Opinion
No. CV 04-0834966-S
November 13, 2009
This hearing in damages was conducted pursuant to a remand in the case of Peterson v. Woldeyohannes, 111 Conn.App. 784, 961 A.2d 475 (2008). The following facts and procedural history are from the Appellate Court opinion: "The plaintiff's complaint alleged that in February 2004, she and the defendant, social acquaintances, entered into an oral agreement to form a partnership for the purpose of purchasing six condominium units in Hartford. The alleged partnership engaged the services of an attorney to negotiate the purchase and to draw up a purchase agreement for the units. Before the partnership had the opportunity to enter into an agreement with the sellers, however, the units were conveyed to A to Zee, LLC. The defendant is the sole owner of A to Zee, LLC. The plaintiff thereafter filed a ten-count complaint alleging the creation of an oral partnership between herself and the defendant, and seeking recovery based on a number of theories. In particular, the complaint alleged that the defendant breached the partnership agreement and breached her fiduciary duty to the plaintiff and the partnership by usurping the opportunity to purchase the units." Peterson v. Woldeyohannes, supra, 111 Conn.App. 785-86.
This court notes that the complaint was comprised of the following enumerated counts: declaratory judgment, breach of oral agreement, breach of fiduciary duty, interference with a business relationship, constructive trust, unjust enrichment, good faith/fair dealing, fraud, alter ego, and conversion/civil theft. The plaintiff's claims for relief included a declaratory judgment as to the enforceability of the partnership and as to the rights of the respective partners, money damages, interest and treble damages pursuant to General Statutes § 52-564.
General Statutes § 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."
The earlier appeal in this case dealt with the effect of a default against the defendant and subsequent efforts on the defendant's part to present defenses at the original hearing in damages. Peterson v. Woldeyohannes, supra, 111 Conn.App. 790. As noted by the Woldeyohannes court, "[t]he entry of a default constitutes an admission by the defendant of the facts alleged in the complaint . . . All that remains following such an entry is for the plaintiff to prove the amount of damages to which it is entitled." (Citation omitted; internal quotation marks omitted.) Id.
A to Zee, LLC (A to Zee) was named as an original defendant, however, on September 21, 2005, the plaintiff withdrew her action against A to Zee. The plaintiff's allegations that the defendant Woldeyohannes is the alter ego of A to Zee are deemed admitted and the court finds that the defendant is the sole member of A to Zee. As will be discussed later, the fact that A to Zee is not a party before the court affects the remedies that are available.
The defendant was represented by counsel throughout the hearing, however she was never personally present in court. At the beginning of the hearing, and on several later occasions, the defendant's counsel filed motions to open the earlier default. This court notes that the Woldeyohannes court stated: "The record reveals that the defendant's dilatory tactics, for which a disciplinary default was entered, directly resulted in the unavailability of evidence required by the plaintiff and found to be relevant by three judges. In such a circumstance, it would be wholly unjust, after entering a disciplinary default, for the court to permit the defendant to deny liability on the underlying claims, while the plaintiff remains without the requested discovery. In this case, the defendant's noncompliance may have caused the plaintiff's inability to rebut the defendant's defenses. We conclude, therefore, that when a defendant has failed to cure the underlying cause of the disciplinary default, it will not be permitted to take advantage of its behavior and of the opportunity to defend on the merits provided by Practice Book § 17-34(a) during the hearing in damages." Peterson v. Woldeyohannes, supra, 111 Conn.App. 792-93. Relying on the holding of Woldeyohannes, and the length of time that the defendant has been in default, the court denied those motions to open the default. The defendant's counsel has filed a posttrial brief and has attached telephone records, which are apparently related to the subject default. Again, relying on Woldeyohannes, those records were not considered in formulating this decision.
The plaintiff and the defendant agreed to form a partnership to purchase six condominium units in Hartford. Each party was to own a 50 percent interest in the partnership. The partnership intended to purchase the six units from a third party for a total price of $147,500. After the parties made an oral agreement, the defendant misrepresented to the plaintiff that she would not go through with the deal. The defendant then formed her own entity, A to Zee, and used it to purchase the six units from the third party. A to Zee later sold two of the units in 2006. The plaintiff testified that the remaining four units are rented to tenants.
In addition to claiming damages, the plaintiff asks the court to impose a constructive trust upon the units and order their conveyance to a partnership comprised of the plaintiff and the defendant. "A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee . . . The imposition of a constructive trust by equity is a remedial device designed to prevent unjust enrichment . . . Thus, a constructive trust arises where a person who holds title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it." (Internal quotation marks omitted.) New Hartford v. Connecticut Resources Recovery Authority, 291 Conn. 433, 466, 970 A.2d 592 (2009).
The court concludes there are procedural and practical obstacles to the court's ability to impose a constructive trust. First, the units are purportedly owned by A to Zee, which is not a party to the case. "A claimant seeking a constructive trust must identify property in the hands of the [ defendant] that represents or embodies . . . property obtained at the claimant's expense or in violation of the claimant's rights." (Emphasis added; internal quotation marks omitted.) New Hartford v. Connecticut Resources Recovery Authority, supra, 291 Conn. 466. In other words, the owner of the property at issue must be a party to the case. Here, the court has no jurisdiction to enter an order against A to Zee, and no ability to enforce it. Certainly, the court, in this case, has the power to "pierce the veil" of a limited liability company to reach the personal assets of the defendant, but not the assets of A to Zee, who is not a party.
Connecticut courts have held corporate entities are not necessary parties to pierce the corporate veil, but only when the complaint or count at issue was seeking to hold the individual corporate officers personally liable. Meneo v. Patrick, Superior Court, judicial district of Hartford, Docket No. CV 06 5004523 (March 23, 2007, Elgo, J.) (holding that LLC is not an indispensable party under Practice Book § 9-18 in action against sole member of LLC); Andrews v. Caron Bros., Inc., Superior Court, judicial district of Tolland, Docket No. 45136 (March 26, 1992, McWeeny, J.) [6 Conn. L. Rptr. 709] (denying motion to strike count directed at officer of corporation on ground that plaintiff failed to sue the corporation); Vertrue, Inc. v. Meshkin, 429 F.Sup.2d 479, 505 (D.Conn. 2006) (holding that LLCs are not indispensable parties under Fed.R.Civ.P. 19 in action against sole member of LLCs). See also Stewart Tenants Corp. v. Square Industries, Inc., 269 App.Div.2d 246, 703 N.Y.S.2d 453, 454 (2000) ("An action to pierce the corporate veil requires that the purported dummy corporations be parties, even if the parent corporation is alleged to be the one which unjustly retains the funds").
Second, the court lacks authority to create a partnership agreement. "A court will not make (or impose) a partnership agreement where the parties have failed to do so themselves." Pieretti v. Silk, Superior Court, judicial district of Middlesex, Docket No. 63316 (July 16, 1993, Spallone, S.T.R.). See 59A Am.Jur.2d, Partnership, § 89 (2003) ("The courts will not make a partnership contract for the benefit of parties mutually alleging its existence where the parties fail to do so themselves, unless there is a need to protect innocent third parties . . ."). This principle is fundamental to contract law, as "[i]t is not within the province of the court to create new and different agreements." Steinberg v. Reding, 24 Conn.App. 212, 214, 587 A.2d 170 (1991).
Third, even if the court could construct a remedy involving ownership of the units by the plaintiff and the defendant, it is not reasonable to assume that these two parties who have been involved in contentious litigation for the past five years would be able to agree on the issues that would necessarily arise from the ownership and management of four rental units. Finally, no evidence was presented as to the current state of the title of the units and possible encumbrances against them. In this economy, it is not unreasonable to acknowledge the possibility that the property is encumbered by mortgages that are greater than the amount of the purchase price and/or present value. In such a situation, a constructive trust would not benefit the plaintiff. Conversely, if the units are free and clear, imposition of a trust would create a windfall for the plaintiff. "The imposition of a constructive trust is an equitable remedy, the granting of which is within the equitable discretion of the court." Sullivan v. Delisa, 101 Conn.App. 605, 616, 923 A.2d 760, cert. denied, 283 Conn. 908, 928 A.2d 540 (2007). In the present situation, a constructive trust would be an impermissible and inappropriate remedy.
"[A]s a general rule, an action is to be deemed legal in nature, rather than equitable, where the only relief sought is the collection of money damages . . . [I]n many situations a proceeding in equity is denied because the remedy at law is adequate." (Citations omitted; internal quotation marks omitted.) Gagne v. Vaccaro, 80 Conn.App. 436, 442-43, 835 A.2d 491 (2003), cert. denied, 268 Conn. 920, 846 A.2d 881 (2004). "[I]t is basic that equitable relief will not be granted where an adequate remedy at law exists. Money damages if determinable with a reasonable degree of certainty constitute such an adequate remedy." SCM Corp. v. Xerox Corp., 507 F.2d 358, 363 (2d Cir. 1974). "Money damages are the favored disposition in law, and the equity court must determine whether the party can be compensated in that manner, but the inadequacy of a legal remedy does not consist merely in the failure of the remedy to produce money; it may be disclosed by the fact that the remedy, in its nature or character, is not fitted or adapted to the accomplishment of the desired purpose." 27A Am.Jur.2d, Equity § 30 (2008).
The court concludes the proper remedy in this case is an award of damages against the defendant. At bottom, the plaintiff lost the value of a business opportunity because the defendant breached her agreement with the plaintiff. In paragraph thirty of the first count of her complaint, the plaintiff alleges "[a]s a result of the actions of Woldeyohannes as aforesaid, the [p]laintiff has been deprived of the benefit of her bargain and has lost the expectancy of acquiring the [six units] and realizing the rental income and/or profits from same, all to her loss and damage."
In a case that is factually similar, Jacobs v. Thomas, 26 Conn.App. 305, 313-15, 600 A.2d 1378 (1991), cert. denied, 221 Conn. 914, 603 A.2d 404 (1992), the Appellate Court stated: "The general rule in breach of contract cases is that the award of damages is designed to place the injured party, so far as can be done by money, in the same position as that which he would have been in had the contract been performed . . . Damages for breach of contract are to be determined at the time of the occurrence of the breach . . . Courts have traditionally held that a party may recover general contract damages for any loss that may fairly and reasonably be considered [as] arising naturally, i.e., according to the usual course of things, from such breach of contract itself . . . [The Connecticut courts have] consistently applied the general damage formula of Hadley v. Baxendale [9 Ex. 341, 354, 56 Eng. Rep. 145 (1854)] to the recovery of lost profits for breach of contract, and it is [the] rule that [u]nless they are too speculative and remote, prospective profits are allowable as an element of damage whenever their loss arises directly from and as a natural consequence of the breach . . .
"In his complaint, the plaintiff alleged that `[a]s a result of the actions of the defendant aforesaid, the plaintiff was deprived of the benefit of his bargain and lost the expectancy of acquiring and rehabilitating said premises, all to his loss and damage,' and sought money damages and `[s]uch other legal relief as the court deems appropriate.' These assertions can properly be considered requests for recovery for the damage suffered by the plaintiff through a wrongful termination of a contract. Where such is the case, the entire damage, both past and prospective, may be recovered in a single action . . . The measure of damages in the present case is therefore reasonable compensation for the loss which the plaintiff suffered in being wrongfully deprived of the benefit of the agreement. That which it provided for was a sharing of profits. Such profits were, therefore, within the contemplation of the parties . . . The measure of the loss must be found in the profits which under the agreement the plaintiff would have been entitled to receive." (Citations omitted; internal quotation marks omitted.) Jacobs v. Thomas, supra, 26 Conn.App. 313-15.
This court concludes that the plaintiff's lost profits are 50 percent of the difference between the purchase price of the units contemplated by the parties, $147,500, and the present value of all six units that were the subject of the parties' agreement. The plaintiff presented credible testimony from a real estate appraiser that the present value of all six units is $285,000. The difference in value is $137,500, and 50 percent of this amount is $68,750. The plaintiff is awarded damages for lost profit in the amount of $68,750.
The plaintiff also seeks damages for her share of the lost rental income from the units from the date of their purchase by A to Zee to the present time. To support this claim, she relies on the testimony and income and expense calculations of her appraiser. The appraiser's amounts for income and expenses are derived from comparable properties; they are not the actual amounts for the subject units. The plaintiff seeks as damages 50 percent of the net operating income, without reduction for mortgage payments. The plaintiff testified the partnership intended to finance the purchase of the units. She also testified that it was expected that the partnership would obtain 100 percent financing. Neither the partnership, nor the plaintiff individually, obtained a financing commitment. Obviously, the rental income would be used to pay any mortgage payments, thus reducing the net rental income. Since the partnership, and indirectly the plaintiff, would necessarily incur financing costs, it would be improper to award the plaintiff one-half of the net profits without recognition of financing costs. In the absence of evidence regarding the specific terms of any financing, the court concludes that any of damages for lost rental income would have to based upon speculation, and thus they are not awarded.
In her complaint, the plaintiff has included a count for fraud, which is deemed admitted. The allegations in the complaint, and the testimony of the plaintiff as to the conduct of the defendant, provide sufficient clear and convincing proof to support a finding that the defendant committed fraud.
The plaintiff seeks attorneys fees. "[A]bsent contractual or statutory authorization, there can be no recovery, either as costs or damages . . . for counsel fees by a party opponent from his opponent." (Internal quotation marks omitted.) Gionfriddo v. Avis Rent A Car System, Inc., 192 Conn. 280, 297, 472 A.2d 306 (1984). An exception to this general rule is that attorneys fees may be awarded as a component of punitive damages. Markey v. Santangelo, 195 Conn. 76, 80, 485 A.2d 1305 (1985). Punitive damages may be awarded upon a showing of fraud. Id., 77; Manning v. Michael, 188 Conn. 607, 619, 452 A.2d 1157 (1982). O'Leary v. Industrial Park Corp., 211 Conn. 648, 651, 560 A.2d 968 (1989).
This case has been pending for over five years. The plaintiff's attorney was forced to expend a considerable amount of time compelling the defendant's compliance with discovery requests. The first hearing in damages was heard over six days and was extensively briefed. The court acknowledges that the plaintiff represented herself in the appeal. The plaintiff was represented by counsel in the hearing before this court, which was conducted over five days. The parties submitted extensive post-trial briefs.
The court has carefully reviewed the affidavits and billing statements that have been submitted regarding the plaintiff's attorneys fees. Two affidavits with attached billing records, dated September 16, 2005, and March 1, 2006, indicate that Attorney Gfeller, the plaintiff's prior attorney, billed a total of $45,823.50 for attorneys fees. Attorney Gordon, the plaintiff's present attorney, submitted an affidavit with attached billing records indicating that he billed the plaintiff $26,800 for fees. The total amount of attorneys fees incurred by the plaintiff in connection with this action is $72,623.50.
"[Our Supreme Court has] long held that there is an undisputed requirement that the reasonableness of attorneys fees and costs must be proven by an appropriate evidentiary showing . . . [It has also] noted that courts have a general knowledge of what would be reasonable compensation for services which are fairly stated and described . . . and that [c]ourts may rely on their general knowledge of what has occurred at the proceedings before them to supply evidence in support of an award of attorneys fees." (Citations omitted; internal quotation marks omitted.) Smith v. Snyder, 267 Conn. 456, 471, 839 A.2d 589 (2004).
Since the court finds that the defendant has committed fraud, the plaintiff is entitled to attorneys fees as punitive damages. Considering the evidence submitted as to the plaintiff's attorneys fees and applying the court's general knowledge, the plaintiff is awarded attorneys fees punitive damages of $50,000. The court is aware the plaintiff has incurred other expenses that may be the subject of a bill of costs. The court finds, pursuant to § 52-260(f), that the reasonable fee for the plaintiff's appraiser, for preparation of the appraisal and testimony time, is $3,500.
The plaintiff seeks treble damages for theft pursuant to § 52-564. "The tort of [c]onversion occurs when one, without authorization, assumes and exercises ownership over property belonging to another, to the exclusion of the owner's rights . . . Similarly, [s]tatutory theft under [General Statutes] § 52-564 is synonymous with larceny [as provided in] 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 [the] owner." (Citation omitted; internal quotation marks omitted.) Hi-Ho Tower, Inc. v. Com-tronics, Inc., 255 Conn. 20, 43-44, 761 A.2d 1268 (2000).
In Connecticut, intangible property interests have not traditionally been subject to the tort of conversion, except for those intangible property rights evidenced in a document. See, e.g., Aetna Life Casualty Co. v. Union Trust Co., 230 Conn. 779, 790 n. 6, 646 A.2d 799 (1994) (conversion of trust account); Manulik v. Devitt, 176 Conn. 657, 662-63, 410 A.2d 465 (1979) (conversion applicable to account passbook). 1 Restatement (Second), Torts § 242, comment (f) (1965), however, provides that "in a proper case liability for intentional interference with some . . . kind of intangible rights may . . . be found."
The plaintiff's claim to treble damages under § 52-564 fails for two reasons. First, the subject of the theft, contract rights, is an intangible. Thus, in order to be subject to conversion or theft, the contract rights must be evidenced in a document. In this case, the only document purporting to evidence the rights is an unsigned draft contract, Plaintiff's Exhibit 15. Second, the plaintiff was not the owner of the purported rights. The contemplated owner of the rights was the intended partnership. The tenth count of the complaint entitled Conversion/Civil theft contains paragraph thirty-five, which states: "Upon information and belief, Woldeyohannes converted Real Estate Contract(s) created for the partnership and owned by the partnership." (Emphasis added.) The court concludes that this is not the proper case for treble damages under § 52-564.
The plaintiff seeks prejudgment interest. "To award § 37-3a interest, two components must be present. First, the claim to which the prejudgment interest attaches must be a claim for a liquidated sum of money wrongfully withheld and, second, the trier of fact must find, in its discretion, that equitable considerations warrant the payment of interest." Ceci Bros., Inc. v. Five Twenty-One Corp., 81 Conn.App. 419, 427, 840 A.2d 578, cert. denied, 268 Conn. 922, 846 A.2d 881 (2004). The plaintiff's claims against the defendant revolved around establishing an ownership interest in the original six units owned by A to Zee; the claims did not involve a liquidated sum. Prejudgment interest is not awarded.
The plaintiff is entitled compensatory and punitive damages, which total $118,500. On April 25, 2005, the plaintiff filed an offer of judgment in the amount of $102,285, which is less than the amount of damages awarded by the court. This action was filed on June 15, 2004. Pursuant to § 52-192a the plaintiff is entitled to offer of judgment interest on the damage sum of $118,500 at the rate of 8 percent from the June 15, 2004 to the date of this memorandum, computed as follows:
Interest, June 15, 2004, through June 14, 2009, 5 years @ $9,480 per year: $47,400.00
Interest June 15, 2009 through November 13, 2009, 151 days @ $25.97 per day: $3,921.47
Total Interest pursuant to § 52-192a: $51,321.47
As stated earlier, the court does have jurisdiction to award damages against A to Zee, LLC, the purported owner of the subject units; however, the defendant is the sole member of A to Zee. At the conclusion of the evidence portion of the trial, upon motion by the plaintiff, the court issued an order prohibiting the defendant from assigning her interest in A to Zee and transferring and/or encumbering the units owned by A to Zee until further order of the court.
Since the plaintiff will be a judgment creditor of the defendant, who is a member of a limited liability company, General Statutes § 34-171 may be applicable. That section provides: "On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the member's limited liability company interest with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the member's limited liability company interest. Nothing in sections 34-100 to 34-242, inclusive, shall be held to deprive a member of the benefit of any exemption provided by law applicable to such person's limited liability company membership interest."
The court will continue the order prohibiting the defendant from assigning her interest in A to Zee and transferring and/or encumbering the units owned by A to Zee, for ninety days from the date of judgment to allow the plaintiff time to file an application under § 34-171, if she chooses to do so.
The plaintiff is awarded damages of $118,500 and interest in the amount $51,321.47 Judgment may enter for the plaintiff against the defendant in the amount of $169,821.47.