Opinion
No. FST CV 08-5008479 S
September 16, 2011
MEMORANDUM OF DECISION RE MOTION TO MODIFY PREJUDGMENT REMEDY DATED APRIL 15, 2011 (#227.00)
The procedural issue raised by this motion is: What is the standard of proof for a defense of a prejudgment remedy application? No trial or appellate court in Connecticut has decided this issue. See Babiarz v. Hartford Special, Inc., 2 Conn.App. 388, 393 (1984) (". . . the showing of a clear, factually and legally simple defense . . .") The PJR statute is silent on the defense's standard of proof.
"The defendant shall have the right to appear and be heard at the hearing. The hearing shall be limited to a determination of (1) whether or not there is probable cause that a judgment in the amount of the prejudgment remedy sought, or in an amount greater than the amount of the prejudgment sought, taking into account any defenses, counterclaims or set-offs, will be rendered in the matter in favor of the plaintiff . . ." Gen. Stat. § 52-278d(a)(1).
The underlying substantive issue in this Motion to Modify Prejudgment Remedy is: Whether or not the plaintiffs' claims are barred by the statute of limitations applicable to breach of fiduciary duty and CUTPA?
The plaintiffs, Carmine Fusaro and Umberto Fusaro, applied for a prejudgment remedy against two defendants, Asif A. Malik and Malik's Financial, LLC. The plaintiffs' application for a PJR remedy against the third defendant, David A. Rogers, is not relevant to this court's consideration of this motion. The PJR application was contested. After seven days of trial this court rendered a September 9, 2009 oral decision. The court found probable cause and entered a PJR for the plaintiff, Carmine Fusaro, as against the defendant, Asif A. Malik, in the amount of $1,400,000. The plaintiff, Umberto Fusaro, withdrew his PJR application during the PJR hearings. Carmine Fusaro and Umberto Fusaro are both plaintiffs in the lawsuit in chief.
The unsigned complaint was in twenty-seven counts, nine against David A. Rogers, nine against Malik's Financial, LLC and nine against Asif A. Malik. The First Count alleged breach of fiduciary duty and the Fourth Count alleged CUTPA both as against Asif A. Malik individually. The court found that Asif A. Malik had a fiduciary duty to Carmine Fusaro as his mortgage broker. The court entered a PJR remedy of $700,000 on the breach of fiduciary duty count. The court used the refinanced mortgage in January 2006 for the property at 453-455 West Main Street, Stamford, Connecticut, Ex. 4, and the refinanced mortgage in February 2006 for the property at 457-459 West Main Street, Stamford, Connecticut, Ex. 3, in order to determine compensatory damages.
Asif A. Malik persuaded the plaintiffs to remove the existing residential tenants from these two multifamily buildings, build an addition between the two buildings, combining them into one commercial building and then rent the first floor to commercial tenants and the remainder of the newly combined building to residential tenants. The funds for this project came from various mortgages Asif A. Malik as a mortgage broker arranged for including the last two refinances mentioned. During this construction period, there would be no rent paying tenants. Asif A. Malik then promised to occupy the commercial portion as a rent paying tenant when the construction was completed. The said two 2006 refinances occurred during this construction period. The court found a CUTPA violation and doubled the compensatory damages ordering a $1,400,000 PJR against real property owned by Asif A. Malik.
The plaintiffs, Carmine Fusaro and Umberto Fusaro, commenced this lawsuit returnable October 15, 2009. The complaint was served on the defendants on September 22, 2009, Marshal's return of service (#109.10). This Motion to Modify Prejudgment Remedy notes that Asif A. Malik had acted as a mortgage broker in January 2006 and February 2006, the two aforementioned mortgage refinancing closings. The defendant alleges that these two 2006 transactions form the basis of this court's order for breach of fiduciary duty. The defendant argues that the three years statute of limitations for breach of fiduciary duty is the general tort statute, Gen. Stat. § 52-577, and three years had elapsed as of the commencement of the lawsuit on September 22, 2009 citing Ahern v. Kappalumakkel, 97 Conn.App. 189, 191-92 (2006). "No action founded upon a tort shall be brought but within three years from the date of the act or omission complained of." Gen. Stat. § 52-577. The defendant also argued that the statute of limitations for a CUTPA violation is three years pursuant to Gen. Stat. § 42-110g(f) citing Ives v. NMTC, Inc., 46 Conn.Sup. 235 [ 26 Conn. L. Rptr. 92] (1999). "An action under this section may not be brought more than three years after the occurrence of a violation of this chapter." Gen. Stat. § 42-110g(f). The plaintiff counters by arguing that the claims are not barred by the statute of limitations due to the tolling provisions of the continuing course of conduct rule citing Navin v. Essex Savings Bank, 82 Conn.App. 255, 262-63, cert. denied 271 Conn. 902 (2004). The defendant claims that the continuing course of conduct rule does not toll a CUTPA action. Avon Meadow Condominium Association, Inc. v. Bank of Boston Connecticut, 50 Conn.App. 688, 699-700 (1998) (When a specific time limitation is contained within a statute that creates the right of action, the limitation is substantive and the period cannot be extended.); Moore v. McNamara, 201 Conn. 16, 22-23 (1986); Fichera v. Mine Hill Corporation, 207 Conn. 204, 216 (1988).
The court now turns to the procedural issue. The PJR statute authorizing prejudgment remedies permits a prejudgment remedy to be granted to the plaintiff upon the plaintiff sustaining his burden of proof by "probable cause that a judgment in the amount of the prejudgment remedy sought . . . will be rendered in the matter in favor of the plaintiff." Gen. Stat. § 52-278d(a)(1). The plaintiff's standard of proof is probable cause. The statute also requires the court to take "into account any defenses, counterclaims or set-offs . . ." Gen. Stat. § 52-278d(a)(1). The PJR statute is silent as to the defendant's standard of proof as to "defenses, counterclaims or set-offs."
When statutes are silent as to the standard of proof, case law applies the following rule: "Therefore, our determination is guided by the general rule that when a civil statute is silent as to the applicable standard of proof, the preponderance of evidence standard governs factual determinations required by that statute." State v. Davis, 229 Conn. 285, 295-96 (1994). There are three cases that outline this rule.
(1) Dealing with the standard of proof of punitive damages, the court stated: "The legislature has not, however, established any statutory linkage between a right to recover punitive damages and a higher standard of proof." Freeman v. Alamo Management Co., 221 Conn. 674, 680 (1992). "Absence evidence of legislative intent to the contrary, we continue to presume that when a statutory private right of action includes multiple damages, the plaintiff's burden of proof is the same as in the other tort cases." Id., 683.
(2) "Clear and convincing proof is not the appropriate standard of proof whenever claims of tortious conduct have serious consequences or require proof of willful, wrongful or unlawful acts . . . The ordinary preponderance of the evidence standard was thus appropriate here." Nielsen v. Wisniewski, 32 Conn.App. 133, 137-38 (1993).
(3) In Stuart v. Stuart, 297 Conn. 26, 40 (2010) the Supreme Court stated: "We therefore conclude that the absence of statutory language in § 52-564 regarding the applicable standard of proof evidences the legislature's intent that the preponderance of the evidence standard be applied." Id., 40. "Accordingly, when the legislature has intended to impose a different standard of proof in a civil statute, it has seen fit to include explicit language in the statute to effectuate that intent. The General Statutes are replete with such examples. Clearly, then, the legislature knows how to impose a heightened standard of proof when it so intends." Id., 38-40. The Stuart case on page 38 footnote 9 outlines twenty-seven statutes that contain legislative established specific standards of proof.
None of these cases discuss the standard of proof that a defendant must demonstrate to be successful in defending a prejudgment remedy by establishing "defenses, counterclaims or set-offs."
This issue presented itself before the Appellate Court in 2009, Socci v. Pasiak, 116 Conn.App. 685 (2009). Socci involved a prejudgment remedy hearing in a personal injury claim. After a contested PJR, the trial judge found that a prejudgment remedy should enter in the amount of $250,000. Thereafter the hearing continued as to the question of whether or not there was adequate insurance coverage. Gen. Stat. § 52-278d(a)(2) states: "whether payment of any judgment that may be rendered against the defendant is adequately secured by insurance." In Socci the defendant was owner of the premises in which the assault and personal injuries occurred and he was insured with a homeowner's insurance policy including umbrella coverage of $1,300,000. A copy of the declaration page in the insurance policy was offered to the court at the PJR hearing. The parties stipulated that the defendant's insurance company had issued a reservation of rights letter with respect to all counts. The trial court concluded that the reservation of rights letter was essentially based on plaintiff's claim of intentional acts resulting in the plaintiff's personal injury. The plaintiff also alleged negligent acts as the proximate cause of her personal injuries. The trial court, in the PJR decision, found that the plaintiff did not sustain her burden of proof of probable cause as to the intentional acts. The court found probable cause as to the plaintiff's negligence claims and based its PJR order only on this finding of negligence. The trial court believed that this finding effectively removed the reservation of rights limitation. The trial court found that the $1,300,000 limits of insurance liability as established by the declaration page of the insurance policy, which was in existence at the time of the personal injury, was more than adequate insurance coverage to cover the $250,000 PJR. The trial court denied the PJR. The Appellate Court in a Per Curiam decision, found that the evidence offered was insufficient for the trial court to find that "the defendant is adequately secured by insurance." Gen. Stat. § 52-278d(a)(2).
The Appellate Court noted that the complete insurance policy was not introduced into evidence. It further found despite both counsel's stipulation as to the reservation of rights letter, the original of that letter was not introduced into evidence. "Thus, notwithstanding the defendant's insurance declaration, the record leaves us with the definite and firm conviction that the court unreasonably found an adequate showing of insurance. The defendant did not meet his burden of proof that adequate insurance existed to cover a judgment against him." Id., 689. Surely the proof of the ownership of the real property by the defendant's testimony, his status as a homeowner, his claim that he has insurance coverage, the declaration page of policy showing $1,300,000 insurance coverage well more than the $250,000 claim, counsel's stipulation as to the reservation of rights letter, the court's finding of negligence, and the court's rejection of the intentional claims would be sufficient to satisfy probable cause standards. Therefore Socci v. Pasiak stands for the proposition that defendants have an obligation to prove their "defenses, counterclaims or set-offs" by a standard of proof greater than probable cause, the only standard set forth in Gen. Stat. § 52-278d(a)(1). This would be so since if defendants could establish their defenses merely by probable cause, that would require plaintiffs to sustain their burden of proof by a standard greater than probable cause and thereby modifying the statute de facto, if not literally.
This court therefore must make a determination as to what standard of proof a defendant must demonstrate to establish a "defense, counterclaim or set-off" to a plaintiff's PJR claim. Absolute proof, proof beyond a reasonable doubt, clear and convincing evidence, preponderance of the evidence, probable cause in Gen. Stat. § 52-278d(a)(1), probable cause in criminal cases and prima facie as required by P.B. § 15-8 are all available choices for the PJR defendant's standard of proof.
The court finds that the statute is silent as to the standard of proof for a defense of a PJR application. From the cases previously cited, the court finds that the standard of proof for a defendant in proving "defenses, counterclaims or set-offs" under Gen. Stat. § 52-278d(a)(1) is the preponderance of the evidence standard, the ordinary civil standard of proof. State v. Davis, supra, 229 Conn. 295-96; Access International Advisors Limited v. Argent Management Co., LLC, Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket Number FST CV 09-5012939 S (June 1, 2010, Tierney, J.T.R.): Falvey v. Zurolo, 130 Conn.App. 243, 255 (2001); Donegan v. Gardner, Superior Court, judicial district of Litchfield at Litchfield, Docket Number CV 01-0085057 S (October 4, 2001, Walsh, J.) (Citing Babiarz v. Hartford Special, Inc., supra, 2 Conn.App. 393).
This holding may very well lengthen PJR hearings. The current PJR hearing procedural rules are as follows:
To justify issuance of a prejudgment remedy, probable cause must be established both as to the merits of the cause of action and as to the amount of the requested attachment. That dual requirement ensures that a person is not deprived of the use of property without due process of law . . .
Kosiorek v. Smigelski, 112 Conn.App. 315, 323 (2009).
[T]he adjudication made by the court on [an] application for a prejudgment remedy is not part of the proceedings ultimately to decide the validity and merits of the plaintiff's cause of action. It is independent of and collateral thereto . . . (Internal quotation marks omitted.)
Marlin Broadcasting, LLC. v. Law Office of Kent Avery, 101 Conn.App. 638, 647 (2007).
Moreover, a prejudgment remedy hearing is not contemplated to be a full scale trial on the merits, which necessarily will mean that the evidence presented at the hearing will not be as well developed as it would be at trial, particularly when, as here, the parties have not finished the discovery process.
TES Franchising, LLC v. Feldman, 286 Conn. 132, 143 (2008).
Most, if not all, contested PJR hearings contain some form of defense, counterclaim or set-off claim by the defendant. Those claims of the defendant must be established by the preponderance of the evidence standard. By necessity PJR hearings may become more extensive.
The court notes that Asif A. Malik, while representing himself pro se, completed and filed a notice of defense to the PJR application. He completed, signed and filed Section III — Notice to Defendant on the Notice of Application for Prejudgment Remedy form JD-CV-53 Rev. 7-01. That Section III — Notice to Defendant contains five boxes to check, sign, date and file with the Clerk of the Court and all parties of record. The five boxes state: the PJR remedy is unreasonably high, there is adequate insurance, the plaintiff should be required to post a bond, the defendant should be allowed to substitute a bond for the PJR and there is "a defense counterclaim, set-off or exemption." This court cannot recall such a form having been completed and filed in any other PJR hearing it has conducted. The language contained in Section III originated in Gen. Stat § 52-278c(e) in bold print. Gen. Stat. § 52-278c(g) states that a defendant "may request a hearing to contest the application for a prejudgment remedy" but does not appear to make it mandatory for Section III — Notice to Defendant to be completed, signed and filed. In the future it may be prudent for all defendants to a PJR application to comply with the Section III — Notice to Defendant form as suggested by Gen. Stat. § 52-228c(e) and (g).
As to the substantive issue the plaintiff cites the general statement concerning the continuing course of conduct rule. "Section 52-577 is a statute of repose in that it sets a fixed limit after which the tortfeasor will not be held liable and in some cases will serve to bar an action before it accrues . . . Nonetheless, when the wrong sued upon consists of a continuing course of conduct, the statute does not begin to run until that course of conduct is completed . . . In order to support a finding of a continuing course of conduct that may toll the statute of limitations there must be evidence of the breach of a duty that remained in existence after commission of the original wrong related thereto. That duty must not have terminated prior to the commencement of the period allowed for bringing an action for such wrong . . . Where our Supreme Court has upheld a finding that a duty continued to exist after the cessation of the act or omission relied upon, there has been evidence either of a special relationship between the parties giving rise to such a continuing duty or some later wrongful conduct of a defendant related to the prior act . . . Thus, there must be a determination that a duty existed and then a subsequent determination of whether that duty is continuing." Lee v. Brenner, Saltzman Waltzman, LLP, 128 Conn.App. 250, 257 (2011). As to the substantive issue the defendant argues that the statute of limitations in CUTPA was created by the statute itself and thus the continuing course of conduct does not toll the CUTPA statute of limitations. Fichera v. Mine Hill Corporation, supra, 207 Conn. 216. The Supreme Court has granted cert on this issue on July 13, 2011. Flannery v. Singer Asset Finance Company, LLC, 128 Conn.App. 507, 514-15 (2011), cert. granted 302 Conn. 902. ("Did the Appellate Court properly determine that the three-year statute of limitations period for actions brought under the Connecticut Unfair Trade Practices Act, General Statute § 42-110a, et seq. cannot be tolled?") See also Watts v. Chittenden, 301 Conn. 575 (2011) for an extensive examination of the continuing course of court rule issued on July 29, 2011. The defendant further argues that there was inadequate proof of a duty, a duty remaining in existence, a special relationship, or later wrongful conduct so as to toll the statute of limitations on the breach of fiduciary count as well as the CUTPA count.
The parties agreed that this Motion to Modify Prejudgment Remedy (#227.00) would be heard on the evidence already presented to the undersigned during the seven-day PJR hearing. No new evidence would be offered. This court was the PJR trial judge for the seven days of evidence. The statute of limitations defense was not raised during the PJR hearing. Therefore this court did not have to analyze the three-year statute of limitations of Gen. Stat. § 42-110g(f) for CUTPA, the three-year statute of limitation under Gen. Stat. § 52-577 for breach of fiduciary duty nor the elements of the continuing course of conduct rule. The court has now reexamined its trial notes from the seven-day PJR, hearing. The court finds that the mortgage broker/fiduciary relationship between Carmine Fusaro and Asif A. Malik did not end with the February 2006 mortgage refinance closing. After the two 2006 mortgage refinances for the two properties on West Main Street Stamford, Connecticut the parties remained in contact. Carmine Fusaro told Asif A. Malik that he was having problems making the payments on the newly refinanced mortgages. He was still in the process of converting the two buildings from multifamily to mixed used commercial/multifamily. Asif A. Malik and Carmine Fusaro had been in continual contact from early 2006 through early 2008. It was Carmine Fusaro's intention to comply with Asif A. Malik's request and to permit Asif A. Malik to occupy the newly combined West Main Street building as a rent paying tenant when the construction was completed.
On November 13, 2007 Asif A. Malik loaned Carmine Fusaro $50,000. He executed the promissory note and a mortgage deed to the two properties at 453-455 and 457-459 West Main Street, Stamford, Connecticut. Asif A. Malik did not advance the $50,000 cash to Carmine Fusaro, Asif A. Malik promised Carmine Fusaro that he, Asif A. Malik, would pay the next three mortgage payments on the two 2006 refinanced mortgages. The plan was that the $50,000 would provide sufficient funds to Carmine Fusaro so that he would continue on with the conversion of the residential property to commercial with Asif A. Malik becoming a rent paying tenant. Just prior to the November 2007 refinance Asif A. Malik told Carmine Fusaro that everything would be taken care of and that if the lease falls through Carmine Fusaro will still be able to do another refinance. Asif A. Malik was referencing the lease that he, Asif A. Malik, was going to execute for the new commercial premises. Exhibit 7 is the November 13, 2007 $50,000 mortgage note. The annual interest on the note was fourteen (14%) percent. Monthly payments of principal and interest were to commence January 1, 2008. The dollar amount of the monthly payment was left blank in the note. The note contained a due date of January 1, 2009. The note stated that Carmine Fusaro received the $50,000. Exhibit 8 is the $50,000 mortgage deed dated November 13, 2007. The mortgage deed was a preprinted form. The due date was June 1, 2008 and that date was added in ink. At trial Asif A. Malik could not explain the two different inconsistent due dates, June 1, 2008 and January 1, 2009. The legal description did not set forth the prior encumbrances that this $50,000 mortgage was subject to. Asif A. Malik promised to make payment of the mortgages for the months of November 2007 and December 2007 at which time Asif A. Malik would have arranged for a new refinance of the property. If there was no refinance Asif A. Malik told Carmine Fusaro that the $50,000 would be used to make the two January 2008 mortgage payments. At no time did Asif A. Malik advance any portion of the $50,000 directly to Carmine Fusaro or Umberto Fusaro. Asif A. Malik did pay directly one of Fusaro's monthly mortgage payments; the monthly payment for both mortgages due November 2007. No mortgage payments were made for the other months through January 2008 or thereafter by Asif A. Malik. There was no evidence offered in the PJR hearing that the $50,000 Fusaro to Malik mortgage had been released after its recordation on the Stamford land records. The $50,000 promissory note was not forgiven by Asif A. Malik.
This court finds that these events from February 2006 up to and including November 13, 2007 and for months thereafter were breaches of the fiduciary duty that Asif A. Malik owed to Carmine Fusaro. The court finds that these events are violations of CUTPA. This lawsuit commenced with the marshal's service on September 22, 2009. The above mentioned events, which are a continuation of the mortgage brokerage fiduciary relationship, fall within the three-year statute of limitations of both CUTPA and the breach of fiduciary duty.
Had the statute of limitations issues been raised at the PJR hearing, this court would have factored in the above events surrounding November 13, 2007 mortgage and would have ordered a $1,400,000 PJR.
The court therefore need not address the issue of whether or not the continuing course of conduct rule tolls the statute of limitations for a CUTPA claim. The court need not analyze the continuing course of conduct rule as a tolling medium for the breach of fiduciary duty count.
The court finds that the events surrounding November 13, 2007 were breaches of fiduciary duty and violations of CUTPA, justifying the court's prejudgment remedy of $1,400,000 in favor of Carmine Fusaro against Asif A. Malik. The court finds that the defendant, Asif A. Malik, has failed to sustain his burden of proof by a preponderance of the evidence as to any defenses, counterclaims or set-offs to the $1,400,000 PJR as permitted in Gen. Stat. § 52-278d(a)(1).
The court denies the defendant, Asif A. Malik's, Motion to Modify Prejudgment Remedy dated April 15, 2011 (#227.00) requesting a discharge of the $1,400,000 PJR September 9, 2009 order.
The defendant's Motion (#227.00) requests a Second Claim for Relief, a request to substitute real property at 119 Judd Road, Easton, Connecticut for the current attachment on 82 Rockhorse Road, Easton, Connecticut. That portion of Motion (#227.00) shall be assigned for an evidentiary hearing, either before the undersigned or another Judge. The parties are to contact the office of Civil Case Flow in the Stamford Superior Court to make these arrangements. The parties may also request a hearing on the plaintiffs' Motion to Determine Sufficiency of Attachment dated April 10, 2011 (#226.00). See order #226.86 "Notice of hearing will follow." That portion of the defendant's Motion to Modify Prejudgment Remedy dated April 15, 2011 (#227.00) requesting the relief of substitution of real property is marked, Off.