Opinion
No. CV 09 5014761 S
June 23, 2011
MEMORANDUM OF DECISION RE MOTION FOR SUMMARY JUDGMENT (#115)
The plaintiff, Travis Asset Holdings, LLC, has brought the present action seeking damages for the alleged breach of a guaranty agreement by the defendant, Paul Rocheleau. Rocheleau denies that he is in breach of the agreement. Moreover, he alleges in his special defenses that (1) the underlying debt has already been paid in full or in part, and (2) because the plaintiff is a sham entity through which the defendant, Vincent R. DiPentima, a co-guarantor, purchased the underlying debt, he is liable under the guaranty agreement only to the extent of his proportionate share of the debt.
Rocheleau also brings a contribution claim against DiPentima, whom he joined to the action as a defendant. Rocheleau alleges that DiPentima, as a co-guarantor of the debt, is liable to him for one-half of any liability he has to the plaintiff.
Before the court is the plaintiff's motion for summary judgment on its complaint, the substance of which is now contained in count one of the amended complaint. The plaintiff argues that there is no genuine issue of material fact and that, as a matter of law, Rocheleau breached the guaranty agreement. For the following reasons, the motion for summary judgment is granted, but as to liability only.
The original complaint filed November 17, 2009, set forth only one count for breach of the guaranty. The amended complaint dated December 14, 2010, added a second count for contribution which was dismissed by the court on March 28, 2011. Young, J. Although the motion for summary judgment was filed subsequent to the amended complaint, count one remains the same as in the original complaint sounding in breach of the guaranty.
I BACKGROUND
On December 21, 2006, Travis Mortgage, LLC ("Travis Mortgage") executed two promissory notes payable to Farmington Savings Bank ("Farmington Savings"). The notes were (i) a revolving loan note in the principal amount of $550,000; and (ii) a promissory term note in the principal amount of $150,000. As president of Travis Mortgage, Rocheleau executed each of the notes. On the same date, Rocheleau and DiPentima each signed a guaranty agreement in favor of Farmington Savings, whereby they each unconditionally and absolutely guaranteed payment of the indebtedness owing by Travis Mortgage to Farmington Savings under the notes.
Further, in count one of the amended complaint, the plaintiff alleges that the guaranty also made Rocheleau liable for any collection costs and attorneys fees. At some point, Travis Mortgage defaulted on the notes by failing to make the required payments. Thereafter, the plaintiff purchased the notes and Rocheleau's guaranty from the bank. The notes remain in default.
By way of special defense, Rocheleau alleges that after the notes went into default, the plaintiff was created as a sham by DiPentima for the purpose of purchasing the notes and associated documents from the bank to the prejudice of Rocheleau and the other co-guarantors. DiPentima, as a member of the plaintiff and purportedly on its behalf, executed the purchase and sale agreement for the notes and related documents, which included his own guaranty. Accordingly, DiPentima should be deemed the true purchaser and owner of the notes and guaranties.
The plaintiff filed the present motion for summary judgment, and accompanying memorandum of law, on November 3, 2010. Rocheleau filed a memorandum in opposition to the motion for summary judgment on December 3, 2010. The plaintiff filed a reply memorandum on January 3, 2011. The court heard oral argument on the motion on May 9, 2011.
II DISCUSSION
"Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." (Internal quotation marks omitted.) Sherman v. Ronco, 294 Conn. 548, 553, 985 A.2d 1042 (2010). "[T]he moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law . . . As the burden of proof is on the movant, the evidence must be viewed in the light most favorable to the opponent . . . Once the moving party has met its burden . . . the opposing party must present evidence that demonstrates the existence of some disputed factual issue." (Internal quotation marks omitted.) Ramirez v. Health Net of the Northeast, Inc., 285 Conn. 1, 11, 938 A.2d 576 (2008). A defendant may avoid summary judgment on the basis of allegations in his or her special defenses. See Union Trust Co. v. Jackson, 42 Conn.App. 413, 417, 679 A.2d 421 (1996). "[S]ince a single valid defense may defeat recovery, [a plaintiff's] motion for summary judgment should be denied when any defense presents significant fact issues that should be tried." (Internal quotation marks omitted.) Id.
The plaintiff contends that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law on its breach of guaranty claim. Rocheleau opposes summary judgment on, inter alia, the following grounds: (1) the plaintiff is a sham entity acting on behalf of DiPentima, and DiPentima is, as a co-guarantor, not entitled to collect the entire balance of the debt, and (2) the underlying debt was satisfied when the plaintiff purchased it.
There are three other grounds in opposition to summary judgment that need little discussion. First, Rocheleau argues that he did not waive any right to contribution. This is less a ground of opposition to summary judgment and more a response to the plaintiff's contention that he waived his contribution rights when he signed the guaranty agreement. Thus, the second ground cannot raise a genuine issue of material fact. The other two grounds relate to the plaintiff's alternative claim for contribution. These grounds are moot as the plaintiff's contribution claim was dismissed for lack of standing (#133) by the court, Young, J., on March 28, 2011.
A The Plaintiff's Showing
The court will first determine whether the plaintiff has met its burden to show the absence of any genuine issue of material fact and entitlement to judgment as a matter of law on its breach of guaranty claim. "[A] guarantee is a promise to answer for the debt, default or miscarriage of another . . . It is simply a species of contract." (Citations omitted; internal quotations omitted.) Regency Savings Bank v. Westmark Partners, 59 Conn.App. 160, 164, 756 A.2d 299 (2000). "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).
First, there is no dispute that Rocheleau entered into the guaranty agreement with the bank and that the bank performed under the agreement by lending money to Travis Mortgage pursuant to the notes. Rocheleau admits both points in his answer.
Second, the evidence establishes that Rocheleau breached the guaranty agreement. "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 . . . When only one interpretation of a contract is possible, the court need not look outside the four corners of the contract . . . A court will not torture words to import ambiguity when the ordinary meaning leaves no room for ambiguity, and words do not become ambiguous simply because lawyers or laymen contend for different meanings." (Internal quotation marks omitted.) General Electric Capital Corp. v. Transport Logistics Corp., 94 Conn.App. 541, 545, 893 A.2d 467 (2006). A copy of the guaranty agreement is appended to the plaintiff's memorandum of law. Under the unambiguous language of the guaranty agreement, Rocheleau agreed to be unconditionally liable for the obligations of Travis Mortgage under the notes as consideration for the loans made to Travis Mortgage by the bank pursuant to the notes. DiPentima's affidavit, attached to the plaintiff's memorandum of law, establishes that Travis Mortgage went into default on the notes by failing to make payments as they came due. Thus, pursuant to the guaranty, Rocheleau became liable for Travis Mortgage's default as soon as such default occurred. See Perry v. Cohen, 126 Conn. 457, 459, 11 A.2d 804 (1940).
Finally, the evidence establishes that the plaintiff suffered damages as a result of the breach. In his affidavit, DiPentima avers that the plaintiff is a Connecticut limited liability company; that the plaintiff purchased the notes and all related documents from the bank, including Rocheleau's guaranty and is the current holder and assignee thereof and that Rocheleau has failed to make payment of the amounts due pursuant to the guaranty agreement. Accordingly, the court finds that the plaintiff has carried its burden to show the absence of a genuine issue of material fact and entitlement to judgment as a matter of law.
B Rocheleau's Showing
Next, the court will determine whether Rocheleau has presented evidence sufficient to raise a genuine issue of material fact. Rocheleau's first ground opposing summary judgment asserts that the plaintiff is a sham entity used by DiPentima as a means to avoid his share of liability arising by virtue of his status as a co-guarantor and impose that liability on Rocheleau. Rocheleau contends that, because the plaintiff is a sham entity, the court should disregard it and deem DiPentima the true purchaser and owner of the notes and guaranties. He then argues that DiPentima, because he is a coguarantor, is legally unable to enforce the terms of the guaranty against him and is limited to recovery in contribution. Rocheleau is essentially asking the court to pierce the corporate veil of the LLC plaintiff.
Although the legal concept is called piercing the "corporate" veil, it is equally applicable to limited liability companies such as the plaintiff. See Sturm v. Harb Development, LLC, 298 Conn. 124, 131 n. 7, 2 A.3d 859 (2010).
"When the statutory privilege of doing business in the corporate form is employed as a cloak for the evasion of obligations, as a mask behind which to do injustice, or invoked to subvert equity, the separate personality of the corporation will be disregarded." (Internal quotation marks omitted.) Toshiba America Medical Systems, Inc. v. Mobile Medical Systems, Inc., 53 Conn.App. 484, 492, 730 A.2d 1219, cert. denied, 249 Conn. 930, 733 A.2d 851 (1999).
"The concept of piercing the corporate veil is equitable in nature . . . No hard and fast rule, however, as to the conditions under which the entity may be disregarded can be stated as they vary according to the circumstances of each case . . . Ordinarily the corporate veil is pierced 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 . . . The improper use of the corporate form is the key to the inquiry, as [i]t is true that courts will disregard legal fictions, including that of a separate corporate entity, when they are used for fraudulent or illegal purposes. Unless something of the kind is proven, however, to do so is to act in opposition to the public policy of the state as expressed in legislation concerning the formation and regulation of corporations." (Citations omitted; internal quotation marks omitted.) Naples v. Keystone Building Development Corp., 295 Conn. 214, 233-34, 990 A.2d 326 (2010).
Connecticut courts use two rules for determining whether the corporate veil should be pierced, the instrumentality rule and the identity rule. See id., 232. "The instrumentality rule requires, in any case but an express agency, 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 [the] plaintiff's legal rights; and (3) that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of . . .
"The identity rule has been stated as follows: If [the] 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.) Id.
The evidence in the record does not raise a genuine issue of material fact as to whether the corporate veil should be pierced under either rule. The only evidence presented by Rocheleau in support of his claim is an excerpt from his own deposition. In the excerpt, Rocheleau states that DiPentima did not inform him that he was creating a single member entity, i.e., the plaintiff, to purchase the notes or that he was attempting to negotiate the purchase of the notes with the bank. He also states that he only became aware of the plaintiff's existence and its purchase of the notes once the present action was brought against him.
There is insufficient evidence presented as to either the extent of DiPentima's control over the plaintiff or the extent that DiPentima and the plaintiff behaved as a single indistinguishable entity, such that either the instrumentality or identity rule could be applicable. The record establishes no more than that DiPentima is the plaintiff's sole and managing member and that he signed the agreement purchasing the notes from the bank on behalf of the plaintiff. "The 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." (Citations omitted; internal quotation marks omitted.) Angelo Tomasso, Inc. v. Armor Construction Paving, Inc., 187 Conn. 544, 556, 447 A.2d 406 (1982).
"Although the identity rule primarily applies to prevent injustice in the situation where two corporate entities are, in reality, controlled as one enterprise because of the existence of common owners, officers, directors or shareholders and because of the lack of observance of corporate formalities between the two entities . . . the rule may also be employed in an appropriate case to hold an individual liable." (Citation omitted; internal quotation marks omitted.) Falcone v. Night Watchman, Inc., 11 Conn.App. 218, 221, 526 A.2d 550 (1987).
"Courts, in assessing whether an entity is dominated or controlled, have looked for the presence of a number of factors. Those include: (1) the absence of corporate formalities; (2) inadequate capitalization; (3) whether funds are put in and taken out of the corporation for personal rather than corporate purposes; (4) overlapping ownership, officers, directors, personnel; (5) common office space, address, phones; (6) the amount of business discretion by the allegedly dominated corporation; (7) whether the corporations dealt with each other at arm's length; (8) whether the corporations are treated as independent profit centers; (9) payment or guarantee of debts of the dominated corporation; and (10) whether the corporation in question had property that was used by other of the corporations as if it were its own." (Internal quotation marks omitted.) Naples v. Keystone Building Development Corp., supra, 295 Conn. 233. Rocheleau argues that the plaintiff is the instrumentality of DiPentima, but presents no evidence relevant to any of these factors from which it could be concluded that the plaintiff was dominated by DiPentima to further his own personal interest or that the plaintiff effectively had no separate existence. Although facts may exist, the argument of counsel is not a substitute for evidence. See Director, Department of Information Technology v. Freedom of Information Commission, 274 Conn. 179, 191-92, 874 A.2d 785 (2005); Schmidt v. Schmidt, 180 Conn. 184, 191 n. 5, 429 A.2d 470 (1980).
Moreover, there is no evidence presented by Rocheleau that DiPentima was using the plaintiff to achieve fraud, injustice or an inequitable result. In fact, under the evidence in the record, that the plaintiff purchased the notes rather than DiPentima himself is of no practical consequence. As a co-guarantor, Rocheleau has the right to seek contribution from DiPentima if he pays more than his contributive share of the underlying joint obligation. See Lestorti v. DeLeo, 298 Conn. 466, 473-74, 4 A.3d 269 (2010). He has done just that in this very action via his cross claim for contribution (#113). Ultimately, Rocheleau would be liable for no more than his contributive share, just as if DiPentima had satisfied the debt himself and sought contribution from Rocheleau.
Rocheleau provides no evidence that, unless the plaintiff's corporate veil is pierced, he would be impaired in any way from obtaining contribution from DiPentima or would otherwise be rendered ultimately liable for more than his contributive share. Accordingly, he has failed to raise a genuine issue of material fact as to whether the plaintiff's corporate veil should be pierced.
In footnote 5 of his memorandum of law, Rocheleau argues that deeming the plaintiff to be the true owner of the notes and guaranties would allow DiPentima to recover collection costs, fees and interest that he would not be otherwise entitled to recover had he simply satisfied the notes himself and sought contribution. There is no evidence that this would translate into an inequitable recovery by DiPentima, especially since DiPentima would be personally liable for half of those costs under contribution principles and would, in addition, be liable for the costs of defending against Rocheleau's contribution claim.
Rocheleau's second ground in opposition to summary judgment is that, because the plaintiff was acting on behalf of DiPentima, a co-guarantor, when it purchased the notes, the obligation thereunder was paid and satisfied. The purchase and sale agreement shows that the plaintiff itself was listed as the purchaser, and Rocheleau has presented no evidence suggesting that DiPentima was the true purchaser using the plaintiff as his express agent. Moreover, as stated above, there is no evidentiary basis for deeming DiPentima the true purchaser on the basis that he employed the plaintiff as a mere instrumentality. See Naples v. Keystone Building Development Corp., supra, 295 Conn. 232. Accordingly, Rocheleau has not raised any genuine issue of material fact as to his defense of payment.
C Damages
On the basis of the above, the court finds that there is no genuine issue of material fact and that, as a matter of law, Rocheleau is in breach of the guaranty agreement. Under Practice Book § 17-50, "[a] summary judgment, interlocutory in character, may be rendered on the issue of liability alone, although there is a genuine issue as to damages. In such case the judicial authority shall order an immediate hearing before a judge trial referee, before the court, or before a jury, whichever may be proper, to determine the amount of the damages . . . Upon the conclusion of these proceedings, the judicial authority shall forthwith render the appropriate summary judgment."
Accordingly, the court must next determine whether there is a genuine issue of material fact as to damages and, consequently, whether a hearing in damages is necessary. The plaintiff seeks, in addition to unpaid principal and interest, reasonable attorneys fees and costs. Under paragraph one of the guaranty agreement attached to the plaintiff's memorandum of law, the guarantor is responsible for "expenses of collection." While the plaintiff does provide evidence of the amount of unpaid principal and interest, it provides no evidence establishing the amount of these collection costs. Therefore, the plaintiff has failed to foreclose any genuine issue of material fact as to the amount of damages.
In fact, a hearing is required on the award of attorneys fees. See Smith v. Snyder, 267 Conn. 456, 839 A.2d 589 (2004).
In addition, the defendant has asserted a third-party complaint against DiPentima for contribution and other relief. Because this claim arises out of the same transaction as that pursuant to which the plaintiff seeks damages, assuming liability can be proven by the defendant, the damages are interrelated. In the interest of judicial economy, all of the issues relating to damages should be determined in one hearing. Accordingly, the court sua sponte orders the issue of liability and damages arising out of the defendant's third-party action to be bifurcated and directs the parties forthwith to address those liability issues. After the liability issues are determined, the court shall promptly hold a hearing to determine the issue of damages.
III CONCLUSION
For the preceding reasons, the court hereby grants the plaintiff's motion for summary judgment, but only as to liability as permitted by § 17-50. The court further orders the parties to forthwith address the liability issues in the third-party complaint.