Opinion
No. 568369
April 19, 2005
MEMORANDUM OF DECISION
On March 12, 2003, the plaintiff and the defendant, Auctions Worldwide, LLC (AWW), entered a contract whereby AWW auctioned photo processing equipment owned by the plaintiff. A. David Loeser, Jr., managing director of AWW was responsible for the management of the company including its performance under its contracts. The total amount collected in the auction and owed to the plaintiff was $310,847.89. To date, AWW has paid the plaintiff only $42,940.22 leaving a balance due of $257,907.67. The plaintiff claims that the defendant, AWW's conduct constitutes a breach of contract, conversion, statutory theft under § 52-564 and violation of the Connecticut Unfair Trade Practices Act (CUTPA), § 42-110a et seq. The plaintiff also claims that Loeser's individual conduct constitutes conversion, statutory theft and violations of CUTPA. The plaintiff claims treble damages for the statutory theft under C.G.S. § 52-564.
The defendants concede that the total amount originally owed by AWW to the plaintiff under the contract was, in fact, $310,847.89 and that the balance due is now $257,907.67. The defendants denied that their actions constitute conversion, statutory theft or violation of CUTPA. Loeser denies individual liability for the contractual debt. Loeser further denies any personal benefit from AWW having failed to pay pursuant to the terms of the auction contract and/or that he managed AWW in an improper way. The CUTPA counts in the case are dismissed by agreement between the parties. The court must determine whether AWW is guilty of conversion, breach of contract or statutory theft. The court must also determine whether Loeser's actions constitute breach of contract, conversion and/or statutory theft. The violations of CUTPA were dismissed by agreement of the parties and order of the court. AWW agrees that it owes the amount claimed under the contractual debt. Loeser denies any personal benefit pursuant to the auction contract or that he managed AWW in an improper way. He also denies individual liability for AWW contractual debt.
Discussion
In count two of the second amended complaint, the plaintiff has alleged conversion and statutory theft, alleging that after collecting the proceeds of the auction, AWW wrongfully refused to remit the amount to the plaintiff and instead spent the money or otherwise disposed of it.
Conversion
Conversion is an unauthorized assumption and the exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights. Devitt v. Manulik, 657, 660 (1979); and Discovery Leasing, Inc. v. Murphy, 33 Conn.App. 303, 309 (1993). The unauthorized act is inconsistent with the owner's right of dominion and may deprive the owner of his rights permanently or for an indefinite period of time. Devitt v. Manulik, supra, 660. Further, to recover on the theory of conversion, the plaintiff need only show that he had an immediate right to possession at the time of conversion. Conversion also requires that the plaintiff be harmed by the defendant's unauthorized acts. Suarez-Negrete v. Trotta, 47 Conn.App. 517, 521 (1998). The plaintiff alleges that the facts at trial clearly indicate that AWW engaged in the unauthorized act of retaining possession of the proceeds of the MCL auction, contrary to MCL's right to the proceeds. To date, AWW has failed to pay most of the proceeds to MCL. MCL also had a right to possess the proceeds of the auction when the conversion occurred because MCL had a right to the proceeds beginning 15 days after the auction. All the proceeds were due within 60 days and certainly by the end of the year 2003. In this period of time, AWW already had begun writing checks against the funds collected from the auction and belonging to MCL. Finally, MCL was clearly harmed by AWW's unauthorized conduct, as the company has been deprived of $257,907.67 to which it is entitled. The evidence produced at trial demonstrates that Loeser should be held personally liable for conversion and for AWW's failure to pay the proceeds of the MCL auction because as managing director of AWW, he wrongfully used his authority and responsibility to divert or direct the diversion of funds owed to MCL to his company and to pay AWW's other financial obligations. Moreover, the plaintiff claims the evidence demonstrates that Loeser used MCL's property rights in the auction proceeds in a manner adverse to MCL and inconsistent with its right of dominion over the auction proceeds. Accordingly, the plaintiff claims that Loeser personally converted MCL's funds and that he exercised ownership over MCL's property to the exclusion of MCL's right for an indefinite period of time, to the detriment of MCL.
If an officer of a corporation commits or participates in the commission of a tort whether or not he acts on behalf of his corporation, he is liable to third parties injured thereby. BEC Corp. v. Department of Environmental Protection, 256 Conn. 602, 619 (2001); Scribner v. O'Brien, Inc., 169 Conn. 389, 404 (1975); Semple v. Morganstern, 97 Conn. 402, 404-05 (1922) ("Under this generally accepted rule [that all who actively participated in the commission of a tort are jointly and severally liable therefore], both principal and agent, who is himself a participant in the conversion are liable in trover.") To impose personal liability against an officer of a corporation, courts do not require that an officer benefit personally from the conversion, and have held corporate officers who participated in the commission of the tort of conversion liable for such acts, even if the participation is for the corporation's benefit. Key Bank of New York v. Grossi, 2227 A.D.2d 841, 843 (NY.App.Div. 1996); Edwards v. Horseman Sales Company, Inc., 148 Misc.2d 212, 214 (NY.App.Div. 1989). ("It is of no moment that the defendants did not personally benefit from the diversion.") Even though courts do not require that a corporate officer personally benefit to be liable for conversion, Loeser did derive a personal benefit from the conversion of the MCL funds in that significant amounts were paid to ADL Global, Inc. and ADL Express, LLC, other companies owned and operated by Loeser, as evidenced by checks written from AWW's general operating account to ADL Global, Inc. and ADL Express, LLC. Moreover, by satisfying financial obligations other than the obligation owed to MCL, Loeser was able to avoid personal liability on certain obligations and to maintain the viability of all three companies, also personally benefitting him. The defendants, Loeser and AWW, argue that they entered into an agreement with the plaintiff which contemplated selling certain assets belonging to the plaintiff at a one-day auction scheduled to occur on April 29, 2003 at plaintiff's premises. The auction did occur on May 1, 2003. At the auction, buyers came onto the plaintiff's premises and placed bids for the purchase of the property being sold by the plaintiff through the auction sale conducted by AWW. The successful buyers deposited the purchase price funds with AWW in anticipation of taking physical delivery of the property. The terms of the auction were for funds to be deposited the same day, but in many instances they were paid over the course of the ensuing weeks and months according to the testimony of Loeser. AWW never took possession of the plaintiff's property, but merely facilitated the sale of the same. The funds were deposited into AWW's operating account which were commingled with funds from purchases of other auctions as well as other monies belonging to AWW. Pursuant to the contract, AWW owed a contractual obligation to turn over the funds received from the auction less its expenses and commission. Based upon the property actually sold, AWW was contractually obligated to pay to the plaintiff $310,847.89. This was the total amount of the sales less AWW's costs and commissions. This was agreed to by counsel. Also agreed was the fact that AWW paid the plaintiff $42,940.22 on the auction contract. AWW did enter into a series of negotiations with the plaintiff to arrive at payment terms with the plaintiff, however, all offers were rejected by the plaintiff. AWW has ceased operation and is in the process of winding up its affairs according to the testimony of Loeser. Based upon a review of the corporate records, the testimony of Loeser and Richard Pascoe, CPA, the defendant claims there is no evidence that Loeser personally benefitted from the operation of AWW, other than the ordinary costs, salary and benefits. Loeser also maintains that there is no evidence that he received any of the funds from the auction. Loeser also is owed considerable money from AWW and has expended thousands of dollars of his own money in an unsuccessful attempt to keep AWW solvent according to his own testimony.
The plaintiff argues that under the Suarez-Negrete case, supra, conversion can be distinguished from statutory theft in two ways. First, the 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 the plaintiff to prove the additional element of intent over and above what he or she must demonstrate to prove conversion according to the argument of the defendants. They claim that neither Loeser nor AWW had possession of the property of the plaintiff, that all they did was enter the plaintiff's property as a broker to sell the plaintiff's property to third parties. They never did take possession of the property or deliver it. They claim they received money paid on a counter purchase order. The money they say was then deposited into AWW's operating account which was not a special trust account but was rather an account containing monies belonging solely to AWW. Accordingly, AWW claims that it was the debtor of the plaintiff, and not its bailee. They also claim that "where the auctioneer is permitted to commingle funds, his status toward the principle with regard to the money he receives is more properly viewed is that of a debtor than of a bailee." American Jurisprudence, 2nd Ed., Auctions and Auctioneers, § 80 (204). United States v. Lawson, 925 F.2d 1207 (9th Cir. 1991) which held "in determining the interest of the government and proceeds, we guided by the principles of the United States v. Johnson that if there were a bailment, then there could be a conversion but if there was a debtor/creditor relationship no conversion could occur." 268 U.S. 220, 226-27 (1925). Also, In re Walker Industrial Auctioneers, Inc., 38 B.R. 8 (Bankruptcy D.OR. 1983) (when a party is allowed to commingle funds and merely is required to pay the amount of net auction proceeds to the seller, his status is more properly seen as that of a debtor than of a bailee. Therefore, the defendants claim that AWW only owed a debt to the plaintiff pursuant to the auction contract and that neither AWW nor Loeser converted the plaintiff's funds. They also claim that the plaintiff has not sustained its heightened burden to show that either AWW or Loeser had the requisite intent to convert the plaintiff's funds. The defendants also argue that the plaintiff's claim for conversion is barred under the Economic Loss Doctrine. The matter stems solely from the failure of AWW to pay monies to the plaintiff which AWW owed under the auction contract. As such, a tort remedy is not permitted under the Economic Loss Doctrine according to the defendants. "The thrust of the common-law economic loss rule is that . . . in the absence of an injury to the plaintiff's person or property, the plaintiff may not recover in tort for purely economic loss." Amity Regional School District #5 v. Atlas Construction Co., Superior Court, judicial district of Waterbury, Complex Litigation docket No. 153388 (July 26, 2000) (McWeeny, J.) ( 27 Conn. L. Rptr. 605). In conclusion, the defendants argue that the plaintiff's damages are purely monetary and arise solely from the contractual relationship between it and AWW. They argue that, accordingly, the plaintiff's claim for conversion is barred by the Economic Loss Doctrine.
The plaintiff maintains that conversion can be distinguished from statutory theft as established by § 53a-119 in two ways. First, statutory theft requires intent to deprive another of his property; secondly, it requires the owner to be harmed by the defendant's conduct. Therefore, statutory theft requires a plaintiff to prove an additional element of intent over and above what he or she must demonstrate to prove conversion. Suarez-Negrete v. Trotta, supra, 521. In that case, the court held that there was sufficient evidence to support a statutory theft claim because (1) the money held by the defendant belonged to the plaintiff, (2) the defendant intentionally deprived the plaintiff of his funds, and (3) the defendant's conduct was unauthorized. Id., 521-22. The plaintiff claims that as discussed above, the evidence at trial clearly proves that the money held by AWW belonged to MCL and that AWW and Loeser's conduct was unauthorized. The evidence also demonstrates that AWW and Loeser intentionally deprived MCL of the auction proceeds. AWW received the proceeds of the MCL auction though checks and wire transfers deposited into AWW's general operating account. Loeser had the opportunity and responsibility to safeguard these funds, but instead of doing so, directed the diversion of the funds to his own companies to satisfy AWW's other financial obligations. Loeser was aware that by directing the payment of other financial obligations, AWW would not be able to satisfy its obligations to MCL. Nevertheless, AWW chose not to pay the auction proceeds to MCL and, therefore, intentionally deprived MCL of its property.
The court finds that MCL has established the requisite elements of statutory theft. The court also finds that Loeser should be held personally liable for his participation in the theft of MCL's funds and his decision to divert those finds to satisfy other AWW obligations. An officer of a corporation is liable to third parties for commission of, or participation in a tort regardless of whether he is acting on behalf of the corporation. BEC Corp. v. Department of Environmental Protection, supra, 256 Conn. 618.
Since statutory theft is a tort similar to that of conversion, the court will apply the principles discussed above, imposing personal liability on auctioneers who fail to pay the proceeds of auctions to the sellers, to MCL's statutory theft claim. Since the evidence at trial clearly establishes that both AWW and Loeser personally, are liable for statutory theft, the court will award MCL treble damages on its statutory theft claim against both defendants in the amount of $932,543.67 plus statutory interest.
D. Michael Hurley, JTR