. The initial advance was in the amount of $660,000, which amount represented seventy-five percent of the $880,000 cost of the real property. As discussed, Fairfield, LLC was responsible to pay the balance of $220,000 necessary to purchase the property. The letter provided, in part, that Fairfield, LLC, as the borrower, "could not change in any manner during the term of the loan without Lender's consent." Nevertheless, Braca did not seek the bank's consent, or otherwise inform the bank, when he effectively rendered himself assetless in 2004 by changing the membership of Fairfield, LLC from himself as the sole member to the Trust, LLC, a trust composed of family members and in which he was not a member.
The closing related to the purchase of the Project took place on November 7, 2003. Fairfield, LLC took title to Moss Ledge and granted a first mortgage to Ridgefield Bank in the amount of $1,725,000. Less than a year later, the amount of the loan was increased by the granting of a second mortgage in the amount of $350,000. The total principal amount borrowed from Ridgefield Bank was $2,075,000.
The property has been listed for sale since January 2004. It was substantially completed in May 2005. At the time of trial, the listing price was in the amount of $2,850,000. The property has not yet been sold.
E 3 Grays Farm Road
On August 6, 2004, approximately eight months after Moss Ledge was listed for sale and nine months before the Project was substantially completed, Patricia Braca took title to a piece of property located at 3 Grays Farm Road in Westport. She testified that at the time the property was purchased she and her husband intended to build a personal residence at that location in which they intended to reside. The purchase price was in the amount of $979,000. Braca paid a down payment in the amount of $48,950, which represented five percent of the purchase price. The down payment came from funds that Braca transferred from Fairfield, LLC to Westport, LLC, and was made on a check drawn on Westport, LLC's account. Braca asserts that these funds were owed by Westport to Patricia Braca under the officer's loan account. As discussed, the court disagrees with this assertion based on its conclusion that no such account existed prior to the commencement of this litigation. Braca wrongfully took the funds from the Fairfield, LLC account. The balance of the price was paid from the funds that were the product of a first mortgage taken by Braca and Patricia in favor of Countrywide Home Loans, Inc. in the amount of $783,200. Subsequently, Patricia transferred, for no consideration, the property to Westport, LLC by way of a quitclaim deed to that entity. The evidence established that Westport, LLC was the builder of Grays Farm and the carrying costs of the property were paid out of that entity.
In or about April 2006, the Bracas applied to First Connecticut Capital, LLC for a construction mortgage in order to build the residence on Grays Farm. The Construction Mortgage Deed, recorded on April 5, 2006, on the land records of Westport, recites the applicants as the Trust, LLC, John Braca and Patricia Braca. The deed was signed by the following makers of the corresponding promissory note: Braca, in his capacity as manager of Westport, LLC, Fairfield, LLC and the Trust, LLC, and by John and Patricia Braca, individually.
The deed was recorded as a third mortgage against the Grays Farm property. Additionally, as set forth in the mortgage instrument, Moss Ledge "serves as additionally collateral for [First Connecticut] but is not the subject of the construction . . ." Effectively, Moss Ledge was given by Braca as additional security for First Connecticut's loan on Grays Farm and Moss Ledge was "blanketed" by First Connecticut's third mortgage position on the property. As recited in the mortgage deed, the amount of $500,000 was advanced to Braca at the time the mortgage note and deed were executed and delivered, and the amount of $150,000 was to be held as an interest reserve in order to pay the interest on the loan. The loan proceeds were used in the construction of Grays Farm. Only approximately twenty thousand dollars were earmarked for Moss Ledge, which amount was used for the payment of property taxes.
The commitment letter underlying the loan states that First Connecticut's loan in the amount of $900,000 was subordinate to Countrywide's first mortgage and a second mortgage on the property in favor of First Connecticut in the amount of $1,620,000. The commitment letter also contained a "Partial Release Clause" that stated that First Connecticut would release the mortgage blanketing the Moss Ledge property "upon receipt of a personal pay down of $100,000."
The evidence established that at one point in time after taking the loan, the Bracas had enough assets to satisfy the "personal pay down" to First Connecticut, thereby clearing the Project of that encumbrance, but did not do so. The evidence also established that Braca did not inform Utzler at the time he secured the First Connecticut loan or thereafter of the fact that he allowed First Connecticut to place a third mortgage in the amount of $900,000 blanketing the Moss Ledge property.
F Foreclosure Actions Involving Braca
The evidence shows, and the court takes judicial notice of the fact, that foreclosure actions have been commenced in the judicial district of Fairfield against the Moss Ledge property and the Grays Farm property. The action against Moss Ledge is styled Ridgefield Bank Mortgage v. Homes of Fairfield, Docket No. CV-06-50042721-S, and the action against Grays Farm is styled First Connecticut Capital v. Homes of Westport, LLC, Docket No. CV-5003048-S.
The evidence shows that at the time of trial Moss Ledge was listed at a sale price of $2,850,000. The property is encumbered by the two Ridgefield Bank mortgages in the amount of $1,725,000 and $350,000, respectively, and First Connecticut Capital's blanket third mortgage in the amount of $900,000. The total amount of those encumbrances is $2,975,000, which amount is in excess of the sale price of almost a year ago. Since that time, interest, penalties and property taxes have accrued, as fees and costs have been added to the total debt as a result of the foreclosure action. Clearly, Moss Ledge is bereft of any equity.
III DISCUSSION A Alter Ego Claims
In his Second Amended Complaint, Utzler claims that the Braca entities "are his alter ego as he dominates the finances, policy and business practices of [them], such that, with regard to the transaction involving . . . Utzler, [they] have no separate mind, will or existence of their own." Utzler seeks to have the court disregard the Braca entities so as to make Braca individually liable to satisfy any liability attributed to one or more of the defendant entities.
"A court's disregard of an entity's structure is commonly known as 'piercing the corporate veil.'" Litchfield Asset Management Corp. v. Howell, 70 Conn.App. 133, 148 n. 10, 799 A.2d 298, cert. denied, 261 Conn. 911, 806 A.2d 49 (2002). "In the usual veil piercing case, a court is asked to disregard a corporate entity so as to make available the personal assets of the owners to satisfy a liability of the entity." Id., 149. "That principle also is applicable to limited liability companies and their members." Id., 147; General Statutes § 34-133.
The credibility of Braca is relevant to a determination of this issue. Braca was the first witness called by the plaintiff and was on the stand for multiple days. Consequently, the court had an opportunity to judge over a significant period of time Braca's credibility based upon his demeanor, physical manifestations, responses to questions and memory. Based on this opportunity, the court concludes that Braca was not credible concerning issues material to this action. Moreover, the court concludes, as will be discussed at various points in this decision, that Braca intentionally and consistently misrepresented material facts throughout the course of his testimony. Therefore, the court wholly rejects his testimony on the facts material to its decision in this case with the exception of the basic material facts that are largely undisputed.
The law governing this claim is well settled and has been often stated. An analysis involving two legal theories, referred to as the instrumentality rule and the identity rule, has been developed. Morris v. Cee Dee, LLC, 90 Conn.App. 403, 414, 877 A.2d 899 (2005).
"[C]ourts will disregard the fiction of separate legal entity when a corporation is a mere instrumentality or agent of another corporation or individual owning all or most of its stock . . . [t]he circumstance that control is exercised merely through dominating stock ownership, of course, is not enough . . . There must be such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own and is but a business conduit for its principal . . . The concept of piercing the corporate veil is equitable in nature and courts should pierce the corporate veil only under exceptional circumstances . . . Moreover, it is the party seeking to pierce the corporate veil that bears the burden of proof." (Emphasis added; citations omitted; internal quotation marks omitted.) Old Farms Associates v. Commissioner of Revenue Services, 279 Conn. 465, 488-89, 903 A.2d 152 (2006). "[T]he . . . issue of whether the corporate veil [should be] pierced presents a question of fact." (Internal quotation marks omitted.) Litchfield Asset Management Corp. v. Howell, supra, 70 Conn.App. 148.
"[I]n Connecticut a court will disregard the corporate structure and pierce the corporate veil only under exceptional circumstances, for example, where the corporation is a mere shell, serving no legitimate purpose, and used primarily as an intermediary to perpetuate fraud or promote injustice." (Internal quotation marks omitted.) SPA Folio Collections, Inc. v. Bannon, 217 Conn. 220, 230, 585 A.2d 666, cert. denied, 501 U.S. 1223, 11 S.Ct. 2839, 115 L.Ed.2d 1008 (1991). "The fact that the corporate veil could be disregarded for some purposes does not mean that it must be disregarded for all purposes." Angelo Tomasso, Inc. v. Armor Construction Paving, Inc., 187 Conn. 544, 559, 447 A.2d 406 (1982).
"Under the instrumentality rule, a shareholder, director, or officer of a corporate entity can be held personally liable for corporate actions that, in economic reality, are those of the individual . . . We have consistently held that the instrumentality rule requires proof of three elements: (1) Control, not mere majority or complete stock control, but 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; (2) that such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of plaintiff's legal rights; and (3) that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of." Season-All Industries, Inc. v. R.J. Grosso, Inc., 213 Conn. 486, 490, 569 A.2d 32 (1990).
"The identity rule has been stated as follows: If a plaintiff can show that there was such a unity of interest and ownership that the independence of the corporations had in effect ceased or had never begun, an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability arising out of an operation conducted by one corporation for the benefit of the whole enterprise." (Internal quotation marks omitted.) KLM Industries, Inc. v. Tylutki, 75 Conn.App. 27, 32-33, 815 A.2d 688, cert. denied, 75 Conn.App. 27 (2003). "[T]he separate corporate entities or personalities of affiliated corporations will be recognized, absent illegitimate purposes, unless: (a) the business transactions, property, employees, bank and other accounts and records are intermingled; (b) the formalities of separate corporate procedures for each corporation are not observed . . . (c) the corporation is inadequately financed as a separate unit from the point of view of meeting its normal obligations . . . (d) the respective enterprises are not held out to the public as separate enterprises; (e) the policies of the corporation are not directed to its own interests primarily but rather to those of the other corporation." SFA Folio Collections, Inc. v. Bannon, supra, 217 Conn. 232-33. "Although the 'identity' or 'alter-ego' doctrine has been primarily applied to reach beyond the veil to another corporation, it may also be employed to hold an individual liable." Klopp v. Thermal-Sash, Inc., 13 Conn.App. 87, 89 n. 3, 534 A.2d 907 (1987).
"Pursuant to Connecticut case law, however, a court may properly disregard a corporate entity if the elements of either the instrumentality rule or the identity rule are satisfied." Litchfield Asset Management Corporation v. Howell, supra, 70 Conn.App. 148 n. 11. The court will initially analyze this case under the instrumentality rule and, secondly, under the identity rule.
Utzler has met his burden of proving that under the instrumentality rule the three Braca entities should be pierced in order to make Braca personally responsible for their actions relating to Moss Ledge because those actions were in reality those of Braca. The evidence demonstrates that the exceptional circumstances exist to warrant, and equity compels, application of the rule. Those circumstances show that Braca used those entities as a conduit for him to receive funds to be used in his sole discretion for business and personal reasons. Braca wholly dominated the finances, policies and business practices of the entities, and did so purposely to wrongfully, fraudulently, dishonestly and unjustly use the funds in violation of Utzler's legal rights under the Agreement. Moreover, Braca's conduct proximately caused the losses claimed by Braca.
Further, Utzler met his burden of proving that Braca's dominance and control of his entities relating to the Moss Ledge project satisfy many of the legal elements necessary to support a finding of personal liability under the identity rule. As discussed, the evidence shows the complete absence of corporate formalities concerning Fairfield, LLC, Westport, LLC and the Trust, LLC. The funds were put into and taken out of the bank accounts of Fairfield, LLC and Westport, LLC for other than corporate purposes, the entities overlapped to the extent that Braca was a manager in all of them, but a member in none of them, and the entities failed to deal with each other at arm's length, but were used interchangeably by Braca, including his commingling of funds and property.
The single most important fact in this case, as recognized by defendants' own counsel in his trial memorandum, is that Braca never entered into a joint venture to develop a property prior to the one in the present action. That fact is important because in this case, Braca, for the first time in his long building career, was accountable to a third party for his actions relating to his entities participating in the Moss Ledge transaction. That fact is important because Braca exhibited at trial the same dominating and controlling personality that he exercised in his personal and business lives. Utzler has proven that Braca so completely dominated the policies, practices and finances of his entities in terms of this transaction that those entities had no separate mind, will or existence of their own. In fact, Braca really just used the entities as a conduit for business and personal purposes. In this regard, the court finds credible Utzler's claim that the Braca entities in relation to the acquisition and construction of Moss Ledge represented "one big enterprise."
Braca chose Westport, LLC to be the general contractor for the construction of three projects; Woody Lane, Moss Ledge and Grays Farm. All three projects overlapped to some extent. The Woody Lane and Moss Ledge projects overlapped to the extent that Braca purchased Moss Ledge, in large part with Utzler's investment funds, at a time when he owed substantial monies after the closing of Woody Lane. He needed some of Utzler's investment to satisfy the outstanding debt on Woody Lane. The Moss Ledge and Grays Farm projects overlapped to the extent that the construction started on the latter at a time when Moss Ledge was not substantially complete.
The lender for Moss Ledge required that Braca establish a new entity for purposes of proceeding on the project. While Fairfield, LLC was established at the request of the lender and was validly created under the law, it became a shell entity in relation to the reason that it was formed; that being, to purchase, receive funds for, pay expenses relating to, construct and sell the real property located at Moss Ledge. Fairfield, LLC purchased the Project and received the mortgage proceeds earmarked for construction of it along with Utzler's investment funds. But it was Braca's primary entity, Westport, LLC that he chose as the general contractor for Moss Ledge, to which the mortgage proceeds were consistently and periodically diverted. The mortgage proceeds were also used to pay the significant post-closing expenses concerning Woody Lane, pay the construction and finance expenses related to Moss Ledge, pay for the construction of Moss Ledge, and pay certain personal expenses of the Bracas. The proceeds were also used to pay the down payment, the closing costs and the finance charges relating to Woody Lane for a period of months.
Despite the constant diversion of funds from Fairfield, LLC to Westport, LLC, there was never any resolution of Fairfield, LLC authorizing the transfers. Braca designated Westport, LLC to be the general contractor on the Project but never had that entity sign a general contract with Fairfield, LLC as the owner of it. Moreover, Braca transferred Utzler's investment funds and the mortgage proceeds from Fairfield, LLC to Westport, LLC to pay for, among other things, subcontractors, material suppliers and vendors relating to Moss Ledge without requiring any payment requisitions, invoices or mechanic's lien waivers. Further, although Fairfield, LLC and Westport, LLC had separate bank accounts and, to that extent, the records of the two companies were segregated, the entities did not file tax returns for a few years before trial. Further, there was no evidence that there was ever any accounting, including audits, of the accounts.
Additionally, Braca caused Fairfield, LLC to grant First Connecticut a blanket third mortgage on Moss Ledge in the amount of $900,000 to secure financing for the property located at Grays Farm. The proceeds of the loan were used to satisfy the mortgage of First Connecticut on the property in the amount of $250,000, to pay interest on the other First Connecticut mortgage in the amount of $1,620,000 and to complete the Grays Farm project. Title to the Grays Farm property was originally in the name of Patricia Braca. She later transferred the property by quitclaim deed, for no consideration, to Westport, LLC. Clearly, the blanket mortgage benefited Patricia Braca during the time that she held title to the property and, according to her trial testimony, intended to reside there when the construction was finished. Conversely, Fairfield, LLC received no benefit for so substantially encumbering the property other than Braca's unsubstantiated claim that a portion of the proceeds were used to pay approximately twenty thousand in real estate taxes that were in arrears. Again, that transaction was conducted without any corporate resolution or other documentation.
Neither Braca nor his wife drew a salary or received regular distributions from either Fairfield, LLC or Westport, LLC. It is undisputed that Braca consistently paid personal expenses from the accounts of Fairfield, LLC and Westport, LLC. His practice in this regard was to deposit funds from Fairfield, LLC to Westport, LLC when he needed money to pay a personal or business expense, whether or not the expense related to the construction of Moss Ledge. There was no resolution authorizing the payment of such funds. There were no promissory notes or other evidence of the use of those funds. There was no evidence that the Bracas were charged interest for the use of the funds, or any accounting of the funds for tax reasons. Rather, the funds were taken at the discretion of Braca without any evidence justifying such use of the funds.
Braca is not a member of either Westport, LLC or Fairfield, LLC; he is merely a manager of both entities. Braca produced no evidence that he consulted or informed the members of those limited liability companies, his wife and children, of the supposed management decisions that he made concerning the Woody Lane, Moss Ledge and Grays Farm projects.
Further, Braca never discussed with Utzler any material issues pertaining to Moss Ledge. In this regard, Braca never disclosed to Utzler that he was diverting funds from Fairfield, LLC to Westport, LLC to pay expenses unrelated to Moss Ledge; that he purportedly had an officer's loan account that justified his use of those funds for purposes other than Moss Ledge; that he was charging for his labor on Moss Ledge; that he used a portion of Fairfield, LLC's funds for Moss Ledge to make the down payment on Grays Farm and to pay the carrying costs associated with it; and that he started construction on Grays Farm prior to substantially completing Moss Ledge. Inexplicably, he never discussed with Utzler the fact that he encumbered the Moss Ledge property with a third mortgage in favor of First Connecticut Capital that provided blanket security for a loan by that entity relating to Grays Farm, or that the blanket mortgage provided that First Connecticut Capital would release the mortgage on Moss Ledge in the event that Braca paid the amount of $100,000. Braca never discussed with Utzler his decision not to make the $100,000 payment at a point in time in June 2006 when he had the money to do so. Braca's stock response at numerous times in the trial when confronted with his failure to communicate with Utzler was that the Agreement gave him total control over the Project and, consequently, he had the ability to do whatever he wanted without explanation or accountability. Basically, Braca believed that the only time he would be required to deal with Utzler is at the time the property sold and the proceeds were disbursed in accordance with the Agreement. Unfortunately, that has not happened and Utzler first learned of most of Braca's conduct during the course of this litigation.
The foregoing demonstrates that Braca so completely dominated and controlled his business entities in relation to the Moss Ledge project that they had no mind, will or existence of their own, but were a part of Braca's personal enterprise. Braca controlled these entities in order to commit wrongs, fraudulent and illegal acts in violation of the plaintiff's rights and interests. He wrongfully, fraudulently and illegally used Utzler's investment and the bank financing funds designated for Moss Ledge to satisfy debts unrelated to the Project and to pay personal expenses. As will be more fully discussed in the damages section, Braca's control and wrongful conduct proximately caused the losses that he claims in the present action.
In view of the foregoing facts and circumstances, the plaintiff has established that the Braca entities were instrumentalities of him and did not have separate identities from him. As a result, Braca is personally liable for their actions concerning Moss Ledge.
B Breach of the Agreement
In the first count of his Second Amended Complaint, Utzler claims that Fairfield, LLC breached its Agreement with Utzler. Specifically, Utzler claims that Fairfield, LLC breached paragraph 15 of the Agreement by using Utzler's funds for purposes other than the Project, including paying the Woody Lane debts and personal expenses; that Fairfield, LLC breached paragraph 12 of the Agreement by failing to provide Utzler with a monthly budget; that Fairfield, LLC breached the provision of the Agreement that required it to "diligently pursue construction" of the Project and to "cause the work to proceed in a continuous manner" by commencing the construction of Grays Farm prior to completing Moss Ledge; and that Fairfield, LLC breached paragraph 14 of the Agreement providing that "[i]n no event shall [Utzler] be paid less than the full amount of the funds advanced for the [P]roject" because Fairfield, LLC has wrongly depleted the Moss Ledge property of any equity.
"The elements of a breach of contract action are the formation of an agreement, performance by one party, breach of the agreement by the other party and damages." (Internal quotation marks omitted.) Rosato v. Mascardo, 82 Conn.App. 396, 411, 844 A.2d 893 (2004).
"Where the language of the contract is clear and unambiguous, the contract is to be given effect according to its terms." Eckert v. Eckert, 285 Conn. 687, 692, 941 A.2d 301 (2008). "A contract is ambiguous if the intent of the parties is not clear and certain from the language of the contract itself . . . Accordingly, any ambiguity in a contract must emanate from the language used in the contract rather than from one party's subjective perception of the terms." (Internal quotation marks omitted.) (Citation omitted; internal quotation marks omitted.) David M. Somers Associates, P.C. v. Busch, 283 Conn. 396, 927 A.2d 832 (2007).
"Although ordinarily the question of contract interpretation, being a question of the parties' intent, is a question of fact . . . [w]here there is definitive contract language, the determination of what the parties intended by their contractual commitments is a question of law." (Internal quotation marks omitted.) Tallmadge Bros., Inc. v. Iroquois Gas Transmission System, L.P., 252 Conn. 479, 495, 746 A.2d 1277 (2000).
The parties do not claim that the terms of the Agreement at issue in the first count are ambiguous. In this regard, the court finds the terms to be clear and unambiguous.
The court concludes that Fairfield, LLC breached its Agreement with Utzler as it relates to the Moss Ledge project. As previously discussed, Braca used Utzler's funds to pay debts arising from Braca's prior project, Woody Lane, and to pay personal expenses. Such conduct is in contravention of paragraph 15 of the Agreement that provided that Utzler's funds were to be used only for the Project.
Fairfield, LLC failed to diligently and continuously proceed in the construction of Moss Ledge to the extent that the evidence shows that Braca commenced work on Grays Farm months before Moss Ledge was substantially complete. Such conduct violated the Agreement.
The evidence established that Fairfield, LLC failed to provide Utzler with a monthly budget as required by paragraph 12 of the Agreement. Utzler was only provided with a few budget documents during the course of the construction of Moss Ledge. This conduct was consistent with Braca's domination and control of Fairfield, LLC and the Project.
Utzler claims that there is no equity to be realized from the Moss Ledge property, notwithstanding the fact that the property has not yet been sold. Therefore, he claims that Fairfield, LLC breached paragraph 14 of the Agreement that guaranteed that Utzler will be repaid his initial $500,000 investment. In this regard, Utzler proved at trial that the Fairfield, LLC has been delinquent on the first and second mortgages in favor of Ridgefield Bank encumbering Moss Ledge since February 2006, and has been delinquent on the blanket third mortgage in favor of First Connecticut on that property since September 2006. The lenders have commenced foreclosure actions against the property. Utzler asserts in his complaint that "[t]here is no equity remaining after foreclosure of the Moss Ledge mortgages available to repay any of the plaintiff's $500,000 investment." The defendants counter that Utzler not being repaid his investment as provided for in the Agreement was a "risk associated with such an investment" and that "[t]hrough no fault on anyone's part, the property has not sold."
The court agrees with Utzler that Braca's conduct as a manager of Fairfield, LLC relating to the proceeds for the project and the mortgages on the Moss Ledge property granted to lenders has resulted in the property being depleted of any equity. His use of Utzler's and the lender's funds for things other than the Project, paying the liabilities of Woody Lane, using the money for personal expenses, using the money for certain expenses relating to Grays Farm, and encumbering the Moss Ledge property with a blanket third mortgage given as security for Grays Farm, caused the pending foreclosures of the property and the loss of any possible equity for Fairfield, LLC to use in satisfaction of its obligation to Utzler under the Agreement.
C Breach of Fiduciary Duty
In the second count of his Second Amended Complaint, Utzler claims that Braca breached his fiduciary duty to Utzler arising from the Agreement between Braca's entity, Fairfield, LLC, and Utzler. In this regard, Braca testified at trial that he owes a fiduciary duty to Utzler. He disputes, however, that he breached such a duty.
Utzler claims that Braca breached his fiduciary duty by causing Fairfield, LLC to encumber the Moss Ledge property with a blanket third mortgage in favor of First Connecticut, that benefited Grays Farm and not Moss Ledge; by causing Fairfield, LLC's funds to be used for the Grays Farm project; by exceeding the Moss Ledge Construction budget by forty percent; by failing to build the Project in accordance with the requirements of the Connecticut Building Code; and by hiring his son, Thomas Braca, as the selling broker for the residence at Moss Ledge when he did not have enough experience to sell such a home. Braca denies these claims.
"[E]quity has carefully refrained from defining a fiduciary relationship in precise detail and in such a manner as to exclude new situations . . . Simply classifying a party as a fiduciary inadequately characterizes the nature of the relationship." (Citations omitted; internal quotations omitted.) Konover Development Corp. v. Zeller, 228 Conn. 206, 222-23, 653 A.2d 798 (1994), overruled in part by Santopeitro v. New Haven, 329 Conn. 207, 213 n. 8, 682 A.2d 106 (1996). "[W]e have instead chosen 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." Dunham v. Dunham, 204 Conn. 303, 320, 528 A.2d 1123 (1987); Harper v. Adametz, 142 Conn. 218, 225, 113 A.2d 136 (1955).
The Connecticut Supreme Court has "recognized that not all business relationships implicate the duty of a fiduciary . . . In particular instances, certain relationships, as a matter of law, do not impose upon either party the duty of a fiduciary.
"In the seminal cases in which this court has recognized the existence of a fiduciary relationship, the fiduciary was either in a dominant position, thereby creating a relationship of dependency, or was under a specific duty to act for the benefit of another.
"In the cases in which this court has, as a matter of law, refused to recognize a fiduciary relationship, the parties were either dealing at arm's length, thereby lacking a relationship of dominance and dependence, or the parties were not engaged in a relationship of special trust and confidence." (Citations omitted; internal quotation marks omitted.) Hi-Ho Tower, Inc. v. Com-Tronics, Inc., 255 Conn. 20, 38-39, 761 A.2d 1268 (2000).
The court must determine as a matter of law whether, under the circumstances of this case, Braca owed a fiduciary duty to Utzler. "It is well settled 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." Id., 38.
"Proof of a fiduciary relationship therefore imposes a twofold burden upon the fiduciary. Once a fiduciary relationship is found to exist, the burden of proving fair dealing properly shifts to the fiduciary." (Internal quotation marks omitted.) Dunham v. Dunham, supra, 204 Conn. 322. Put another way, there is a "presumption of unfair dealing that arises once a fiduciary or confidential relationship has been proven." Id. "Furthermore, the standard of proof for establishing fair dealing is not the ordinary standard of fair preponderance of the evidence, but requires proof either by clear and convincing evidence, clear and satisfactory evidence or clear, convincing and unequivocal evidence." Id., 322-23.
"Although not always expressly stated, the basis upon which the aforementioned burden shifting and enhanced burden of proof rests is, essentially, that undue influence will not be presumed . . . and that the presumption of fraud does not arise from the relationship itself. We note, however, that [this] rule is somewhat relaxed in cases where a fiduciary relation exists between the parties to a transaction or contract, and where one has a dominant and controlling force or influence over the other. In such cases, if the superior party obtains a possible benefit, equity raises a presumption against the validity of the transaction or contract, and casts upon such party the burden of proving fairness, honesty, and integrity in the transaction or contract . . . Therefore, it is only when the confidential relationship is shown together with suspicious circumstances, or where there is a transaction, contract, or transfer between persons in a confidential or fiduciary relationship, and where the dominant party is the beneficiary of the transaction, contract, or transfer, that the burden shifts to the fiduciary to prove fair dealing . . . A fiduciary seeking to profit by a transaction with the one who confided in him has the burden of showing that he has not taken advantage of his influence or knowledge and that the arrangement is fair and conscientious . . . Generally, therefore, when a breach of fiduciary duty is alleged, and the allegations concern fraud, self-dealing or a conflict of interest, the burden of proof shifts to the fiduciary to prove fair dealing by clear and convincing evidence." (Emphasis in original; citations omitted; internal quotation marks omitted.) Cadle Co. v. D'Addario, 268 Conn. 441, 456-57, 844 A.2d 836 (2004).
Based on the cumulative evidence in the present action, the court concludes that a fiduciary relationship existed between Braca and Utzler. Braca was the ostensible successful builder of luxury homes. Utzler was not a builder, but a career corporate executive who, at times when he was stilled employed in the food packaging industry, dabbled in real estate by investing in a few real estate projects with family members prior to embarking on his venture with Braca. Moreover, Braca never had a partner in a real estate project, assumedly because he never needed an investor prior to the Project. He essentially preserved this fact by requiring in the Agreement that he had sole and exclusive authority to control all aspects of Moss Ledge. He needed Utzler's money to undertake the Project, but he did not need or desire his advice or counsel concerning it. As demanded by Braca, the terms of the Agreement place Braca in the superior and controlling position in this transaction, and render Utzler wholly dependent on Braca's loyalty and honesty to him in their dealings concerning Moss Ledge. The evidence shows that Braca held himself out to Utzler as an experienced and financially successful builder of luxury homes in the Westport area; that he misrepresented to Utzler the profit that he made from the sale of Woody Lane and the profit that he expected to make from the sale of Moss Ledge to induce Utzler to place his trust in Braca by investing in Moss Ledge; that he promised Utzler in the Agreement that he would only use Utzler's investment for the development of Moss Ledge; that he would wholly control the Project and Utzler's participation was limited to his being an investor, he would assume all of the financial risk in terms of the loans necessary to complete the Project; and that he never discussed with Utzler charging for his own labor on the project or allocating his business overhead to the Project. Braca went to great lengths to have Utzler trust him and invest the funds that Braca desperately needed for personal reasons. The foregoing is the type of circumstances "in which there is a justifiable trust confided on one side and a resulting superiority and influence on the other" that supports a finding of a fiduciary relationship. Harper v. Adametz, supra, 142 Conn. 225.
This case does not present the type of arms length commercial transaction lacking dominance and dependence where courts have refused to recognize a fiduciary relationship. For example, in Beverly Hills Concepts, Inc. v. Schatz Schatz, Ribicoff Kotkin, 247 Conn. 48, 57, 717 A.2d 724 (1998), a legal malpractice action, the Supreme Court concluded that the trial court erred in finding that the professional negligence of an associate of the defendant law firm was a breach of fiduciary duty "[b]ecause it cannot be said that [the associate] represented that she had superior knowledge, skill or expertise in the field of franchising, nor that she sought the plaintiff's special trust." This case is also distinguishable from the Hi-Ho Tower, Inc. case. In that case, the plaintiff, the owner and operator of a communications tower and facility that licensed entities to use its communication facilities for television, radio and wireless telephone services, brought a multiple-count action against the defendants seeking damages claiming in general that the defendants unlawfully used the tower for their own benefit. Hi-Ho Tower, Inc. v. Com-Tronics, Inc., supra, 255 Conn. 22-25. The defendants sold, serviced and installed two-way radio equipment. Id., 23. One of the plaintiff's claims on appeal was that the trial court erred in granting the defendants' directed verdict motion on the plaintiff's breach of fiduciary duty claim. Id., 37-38. The Court found that the trial court did not improperly grant a directed verdict concluding "that, as a matter of law, the defendants did not owe the plaintiff the duty of a fiduciary." Id., 41. The Court reasoned that "the plaintiff failed to produce evidence of a unique degree of trust and confidence between the parties" and that "the plaintiff did not relinquish control of tower operations to the defendants." Id., 41.
Rather, the facts of this action are similar to "the seminal cases in which this court has recognized the existence of a fiduciary relationship [where] the fiduciary was either in a dominant position, thereby creating a relationship of dependency, or was under a specific duty to act for the benefit of another." Hi-Ho Tower, Inc. v. Com-Tronics, Inc., supra, 255 Conn. 38. In Dunham, one of the seminal cases concerning the law of fiduciary duty, the plaintiff brought an action against his brother, an attorney in this state, seeking, among other things, to challenge the admission into probate their mother's will and certain inter vivos transfers of family property. Dunham v. Dunham, supra, 204 Conn. 305. The plaintiff presented evidence that his brother had represented him in various legal matters and also provided him with non-legal advice. Id., 320-21. On appeal, the defendant challenged the trial court's instructions to the jury that based on the evidence it "could find a fiduciary or confidential relationship between the parties." Id., 318. The Court stated that the trial court "was . . . correct in asking the jury to determine whether, even in the absence of an attorney client relationship, a fiduciary or other confidential relationship existed between the parties." Id., 320. The record on appeal showed that "the plaintiff continually placed his trust and confidence in the defendant for both legal and nonlegal advice." (Emphasis added.) Id., 321.
Additionally, the case of Alaimo v. Boyer, 188 Conn. 36, 448 A.2d 207 (1982) provides persuasive support as to the existence of a fiduciary relationship in the present action. The defendant was the president of a real estate investment club that the plaintiff joined. Id., 37. The plaintiff was an elderly single woman who suffered from physical and mental infirmities. Id. The defendant held himself out to the plaintiff as knowledgeable about real estate investment, and the plaintiff relied on him to the extent that she gave the defendants her life savings for purposes of investment. Id. The defendant spent the plaintiff's funds and did not give her a return on her investment. Id., 37-38. The plaintiff brought an action alleging fraud against the defendant in which the defendant testified "that he was free to use the money as he saw fit and that he had in fact spent it all shortly after receipt on various business and personal needs." Id., 38. The jury found in favor of the plaintiff and awarded damages to her. Id. The defendant appealed challenging, among other claims, the trial court's instructions to the jury that the jury could consider whether a fiduciary relationship existed between the plaintiff and the defendant. Id., 40. The Supreme Court concluded that the trial court's charge was proper in finding that the evidence could support a finding of a fiduciary relationship and that the burden of proving fair dealing shifted to the defendant fiduciary. Id., 41.
In light of the foregoing, the court concludes that Braca and Utzler were in a fiduciary relationship concerning the development of Moss Ledge. Therefore, the burden of proving fair dealing by clear and convincing evidence shifts to Braca.
Braca has failed to meet his burden of showing that, in his fiduciary capacity, he fairly dealt with Utzler. The evidence clearly establishes that his dealings with Utzler concerning Moss Ledge were patently unfair, intentionally dishonest and involved a pattern of self-dealing and conflicts.
Braca breached his fiduciary duty to the extent that his conduct relating to the proceeds for the Project and the mortgages on the Moss Ledge property has resulted in the property being depleted of any equity. Fairfield, LLC's use of Utzler's and the lender's funds for things other than the Project, such as to pay liabilities of Woody Lane, personal expenses of the Bracas, overhead of Braca's business and certain expenses relating to Grays Farm, and Braca's encumbering of the Moss Ledge property with a blanket third mortgage given as security for Grays Farm, caused the pending foreclosures of the property and the loss of any possible equity for Fairfield, LLC to use in satisfaction of its Obligation to Utzler under the Agreement. In each of those situations, Braca was engaging in self-dealing, and has conflicts of interest between Utzler, the Braca entities and himself.
Braca engaged in self-dealing and had a conflict of interest when he hired the real estate agency at which his son worked to list the Moss Ledge property for sale. The evidence showed that his son did not have much experience as a real estate agent at the time that he received the listing, and certainly was inexperienced in marketing and selling high end homes. Further, the evidence established that Thomas Braca was not engaged in selling real estate full-time, but worked for his father on his various projects, including the construction of Moss Ledge. That the property has been on the market for a few years and has never been listed by another agent supports the conclusion that Braca had engaged in self-dealing and had a conflict of interest in giving his son the listing.
Utzler alleges that Braca breached his fiduciary duty by exceeding the construction budget for Moss Ledge by forty percent. The court concludes that Utzler's claim in this regard fails to rise to a breach by Braca of his fiduciary duty to Utzler.
The court disagrees with Utzler's claim that Braca breached his fiduciary duty in failing to construct Moss Ledge in accordance with the Connecticut Building Code. First, Utzler failed to produce sufficient evidence in support of that claim. Second, it is undisputed that a certificate of occupancy was issued by the Town of Westport for the property.
D Fraud
In the third and fourth counts of his Second Amended Complaint, Utzler claims that Braca is liable to him for fraud and intentional misrepresentation, respectively. The fourth count merely repeats the allegations of the third count. For this reason, the court construes both counts as being a claim based on intentional misrepresentation.
Utzler alleges that Braca made certain fraudulent misrepresentations to Utzler causing him damages. Utzler alleges that Braca fraudulently misrepresented that he anticipated making a profit of $800,000 to $1,000,000 on the Project and that he made a profit of $520,000 on the sale of Woody Lane. Utzler further alleges that Braca fraudulently made these claims to induce Utzler to invest the amount of $500,000 to construct the house on Moss Ledge, and that Utzler relied to his detriment in so investing.
"A cause of action for intentional misrepresentation is essentially a claim of fraud . . . It has long been held in this state that [f]raud vitiates all contracts, written or otherwise." (Citation omitted; internal quotation marks omitted.) Martinez v. Zovich, 87 Conn.App. 766, CT Page 6827 778, 867 A.2d 149, cert. denied, 274 Conn. 908, 876 A.2d 1202 (2005). "The essential elements of an action in fraud . . . are: (1) that a false representation was made as a statement of fact; (2) that it was untrue and known to be untrue by the party making it; (3) that it was made to induce the other party to act on it; and (4) that the latter did so act on it to his injury." (Internal quotation marks omitted.) Updike, Kelley, Spellacy, P.C. v. Beckett, 269 Conn. 613, 643, 850 A.2d 145 (2004).
"Fraud involves deception practiced in order to induce another to act to her detriment, and which causes that detrimental action . . . Because specific acts must be pleaded, the mere allegation that a fraud has been perpetrated is insufficient." (Citations omitted; internal quotation marks omitted.) Chiulli v. Zola, 97 Conn.App. 699, 709, 905 A.2d 1236 (2006). "In an action for fraud, the plaintiffs are entitled to punitive damages, in addition to general and special damages . . . The [purpose] of awarding punitive damages is not to punish the defendant for his offense, but to compensate the plaintiff for his injuries . . . The rule in this state as to torts is that punitive damages are awarded when the evidence shows a reckless indifference to the rights of others or an intentional and wanton violation of those rights . . . An award of punitive damages is discretionary, and the exercise of such discretion will not ordinarily be interfered with on appeal unless the abuse is manifest or injustice appears to have been done." (Citations omitted; internal quotation marks omitted.) Whitaker v. Taylor, 99 Conn.App. 719, 730, 916 A.2d 834 (2007).
"It is not disputed that a claim of common law fraud must be proven by a higher burden of proof than the preponderance of the evidence standard. We have described this standard alternatively as 'clear and satisfactory' evidence, or 'clear, precise and unequivocal' evidence." Rego v. Connecticut Insurance Placement Facility, 219 Conn. 339, 343, 593 A.2d 491 (1991); see also Cookson v. Cookson, 201 Conn. 229, 234, 514 A.2d 323 (1986) ("Proof by 'clear and convincing' evidence is an intermediate standard generally used in civil cases involving allegations of fraud or some other quasi-criminal wrongdoing.").
As discussed, Braca knowingly made a false factual statement to Utzler in order to entice him to invest in Moss Ledge; that is, Braca stated that he made a $520,000 profit on Woody Lane when he knew that he had not. Clearly, Utzler acted on this statement to his detriment, causing him injury to the extent of the loss of his $500,000 investment. Given the significant amount of evidence presented by Utzler, he has proven these facts to the heightened standard of clear and satisfactory proof.
Utzler, however, has failed to sustain his burden of proving that Braca's alleged statement that he anticipated a profit of $800,000 to $1,000,000 was a fraudulent misrepresentation. Specifically, Utzler failed to prove that there was a connection between that statement and Braca's ultimate use of project funds for purposes other than the development and sale of Moss Ledge.
E Breach of Implied Covenant of Good Faith and Fair Dealing
In the Sixth Count of his Second Amended Complaint, noted to be against "John Braca, Jr. with the other defendants as his alter ego," Utzler alleges the following: "[Braca] owes the plaintiff a duty of good faith and fair dealing." Braca denies the claim asserting that he is not the party to the Agreement and, therefore, owes no such duty.
"The common law duty of good faith and fair dealing implicit in every contract requires that neither party [will] do anything that will injure the right of the other to receive the benefits of the agreement . . . Essentially it is a rule of construction designed to fulfill the reasonable expectations of the contracting parties as they presumably intended." (Internal quotation marks omitted.) Elm Street Builders, Inc. v. Enterprise Park Condominium Ass'n., Inc., 63 Conn.App. 657, 665, 778 A.2d 237 (2001). "To prove a claim for bad faith under Connecticut law, the plaintiffs [are] required to prove that the defendants engaged in conduct design[ed] to mislead or to deceive . . . or a neglect or refusal to fulfill some duty or some contractual obligation not prompted by an honest mistake as to one's rights or duties . . . [B]ad faith is not simply bad judgment or negligence, but rather it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity . . . [and] contemplates a state of mind affirmatively operating with furtive design or ill will." (Internal quotation marks omitted.) Id., 667-68.
"The covenant of good faith and fair dealing presupposes that the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party's discretionary application or interpretation of a contract term . . . To constitute a breach of [the implied covenant of good faith and fair dealing], the acts by which a defendant allegedly impedes the plaintiff's right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith." (Internal quotation marks omitted.) Renaissance Management Co. v. Connecticut Housing Finance Authority, 281 Conn. 227, 240, 915 A.2d 290 (2007). "Bad faith has been defined in our jurisprudence in various ways. Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive . . . Bad faith may be overt or may consist of inaction, and it may include evasion of the spirit of the bargain." (Citations omitted; internal quotation marks omitted.) Landry v. Spitz, 102 Conn.App. 34, 42-43, 925 A.2d 334 (2007). "As a rule, whether bad faith is established is a question of fact." 12 Havemeyer Place Co. v. Gordon, 93 Conn.App. 140, 156-57, 888 A.2d 141 (2006).
Utzler's claim under this count must fail because it is directed to Braca himself, and not against him on a theory of alter ego. The Agreement is between Fairfield, LLC and Utzler. Therefore, Braca, individually, did not owe a duty of good faith to Utzler under the Agreement.
F Violation of CUTPA
In the sixth count of his complaint, Utzler alleges that Braca, individually, and the Braca entities with Braca as their alter ego violated the provision of the Connecticut Unfair Trade Practices Act (the "Act"). Concerning his individual claim against Braca, Utlzer re-alleges the prior paragraphs and additionally alleges that "[Braca] has engaged in unfair and deceptive acts and practices in the conduct of trade and commerce as his conduct relates to the negotiation, execution and performance of the Agreement, as shown by the conduct alleged above." Braca denies the claim asserting in his brief that he "conducted his business for the 2 Moss Ledge project in the same way he had always conducted his business." Additionally, Utzler alleges that Braca and the defendant companies "have engaged in the business of new home construction without having the certificate of registration issued by the Commissioner of Consumer Protection . . ." Specifically, Utzler claims that Westport, LLC "was not a registered New Home Construction Contractor." As to that claim, Utzler seeks to hold Braca individually liable for the acts and omissions of Westport, LLC based on the theories discussed. The defendants also deny that claim asserting that "[t]here has been no evidence that [Westport, LLC] is not a new home construction contractor. In actuality, it is a new home construction contractor."
The second claim under this count fails. As stated by Braca, Utzler did not produce any evidence supporting that allegation. In fact, Utzler did not set forth any such evidence in his proposed factual findings or discuss the claim in his brief. Therefore, the court will only consider the first claim that Braca's own conduct relating to this business venture violated the Act.
"Our jurisprudence regarding CUTPA is well settled. It is remedial in character and must be liberally construed in favor of those whom the legislature intended to benefit . . . CUTPA was designed to provide protection to businesses as well as to consumers. CUTPA is not limited to conduct involving consumer injury . . . [A] competitor or other business person can maintain a CUTPA cause of action without showing consumer injury . . . CUTPA, by its own terms, applies to a broad spectrum of commercial activity . . . The purpose of CUIPA is to protect the public from unfair practices in the conduct of any trade or commerce, and whether a practice is unfair depends upon the finding of a violation of an identifiable public policy." (Citations omitted; internal quotation marks omitted.) Eder Bros, Inc. v. Wine Merchants of Connecticut, Inc., 275 Conn. 363, 379-80, 880 A.2d 138 (2005).
"It is well settled that in determining whether a practice violates CUTPA we have adopted the criteria set out in the cigarette rule by the federal trade commission for determining when a practice is unfair: (1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise — whether, in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers [competitors or other businesspersons] . . . All three criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three." (Internal quotation marks omitted.) Updike, Kelly Spellacy, P.C. v. Beckett, supra, 269 Conn. 613, 655-56. "Thus a violation of CUTPA may be established by showing either an actual deceptive practice . . . or a practice amounting to a violation of public policy." (Internal quotation marks omitted.) Glazer v. Dress Barn, Inc., 274 Conn. 33, 82-83, 873 A.2d 929 (2005). "Furthermore, a party need not prove an intent to deceive to prevail under CUTPA." (Internal quotation marks omitted.) Journal Publishing Co. v. Hartford Courant Co., 261 Conn. 673, 696, 804 A.2d 823 (2002). "[The Supreme Court] has set forth a three part test for satisfying the substantial injury criterion: [1] [the injury] must be substantial; [2] it must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and [3] it must be an injury that consumers themselves could not reasonably have avoided." (Internal quotation marks omitted.) Hartford Electric Supply Co. v. Allen-Bradley Co., 250 Conn. 334, 368, 736 A.2d 824 (1999).
"Whether a practice is unfair and thus violates CUTPA is an issue of fact . . . The facts found must be viewed within the context of the totality of circumstances which are uniquely available to the trial court." (Internal quotation marks omitted.) De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424, 434, 849 A.2d 382 (2004).
"[T]he ascertainable loss requirement is a threshold barrier which limits the class of persons who may bring a CUTPA action seeking either actual damages or equitable relief . . . An ascertainable loss is a deprivation, detriment [or] injury that is capable of being discovered, observed or established . . . [A] loss is ascertainable if it is measurable even though the precise amount of the loss is not known . . . Under CUTPA, there is no need to allege or prove the amount of the ascertainable loss . . . A plaintiff need not prove a specific amount of actual damages in order to make out a prima facie case [under CUTPA]." (Citations omitted; internal quotation marks omitted.) Service Road Corp. v. Quinn, 241 Conn. 630, 638-39, 698 A.2d 258 (1997).
"A court may exercise its discretion to award punitive damages to a party who has suffered any ascertainable loss pursuant to CUTPA . . . In order to award punitive or exemplary damages, evidence must reveal a reckless indifference to the rights of others or an intentional and wanton violation of those rights . . . Accordingly, when the trial court finds that the defendant has acted recklessly, [a]warding punitive damages and attorneys fees under CUTPA is discretionary . . . and the exercise of such discretion will not ordinarily be interfered with on appeal unless the abuse is manifest or injustice appears to have been done . . . Further, [i]t is not an abuse of discretion to award punitive damages based on a multiple of actual damages." (Citations omitted; internal quotation marks omitted.) Votto v. American Car Rental, Inc., 273 Conn. 478, 485-86, 871 A.2d 981 (2005). "[O]ur precedents are insufficient to establish a clear, well-defined and dominant public policy against excessive punitive damages . . . This does not mean, [however,] . . . that any arbitral award of punitive damages, no matter how grossly excessive, is insulated from judicial review." (Emphasis in original.) MedValUSA Health Programs, Inc. v. Member Works, Inc., 273 Conn. 634, 662 n. 15, 872 A.2d 423, cert. denied, 546 U.S. 960, 126 S.Ct. 479, 163 L.Ed.2d 363 (2005).
"When liability under CUTPA is established, attorneys fees and costs may be awarded at the discretion of the court and the successful litigant must be given the opportunity at trial to provide evidence to establish a basis for the award." Ven Nguyen v. DaSilva, 10 Conn.App. 527, 530, 523 A.2d 1369, cert. denied, 204 Conn. 803, 528 A.2d 1151 (1987). This remains subject to the general "requirement that the reasonableness of attorneys fees and costs must be proven by an appropriate evidentiary showing." (Emphasis in original.) Smith v. Snyder, 267 Conn. 456, 471, 839 A.2d 589 (2004).
As noted, the extent of Braca's brief on this issue is that "there has been no allegation of any conduct on the part of [Braca] that would rise to the level of an unfair trade practice. [Braca] conducted his business for the 2 Moss Ledge project in the same way he had always conducted his business." Based on the abundance of evidence to the contrary that has been already discussed, the court disagrees.
The court has set forth its factual findings in Part II of this opinion and further discussed specific acts and omissions of Braca in Part III C of this opinion, and it would not be useful to repeat those discussions here.
The totality of the evidence manifests that Braca's conduct as a real estate developer and contractor in dealing with Utzler concerning the Project was unfair and deceptive within the purview of the Act. As discussed, Braca made a material intentional misrepresentation of fact to Utzler concerning his financial success on his Woody Lane project to induce Utzler to invest a large sum of money with him in the Moss Ledge project. Braca viewed Utzler's funds as part of the cash flow of the Project to be used at his sole discretion to pay expenses relating to the Project, to Woody Lane and to himself personally. The unethical and unscrupulous nature of his dealings with Utzler is demonstrated by the fact that Braca never discussed his wrongful use of the funds with him. His actions have caused Utzler substantial injury.
G Statutory Theft
In the seventh count of his complaint, Utzler alleges that the defendants are liable for statutory theft. Utzler alleges that Braca committed such theft "when he intended to deprive the plaintiff of his property and appropriate the same to himself or to" Fairfield, LLC, Westport, LLC and Patricia; and "when he wrongfully obtained the investment of [Utzler] through false pretenses and intended to defraud him." He alleges that Patricia is liable for statutory theft because she "knowingly received and concealed portions of the stolen money of the plaintiff . . ." The defendants deny these claims.
"Any person who steals any property of another, or knowingly receives and conceals stolen property, shall pay the owner treble his damages." General Statutes § 52-564. "[T]he plaintiff's burden to prove statutory theft pursuant to § 52-564 [is] by clear and convincing evidence." Chernick v. Johnston, 100 Conn.App. 276, 280, 917 A.2d 1042, cert. denied, 282 Conn. 919, 925 A.2d 1101 (2007).
The elements that the plaintiffs must prove to obtain treble damages under the civil theft statute, § 52-564, are the same as the elements required to prove larceny, pursuant to General Statutes § 53a-119. Deming v. Nationwide Mutual Ins. Co., 279 Conn. 745, 770-71, 905 A.2d 623 (2006). The elements of civil theft are also largely the same as the elements to prove the tort of conversion, but theft "requires a plaintiff to prove the additional element of intent over and above what he or she must demonstrate to prove conversion." (Internal quotation marks omitted.) Id., 771. "A person commits larceny when, with intent to deprive another of property or to appropriate the same to himself or a third person, he wrongfully takes, obtains or withholds such property from an owner." Id.
Utzler failed to meet his high burden of proving that either Braca or his wife, Patricia, is liable to him for statutory theft. More particularly, Utzler failed to prove that Braca or Patricia had larcenous intent at the time that Braca used the cash flow relating to the Project for reasons other than the development of Moss Ledge. Based on the evidence and the reasonable inferences drawn therefrom, the court concludes that at all relevant times Braca believed that he would be able to sell the house and repay some or all of the funds at issue.
H Unjust Enrichment against Patricia Braca
In the eighth count, Utzler alleges that Patricia is liable to him based on the theory of unjust enrichment. He claims that she was unjustly enriched to the extent of her acceptance of payments from Fairfield, LLC; her acceptance of payments from Westport, LLC out of funds deposited by Fairfield, LLC; and her use of funds from Fairfield, LLC "to balance her capital account" in the name of Westport, LLC. She denies the allegations. Utzler asserts that Patricia was unjustly enriched in the amount of $257,508. The plaintiff claims that the amount represents the total amount of money paid solely to Patricia from the time that Utzler invested his funds into the Project through the year 2005.
"A right of recovery under the doctrine of unjust enrichment is essentially equitable, its basis being that in a given situation it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another . . . Unjust enrichment is, consistent with the principles of equity, a broad and flexible remedy . . . Plaintiffs seeking recovery for unjust enrichment must prove (1) that the defendants were benefited, (2) that the defendants unjustly did not pay the plaintiffs for the benefits, and (3) that the failure of payment was to the plaintiffs' detriment." (Internal quotation marks omitted.) Jo-Ann Stores, Inc. v. Property Operating Co., LLC, 91 Conn.App. 179, 194, 880 A.2d 945 (2005).
Utzler has failed to prove that Patricia was unjustly enriched at his expense based on her receipt of payments as alleged in his complaint. It is undisputed that at the time Utlzer invested his funds into Fairfield, LLC, Westport, LLC had a relatively small balance in its checking account. Braca transferred Utzler's investment funds into Westport, LLC's account along with the construction financing funds from Ridgefield Bank. It is further undisputed that Braca commingled funds between the two accounts. As admitted by Utzler in his trial brief, "Braca's chosen method of handling project expenses was quite unorthodox . . . needlessly commingling the funds and making it impossible to unravel all the transactions." In this regard, Utzler failed to prove that any funds received by Patricia Braca from Fairfield, LLC or Westport, LLC were part of Utzler's investment funds. Despite a significant amount of trial time spent by the parties on the money trail, including numerous charts, the court could make no reasonable findings or conclusions relating to the flow of the funds or Utzler's claims concerning them. Utzler chose not to present expert testimony, in the form of a forensic accountant or otherwise, to further support his claims concerning Braca's use of the Project funds.
While the absence of such evidence was not necessarily fatal to his claims, the state of the evidence concerning Braca's use of the funds, including payments made to Patricia, remained mired in the mud. In view of the foregoing, Utzler has failed to prove the elements of his unjust enrichment claim against Patricia.
IV Damages
The court finds that judgment shall enter in favor of Utzler against Braca as the alter ego of Fairfield, LLC on the first count alleging a breach of contract. The court finds that judgment shall enter in favor of Utzler against Braca on the second count alleging breach of fiduciary duty. The court finds that judgment shall enter in favor of Utzler against Braca on the third and fourth counts alleging fraud and intentional misrepresentation, respectfully. The intentional misrepresentation count merely realleges the claims set forth in the fraud count. Consequently, the court construes the counts as being one in the same; in other words, the counts each assert a claim for fraudulent misrepresentation. The court finds that judgment shall enter in favor of Braca on the fifth count alleging breach of the covenant of good faith and fair dealing. The court finds that judgment shall enter in favor of Utzler against Braca on the sixth count alleging a violation of the Connecticut Unfair Trade Practices Act (the "Act"). The court finds that judgment shall enter in favor of the defendants on the seventh count alleging statutory theft. Finally, the court has found that judgment shall enter in favor of Patricia Braca on the eighth count alleging unjust enrichment.
As to the counts on which judgment is entered in favor of Utzler based on breach of contract, breach of fiduciary duty, fraudulent misrepresentation and violation of the Act, his counsel indicated at oral argument that he is claiming "expectancy damages" that he quantified as being in the amount of Utzler's initial $500,000 investment into the Project along with 25% of the $520,000 profit that Braca fraudulently represented to Utzler he made on his prior project, Woody Lane, in order to induce Utzler to invest in the Moss Ledge project. Additionally, Utzler asserts a claim for attorneys fees and punitive damages based on Braca's conduct violating the Act as found by the court in the sixth count.
The court will first discuss the damage claim concerning the first count alleging a breach of contract against Braca as the alter ego of Fairfield, LLC. "It is axiomatic that the sum of damages awarded as compensation in a breach of contract action should place the injured party in the same position as he would have been in had the contract been performed." Russell v. Russell, 91 Conn.App. 619, 643, 882 A.2d 98, cert. denied, 276 Conn. 924, 888 A.2d 92 (2005); see also Lar-Rob Bus Corp. v. Fairfield, 170 Conn. 397, 405, 365 A.2d 1086 (1976).
As discussed, Utzler has proven that Fairfield, LLC, with Braca as its alter ego, breached certain paragraphs of the Agreement, including paragraph 15, using Utzler's investment funds for purposes wholly unrelated to the Project, and paragraph 14, causing the Project to be depleted of equity and subject to foreclosure such that Utzler will not be paid back his initial investment. In this regard, Utzler is correct that he is entitled to the amount of his investment in order to place him in the same position that he would have been in had the Agreement not been so violated.
"Damages are recoverable only to the extent that the evidence affords a sufficient basis for estimating their amount in money with reasonable certainty . . . Thus, [t]he court must have evidence by which it can calculate the damages, which is not merely subjective or speculative, but which allows for some objective ascertainment of the amount." (Internal quotation marks omitted.) Valentin v. Community Remodeling Co., 90 Conn.App. 255, 261, 876 A.2d 1252 (2005).
Utzler has proven his "expectancy" damages as they relate to his initial investment with reasonable certainty. The Agreement provided in paragraph 14 as follows: "At the time of closing on the sale of the house constructed pursuant to the Project, the Investor shall be repaid the total amount invested in the Project without interest. In addition to the above, the Investor shall be paid a sum of money equal to twenty-five (25%) of the net profit generated from the sale of the property after all construction costs, expenses, attorneys fees, brokers fees and other charges relative to the acquisition, construction and sale of the property have been deducted. In no event shall the investor be paid less than the full amount of the funds advanced for the project." The language clearly and unambiguously evinces the parties' intent that Fairfield, LLC was required to pay to Utzler the amount of his initial investment at the time of the closing of the property before deducting costs of the project and before paying any net profit to either him or Braca if the circumstances of the sale required it. While Utzler was not provided with any form of security for this obligation, he was given the written assurance that his investment would be given a priority in terms of distribution of the proceeds of any sale.
As discussed, Braca's conduct relative to the Project caused Moss Ledge to be depleted of any possible equity that Fairfield, LLC could use to meet its obligation to Utzler and resulted in the lenders commencing foreclosure actions against the property. Therefore, Braca is liable as the alter ego of Fairfield, LLC to Utzler to the extent of his $500,000 initial investment. Utzler, however, has failed to prove to the requisite standard that he is entitled to further recover twenty-five percent of the $520,000 profit that Braca misrepresented that he made on the sale of Woody Lane, which representation helped the basis of the Agreement. Braca's statement at that time was speculative and in the nature of a sales pitch. Utzler has failed to remove his damage claim in that regard from the realm of speculation for the purposes of his claim for such damages under any count of his complaint. In view of the foregoing, Utzler is awarded damages on the first count against Braca as the alter ego of Fairfield, LLC in the amount of $500,000.
Concerning the second count against Braca, individually, where the court has discussed the various ways in which Braca breached his fiduciary duty to Utzler, the crux of the breaches is Braca's conduct relating to the proceeds and cash flow of the Project and the encumbrances that he caused Fairfield, LLC to grant on the property resulted in the property having no equity and being foreclosed. The damages that proximately flow from this breach are in the amount of his initial $500,000 investment.
The same analysis applies to the third and fourth count, which the court construes as being a claim for fraudulent misrepresentation. As discussed, Braca made an intentionally false statement to Utzler concerning the profit that he made on Woody Lane to induce Utzler to invest the amount of $500,000 into Moss Ledge. Utzler invested that amount of money causing him financial injury. The damages that proximately flow from this misrepresentation are in the amount of his initial $500,000 investment.
Concerning the sixth count wherein Braca is liable to Utzler for violations of the Connecticut Unfair Trade Practices Act, Utzler has proven that he has suffered an ascertainable loss in the amount of his $500,000 initial investment. Further, the court has discussed in great detail the evidence showing that Braca acted intentionally and wantonly with regard to Utzler's rights arising from the Project such that the court finds that Utzler is entitled to an award of punitive damages and attorneys fee under the Act. In this regard, Utzler shall request a hearing limited to this issue as such items of damages "must be proven by an appropriate evidentiary showing." (Emphasis in original.) Smith v. Snyder, supra, 276 Conn. 471.