Opinion
LLICV125007405S
05-09-2016
Atlantic Machinery Corporation v. Lynne Hogan et al
UNPUBLISHED OPINION
Filed Date: May 10, 2016
MEMORANDUM OF DECISION
HON. RUPAL SHAH, J.
The plaintiff, Atlantic Machinery Corporation, brings this action against the defendants, Lynne Hogan, Michael Bivona, and AMC Machinery Parts, Inc., alleging (1) conversion, (2) statutory theft, (3) violations of the Connecticut Unfair Trade Practices Act (CUTPA), and (4) trade name infringement. The plaintiff seek relief in the form of monetary damages, including treble damages pursuant to General Statutes § 52-564, and attorneys fees.
AMC Machinery Parts Inc. has not appeared in this matter. Therefore, any reference to the defendants is to Hogan and Bivona.
On September 26, 2013, Hogan filed an answer, special defenses, and setoff/counterclaim (#108). As special defenses, she alleges (1) unclean hands, (2) illegality, and (3) unconscionability. Also on September 26, 2013, Hogan filed a motion to cite (#109) Ricardo Azzoni, the president of the plaintiff, as a third-party defendant to her counterclaim. The court granted her motion on October 15, 2013 (#109.01). On November 26, 2013, Hogan filed an amended counterclaim (#113). In her amended counterclaim, she alleges against the plaintiff and the third-party defendant (1) a wage claim pursuant to General Statutes § 31-72, (2) negligent infliction of emotional distress, and (3) intentional infliction of emotional distress.
On September 27, 2013, Bivona filed an answer, special defenses, and setoff/counterclaim (#111). As special defenses, he alleges (1) waiver, (2) unclean hands, (3) equitable estoppel, and (4) illegality. In his setoff/counterclaim, he alleges (1) failure to pay wages pursuant to § 31-72, (2) negligent infliction of emotional distress, and (3) intentional infliction of emotional distress.
On January 30, 2015, the plaintiff filed separate replies to the defendants' individual special defenses and answers to the defendants' individual setoff/counterclaims (##115 & 116). On January 30, 2015, the third-party defendant filed an answer to Hogan's counterclaim (#117).
The matter was tried before the court on January 26 and 28, 2016. The court received certain documents into evidence and heard the testimony of the third-party defendant, the defendants, and two employees of the plaintiff. On March 28, 2016 the parties all filed post-trial memoranda of law (#132-Hogan, #133-Bivona, #134-the plaintiff and the third-party defendant).
FINDINGS OF FACT
" It is well established that [i]n a case tried before a court, the trial judge is the sole arbiter of the credibility of the witnesses and the weight to be given specific testimony." (Internal quotation marks omitted.) Blasco v. Commercial Linens, LLC, 133 Conn.App. 706, 709, 36 A.3d 737 (2012). The role of the trier of fact is to assess " the credibility of the witnesses . . . on the basis of its firsthand observation of [the witnesses'] conduct, demeanor and attitude." (Internal quotation marks omitted.) Cohen v. Roll-A-Cover, LLC, 131 Conn.App. 443, 450, 27 A.3d 1, cert. denied, 303 Conn. 915, 33 A.3d 739 (2011).
In the present case, the testimony by the third-party defendant and the plaintiff's witnesses, and the testimony of the defendants, was frequently diametrically opposed and irreconcilable. The court had ample opportunity to observe the conduct, demeanor, and attitude of each witness, to evaluate the testimony and to relate the testimony of each witness to the exhibits in the case. In considering the evidence, in addition to evaluating the testimony and exhibits, the court also drew reasonable inferences from the facts established in this case. The court also took into consideration direct and circumstantial evidence that was admitted in the course of the trial. The court's findings of fact, including its decision to credit some witnesses and not others, are based upon all of the foregoing factors.
The court finds the following.
1. The plaintiff is in the business of importing industrial grade woodworking machinery, parts, and supplies for presale in both the wholesale and direct end user markets in the United States.
2. The plaintiff has operated continuously since 1984 and has developed a steady customer base over that time.
3. The plaintiff employed the defendants from around 2000 until July 2011. Bivona managed the spare parts for the business and Hogan acted as the bookkeeper and handled billing for the plaintiff.
4. In 2008, the plaintiff experienced a dramatic decrease in business and had to lay off all employees, except for the defendants. The defendants were responsible and trusted employees.
5. The third-party defendant, on behalf of the plaintiff, could not continue to pay the defendants their current wages by 2009; he proposed that the defendants file for unemployment benefits and the plaintiff would pay the difference in the salary or wages they would otherwise have earned.
6. As part of their compensation, the third-party defendant also offered to provide health insurance given the limited money available to pay them for any work they did; the defendants agreed because Hogan was diagnosed with cancer in 2009 and Bivona had a recent organ transplant, so finding other health insurance coverage would be difficult.
7. The third-party defendant and the defendants engaged in this unemployment fraud scheme from 2009 through 2011. It eventually led to each one of them facing criminal charges.
8. Around this time, the third-party defendant started employment with the Woodworking Industry Association in order to earn income and had less time to spend at the business.
9. On or about January 20, 2011 when their unemployment benefits ended, the defendants incorporated a new business named AMC Machinery Parts, Inc. The defendants used Hogan's residence address as the business address for the new corporation, rented a post office box for the corporation, and established a bank account for the corporation.
10. In connection with incorporating AMC Machinery Parts, Inc., the defendants used the plaintiff's supplier and customer list, and corresponded with the plaintiff's customers requesting that the customers adjust their records to reflect that all future invoice payments should be made to AMC Machinery Parts, Inc.
11. Thereafter, the defendants filled sales orders received by the plaintiff using the plaintiff's machinery, parts, and supplies, but invoiced the transaction to AMC Machinery Parts, Inc.
12. The defendants engaged in the use of the plaintiff's machinery, inventory, and supplies in order to earn the wages that the plaintiff and third-party defendant were unable to pay directly.
13. The parties were clearly engaged in negotiations for the defendants to purchase the third-party defendant's business (the plaintiff) and they made informal arrangements to facilitate a purchase, as testified to by all the parties. By August of 2011, however, the third-party defendant and the defendants had a disagreement over the prospective purchase of the business by the defendants, specifically the value of the business, and the third-party defendant asked them to leave the business.
14. In order to keep the plaintiff in business, the third-party defendant hired two former employees, Jeff Ulreich and Diane Doling, to help with the spare parts business and to review the financial records since the third-party defendant had previously used the defendants to manage the business and had no time to do so personally with his other employment.
15. As Doling reviewed the financial records, she noticed improper transactions and performed a reconciliation; she discovered that the defendants had misused some of the accounts and were operating a parts business of their own, called AMC Machinery Parts, Inc.
16. The third-party defendant also learned of many spare parts that were missing and had an inventory done of the parts around July 2011; he was unaware of any inventory being done from 2005 through 2011, where parts on the inventory lists were compared to actual parts in the physical inventory.
17. As the business grew and then eventually downsized, the plaintiff used various facilities for storing parts over the years and also purged certain inventory by throwing certain obsolete or non-working parts away and giving some parts to a metal scrap collector.
18. Thereafter, the third-party defendant filed a complaint against the defendants with the Milford police department, which conducted its own investigation; the third-party defendant was charged with unemployment fraud, and the defendants were both charged with larceny, unemployment fraud, and tampering with evidence.
DISCUSSION
I. Conversion
A. Legal Standard
" Conversion is an unauthorized assumption and exercise of the right of ownership over property belonging to another, to the exclusion of the owner's rights." Mystic Color Lab, Inc. v. Auctions Worldwide, LLC, 284 Conn. 408, 418, 934 A.2d 227 (2007).
B. Analysis
In the first count, the plaintiff allege that the defendants converted to their own use a portion of the plaintiff's inventory, sold it to third parties and kept the proceeds; created fraudulent invoices in a nonexistent company, paid the invoices and kept the proceeds; and took unauthorized cash advances using a company debit card and kept the cash for their own use. The defendants claim that the third-party defendant, on behalf of the plaintiff, agreed to let the defendants create their own business and use the plaintiff's facilities since the plaintiff was struggling financially and could not pay them directly for their work. While the position of the defendants may seem somewhat untenable, the court finds the defendants' version credible given the plaintiff's financial condition. At the same time, the court does not find the third-party defendant entirely credible given his utter and complete lack of accountability for his part in the unemployment fraud in which they all actively engaged. The plaintiff also benefitted by having the defendants continue to work for it while the third-party defendant was employed fully by Woodworking Industry Association and could not commit his time to turning the business around. The defendants enabled the plaintiff to stay in business and fulfill the obligations the plaintiff had to certain long-time customers. Given the conflicting evidence presented to the court, the court cannot find that the plaintiff has proven by a preponderance of the evidence that the defendants are liable for conversion.
II. Statutory Theft
A. Legal Standard
In the second count, the plaintiff alleges that the defendants' conduct constituted statutory theft in violation of General Statutes § 52-564, and seeks treble damages. In order to establish a claim for statutory theft, and thus treble damages, a party must prove the same elements as larceny. " 'Statutory theft under § 52-564 is synonymous with larceny under General Statutes § 53a-119 . . . Pursuant to § 53a-119, [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 . . . Conversion can be distinguished from statutory theft as established by § 53a-119 in two ways. First, statutory theft requires an intent to deprive another of his property; second, conversion requires the owner to be harmed by a defendant's conduct. Therefore, statutory theft requires a plaintiff to prove the additional element of intent over and above what he or she must demonstrate to prove conversion.' . . . Howard v. MacDonald, 270 Conn. 111, 129 n.8, 851 A.2d 1142 (2004)." Deming v. Nationwide Mutual Ins. Co., 279 Conn. 745, 771, 905 A.2d 623 (2006).
Section 52-564 provides: " Any person who steals any property of another, or knowingly receives and conceals stolen property, shall pay the owner treble his damages."
B. Analysis
Given all the circumstances discussed in the plaintiff's conversion claim, the court cannot find that the evidence presented by the plaintiff proves by a preponderance of the evidence that the defendants had the requisite intent to deprive the plaintiff of its assets for their own personal appropriation and benefit. Therefore, the court finds for the defendants on the statutory theft claim in count two.
III. Connecticut Unfair Trade Practices Act
A. Legal Standard
In the third count, the plaintiff alleges that the defendants created a new corporation, AMC Machinery Parts, Inc., in January 2011, and used this entity to divert orders and sales from the plaintiff to the newly created entity, and that these actions constituted violations of CUTPA. The plaintiff seeks monetary damages, punitive damages, and attorneys fees on the third count.
General Statutes § 42-110b(a) provides: " No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." " 'The operative provisions of [CUTPA], § 42-110b(a), states merely that [n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce. Trade or commerce, in turn, is broadly defined as the advertising, the sale or rent or lease, the offering for sale or rent or lease, or the distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value in this state . . . The purpose of CUTPA 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 findings of a violation of an identifiable public policy . . . A CUTPA claim may be brought in the Superior Court by [a]ny person who suffers an ascertainable loss of money or property, real or personal, as a result of the use or employment of a method, act or practice prohibited by section 42-110b . . .' . . . [ Elder Bros., Inc. v. Wine Merchants of Connecticut, Inc., 275 Conn. 363, 380, 880 A.2d 138 (2005).]" Noyes v. Antiques at Pompey Hollow, LLC, 144 Conn.App. 582, 593-94, 73 A.3d 794 (2013).
" '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-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.' . . . Hartford Electric Supply Co. v. Allen-Bradley Co., 250 Conn. 334, 367-68, 736 A.2d 824 (1999)." Noyes v. Antiques at Pompey Hollow, LLC, supra, 144 Conn.App. 594-95.
B. Analysis
The plaintiff has not presented evidence sufficient to support a finding that the defendants' actions fall within the scope of CUTPA. The plaintiff has presented evidence of a mutually agreed upon unemployment scheme, the exact parameters of which are the only point of contention. The defendants claim the scheme included their formation of a new business for the express purpose of selling certain parts that the third-party defendant authorized and supported. The plaintiff did not prove by a preponderance of the evidence that the defendants' conduct was unknown or unauthorized by the third-party defendant. Therefore, the court finds for the defendants on count three.
IV. Trade Name Infringement
A. Legal Standard
In the fourth count, the plaintiff alleges that the defendants, by establishing an entity with a name intended to confuse the plaintiff's customers, committed trade name infringement. The plaintiff seeks a permanent injunction prohibiting the defendants from conducting a woodworking machinery and parts sales business under the name AMC Machinery Parts, Inc.
" Under our common law, '[a] trade name will be protected but not until it has in fact become in the market the name for goods or services coming from or through a particular source or the name for a particular business. This special significance, once acquired, is thereafter its primary meaning in the market, though lexicographically it may have an earlier, different meaning.' (Internal quotation marks omitted.) Shop-Rite Durable Supermarket, Inc. v. Mott's Shop Rite, 173 Conn. 261, 266, 377 A.2d 312 (1977)." Mohegan Tribe of Indians of Connecticut v. Mohegan Tribe & Nation, Inc., 255 Conn. 358, 375-76, 769 A.2d 34 (2001).
" However, '[n]o inflexible rule can be laid down as to what use of names will constitute unfair competition; this is a question of fact. The question to be determined is whether or not, as a matter of fact, the name is such as to cause confusion in the public mind as between the plaintiff's business and that of the defendant, resulting in injury to the plaintiff. The test is whether the public is likely to be deceived . . . If the court finds that the effect of appropriation by one corporation of a distinctive portion of the name of another is to cause confusion and uncertainty in the latter's business, injure them peculiarly and otherwise, and deceive and mislead the public, relief will be afforded . . . It is not sufficient that some person may possibly be misled but the similarity must be such that any person, with such reasonable care and observation as the public generally [is] capable of using and may be expected to exercise, would be likely to mistake one for the other.' . . . [ Shop-Rite Durable Supermarkets, Inc. v. Mott's Shop-Rite, supra, 173 Conn. 265-66]; accord Yale Cooperative Corp. v. Rogin, 133 Conn. 563, 571, 53 A.2d 383 (1947); Middletown Trust Co. v. Middletown National Bank, 110 Conn. 13, 20-21, 147 A. 22 (1929)." (Footnote omitted.) Mohegan Tribe of Indians of Connecticut v. Mohegan Tribe & Nation, Inc., supra, 255 Conn. 376.
B. Analysis
In the present case, the plaintiff simply did not present any evidence regarding whether the public is likely to be deceived by the alleged similarity in the plaintiff's name and the defendants' business name; no evidence was presented of any harm that resulted. Thus, the court finds for the defendants on this count.
Having found for the defendants on all four counts of the plaintiff's complaint, the court does not reach the defendants' special defenses in its analysis.
V. Counterclaims
A. Wage Claims under General Statutes § 31-72
General Statutes § 31-71a(3) defines wages as " compensation for labor or services rendered by an employee, whether the amount is determined on a time, task, piece, commission or other basis of calculation." Connecticut General Statute § 31-72 provides in relevant part that " [w]hen an employer fails to pay wages in accordance with the provisions of sections 31-71a to 31-71i, inclusive, or fails to compensate an employee in accordance with section 31-76k . . . such employee . . . shall recover, in a civil action, (1) twice the full amount of such wages, with costs and such reasonable attorneys fees as may be allowed by the court, or (2) if the employer establishes that the employer had a good faith belief that the underpayment of wages was in compliance with law, the full amount of such wages or compensation, with costs and such reasonable attorneys fees as may be allowed by the court. Any agreement between an employee and his or her employer for payment of wages other than as specified in said sections shall be no defense to such action . . ."
In their counterclaims, both defendants claim that the plaintiff failed to pay the defendants for the two years in which they worked for the plaintiff pursuant to the scheme in which they all participated. Hogan also raises this claim against the third-party defendant. Given the circumstances under which the claim for wages is made, the court cannot find that the defendants have a valid claim. The defendants fully participated in the scheme-the parties negotiated together and were willing participants. They knew the benefit they bargained for and it clearly was not for the wages that they had been receiving under their employment previously. The defendants were paid the full wages that they negotiated with the third-party defendant; that these wages were less than they were paid in the past is not dispositive. The court finds for the plaintiff and third-party defendant on the defendants' claim for wages.
B. Negligent Infliction of Emotional Distress
" '[I]n order to prevail on a claim of negligent infliction of emotional distress, the plaintiff must prove that the defendant should have realized that its conduct involved an unreasonable risk of causing emotional distress and that that distress, if it were caused, might result in illness or bodily harm.' . . . Scanlon v. Connecticut Light & Power Co., 258 Conn. 436, 446, 782 A.2d 87 (2001). In Barrett v. Danbury Hospital, 232 Conn. 242, 261-62, 654 A.2d 748 (1995), we further reasoned: '[This element of negligent infliction of emotional distress] essentially requires that the fear or distress experienced by the plaintiffs be reasonable in light of the conduct of the defendants. If such fear were reasonable in light of the defendants' conduct, the defendants should have realized that their conduct created an unreasonable risk of causing distress, and they, therefore, properly would be held liable. Conversely, if the fear were unreasonable in light of the defendants' conduct, the defendants would not have recognized that their conduct could cause this distress and, therefore, they would be liable.'" Carrol v. Allstate Ins. Co., 262 Conn. 433, 446-47, 815 A.2d 119 (2003).
In his counterclaim, Bivona alleges that by devising the unemployment fraud scheme and inducing Bivona to participate in the illegal and fraudulent conduct, the plaintiff created an unreasonable risk of causing Bivona emotional distress, such distress was foreseeable, and such conduct did cause Bivona emotional distress severe enough that it might result in bodily injury. In her counterclaim, Hogan alleges that the plaintiff and third-party defendant acted unreasonably and created an unreasonable risk of causing her foreseeable emotional harm when the third-party defendant told her that she would be terminated, and lose her medical insurance needed to cover life preserving medical treatment, unless she participated in the illegal and fraudulent unemployment scheme. The defendants, however, failed to raise these claims in their joint post-trial brief and, thus, the court deems the claims abandoned. The court finds for the plaintiff and third-party defendant on this count.
C. Intentional Infliction of Emotional Distress
" In order for the plaintiff to prevail in a case for liability under . . . [intentional infliction of emotional distress], four elements must be established. It must be shown: (1) that the actor intended to inflict emotional distress or that he knew or should have known that emotional distress was the likely result of his conduct; (2) that the conduct was extreme and outrageous; (3) that the defendant's conduct was the cause of the plaintiff's distress; and (4) that the emotional distress sustained by the plaintiff was severe." (Internal quotation marks omitted.) Appleton v. Board of Education, 254 Conn. 205, 210, 757 A.2d 1059 (2000). " Liability for intentional infliction of emotional distress requires conduct exceeding all bounds usually tolerated by decent society, of a nature which is especially calculated to cause, and does cause, mental distress of a very serious kind." (Citation omitted; internal quotation marks omitted.) Davis v. Davis, 112 Conn.App. 56, 66, 962 A.2d 140 (2009).
In their counterclaims, the defendants allege that the plaintiff, through the third-party defendant, induced the defendants to take certain steps, to their detriment, in reliance on representations concerning the sale of the plaintiff business to the defendants. They further allege that the third-party defendant then refused to sell the business and, instead, filed a false police report alleging that they committed larceny, which led to their arrest. They allege that the plaintiff, through the third-party defendant, filed the false police report with the intent to inflict emotional distress on them and that filing a false police report is extreme and outrageous conduct.
Again, the defendants voluntarily and willingly participated in their employment with the plaintiff in exchange for health insurance and other benefits and knew that it was illegal. The eventual criminal charges that the defendants faced were a potential consequence of their willing participation in an illegal scheme. The court cannot find that the alleged conduct of the third-party defendant filing the police report that led to the criminal charges was the cause of the defendants' distress; their distress was very much of their own making. The court finds for the plaintiff and third-party defendant on the defendants' claims of intentional infliction of emotional distress.
CONCLUSION
The court finds for the defendants on all four counts of the plaintiff's complaint. The court finds for the plaintiff and the third-party defendant on the defendants' counterclaims for wages, negligent infliction of emotional distress, and intentional infliction of emotional distress. Judgment shall enter accordingly.
So ordered.