Opinion
No. WWM CV08-5003144-S
August 21, 2009
MEMORANDUM OF DECISION
The plaintiff Steven Trevorrow, brought this action against the defendant, Diane Marcuccio, alleging malfeasance in the conduct of the affairs of their partnership. The defendant denies the material allegations in the complaint, posits a special defense that certain sums have been paid to the plaintiff and counterclaims that other sums are owed to her. The matter came before the court in April 2009 for a trial on the merits. The sole witness for each side was the party. The court finds the testimony of the defendant to be generally credible and the testimony of the plaintiff to be credible in part and not credible in part. The court has reviewed and considered the testimony, the exhibits and the parties' memorandum of law. After applying the law to the facts, judgment enters for the plaintiff on the fifth count of the complaint and in part for the defendant on the counterclaim.
FINDINGS OF FACT
Sometime prior to December 2005, the defendant entered into a partnership with her sister in an enterprise known as Quality Job Shop. Thereafter, Patricia and Robert Gilson loaned Quality the sum of $65,000 to purchase a lathe and a milling machine. After several months, the defendant and her sister realized that their partnership was not working out and they agreed to dissolve it. The defendant, however, wished to continue in the metalworking business and, therefore, approached the plaintiff, a personal friend, for a loan to repay the Gilsons. The plaintiff, who was interested in owning a business, refused to lend money to the defendant but instead offered to enter into a partnership with her.
Based on the experience with her sister, the defendant was reluctant to form another partnership, but she had no other viable sources of funding and, therefore, accepted the plaintiff's offer. Thereafter on or about June 2006, the plaintiff and the defendant entered into an oral partnership agreement as follows: The plaintiff agreed to pay $56,400 to the Gilsons, to place $8,600 in the partnership bank account, to provide a welding machine, to bring in a substantial amount of business, to work long hours and to acquire the skills necessary to operate the milling machine and the lathe. In order to secure financing for his share of the partnership, the plaintiff borrowed $65,000 from the Savings Institute in the form of a home equity loan. For her part, the defendant agreed to provide the milling machine and lathe and to work long hours. The parties further agreed that the business was to be known as Oneco Metalworking, LLC, that it was to be located in a building which was owned by the defendant and which had previously housed Quality; that the defendant was to be the business manager with responsibility for keeping the books and paying the expenses associated with the business; that repayment of the plaintiff's monthly home equity loan would take priority over all other expenses and that the parties would split any profits on a 52/48 basis with the defendant receiving 52% and the plaintiff receiving 48%. The parties also agreed that they would meet with an attorney and take steps to formalize their partnership and to create a limited liability company.
The plaintiff testified that he had no experience running a business except for a small unspecified "side" business of his own and some experience as a supervisor at a power plant.
Both parties testified that Quality was a profitable business when the defendant and her sister terminated their partnership, The defendant credibly testified that the parties agreed to a 52/48 split because Oneco was a continuation of the defendant's existing business, albeit with different partners. Many of the defendant's exhibits at trial corroborate the 52/48 nature of the relationship.
In June 2006, in an effort to familiarize himself with precision metalworking, the plaintiff began to work at Oneco three to four hours per day, five days per week side-by-side with Oneco's sole employee, the defendant's husband, who had thirty-five years experience as a metalworker. During this apprenticeship period, the plaintiff unilaterally agreed to forego any wages or partnership draw. In October 2006, the plaintiff came to work for Oneco on a full-time basis and the plaintiff, the defendant and the defendant's husband all worked approximately sixty hours per week. The plaintiff and the defendant's husband were employed as full-time machinists while the defendant split her time between managing the business and machining. At one point the defendant's husband requested that his son be hired by Oneco but the plaintiff vetoed this request. On a Saturday in December, 2006, when the defendant and her husband were not present, the plaintiff and his wife accessed the Quicken software program on the company computer. According to the plaintiff, this program detailed the receipts and disbursements of the business. The plaintiff testified that to his surprise he found disbursements of company funds to Chrysler Credit Corporation and other disbursements which he believed were payments by the defendant for personal expenses unrelated to Oneco. The plaintiff testified, without elaboration, that he found "a discrepancy between the amount of money which should have been in the account and the checks going out." Despite these concerns, at no time, did the plaintiff ever question or confront the defendant about these disbursements or the discrepancy in the account.
The plaintiff, who was thirty-six years old in 2006, testified that his occupation was welding but that he had been introduced to the precision metalworking in high school.
The defendant's husband also agreed to forego any wages in 2006, and the partners agreed to pay him one thousand dollars per week beginning in January 2007.
The defendant has ten years experience as a machinist.
One other expense the plaintiff noted was a disbursement for health insurance for the defendant. The plaintiff later admitted, however, that the parties had previously discussed the issue of health insurance, that the defendant asked him if he wanted to purchase it and that he had declined.
The plaintiff claims that on several occasions he requested the defendant contact her attorney to draft the necessary paperwork to form a limited liability company but the defendant always replied, "not yet." In late March 2007, the plaintiff again made the same request and the defendant gave him no response. According to the plaintiff, the following morning, he appeared at Oneco, picked up his welding machine and his personal belongings and has not returned to the business. The plaintiff further testified that the defendant additionally violated their agreement by not including him in the running of the business, not providing him with access to the checking account, not providing him with the computer password and not showing him "the paperwork." The defendant credibly testified that she gave the password to the business' computer to the plaintiff and that she kept him informed of the business operations by showing him periodic profit/loss statements and daily reports of expenses, invoices and purchase orders. The defendant further testified that she never denied the plaintiff access to the company books. She also testified that she had met with her attorney on at least two occasions, that he had instructed her to work out a written agreement with the plaintiff, that she had approached the plaintiff on two occasions to do so and the plaintiff refused because he trusted the defendant.
The evidence at trial also shows that at the inception of the partnership, the defendant opened a checking account in the name of Oneco Metalworks, that in June 2006, she applied for an employee identification number in the name of Oneco, that she set up an electronic mail account in the name of Oneco, had business cards printed in the name of Oneco Metalworks and in the name of Oneco Metalworks, the parties entered into a leasing agreement with United Leasing Associates of America, Ltd.
The defendant additionally testified that she was dumbfounded when the plaintiff abruptly stopped working at Oneco and she claims not to know the reason why. As to her counterclaim the defendant avers that when the plaintiff left the business without warning, there was $31,000 of work under contract which required the defendant and her husband to work large amounts of overtime to complete and that this overtime amounted to $11,340. The defendant further claims an apprentice fee of $18,000 for the period of time which the plaintiff spent learning precision metalworking. Finally the defendant claims that she continued to pay the plaintiff's monthly home equity loan payment for several months after the plaintiff left the business and that this amounted to $12,501.96.
The defendant also testified if the business had been sold on the date the plaintiff left that it would have been sold at a loss. The court does not credit this testimony in that the business owned outright two lathe and milling machines, another lathe was part of a lease-to-buy agreement for which some payments had been made, the firm's checking account consistently showed monthly deposits of $8,000 to $24,000 and a positive balance throughout the duration of the partnership and the business had $31,000 in orders to be filled. Moreover the sole liability was the balance on lathe from the lease-to-buy contract. The court also does not credit the defendant's claim that the firm owed $25,000 to the Internal Revenue Service in that the lien notice is neither addressed to Oneco Metalworks nor does it contain Oneco's employer identification number.
Moreover, the lien notice indicates that it covers the entire tax year of 2007, and there is no evidence the amount owed was a liability incurred in the first quarter of 2007.
At trial, the plaintiff introduced copies of Oneco's business bank statements for the months of September — December 2006 and January — February 2007. The plaintiff pointed out numerous disbursements from the account which he "assumes" are payments of the defendant's personal expenses. In her testimony, the defendant credibly denied that these disbursements were for personal expenses and explained the genesis of each payment.
The plaintiff admitted that he voluntarily refused to take a partnership draw in 2006 so that the partners could build up the equity in the business. On December 1, 2006, the plaintiff took a draw of one thousand dollars. During January 2007, he received weekly pay checks of two hundred sixty-three dollars and beginning in February, based on tax advice, the partners each reverted to taking a draw. Additionally per their agreement, the first expense paid each month by the business was the plaintiff's home equity loan with the Savings Institute.
In contrast the defendant took a draw of $2,000 — $4,000 per month and the plaintiff was aware of this.
Additional facts will be discussed as necessary.
DISCUSSION I. THE COMPLAINT A. BREACH OF CONTRACT
In the first count of the complaint, the plaintiff alleges that the defendant breached the partnership agreement between the parties by causing the plaintiff's investment monies to be placed into an account solely in her name; by prohibiting the plaintiff from having control or access to his investment monies; and by using the plaintiff's investment monies for her personal expenses.
"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." (Citations omitted; internal quotation marks omitted.) CT Page 14067 Bross v. Hillside Acres, Inc., 92 Conn.App. 773, 780-81, 887 A.2d 420 (2006). In the present case, in June 2006, the plaintiff and the defendant entered into an oral partnership agreement. The plaintiff agreed to pay $56,400 to the Gilsons, to place $8,600 into a separate business account, to provide a welding machine, to bring in a substantial amount of business, to work long hours and to acquire the skills necessary to operate the milling machine and the lathe. In turn, the defendant agreed to provide the milling machine and lathe and to work long hours. The parties further agreed that the business was to be known as Oneco Metalworking, LLC, that it was to be located in a building which was owned by the defendant and which had previously housed Quality; that the defendant was to be the business manager with responsibility for keeping the books and paying the expenses associated with the business; that repayment of the plaintiff's monthly home equity loan would take priority over all other expenses and that the parties would split any profits on a 52/48 basis with the defendant receiving 52% and the plaintiff receiving 48%.
The evidence at trial also shows that at the inception of the partnership the defendant opened a checking account in the name of Oneco Metalworks. The evidence further shows that the plaintiff's investment money of $56,400 was paid by the partnership directly to the Gilsons and that the plaintiff never gave the partnership the additional $8,600 as he had agreed. At trial the plaintiff adduced no evidence that any of his investment money or any other partnership money was ever placed in any account solely in the defendant's name.
The court also credits the defendant's testimony that she gave the password to the business' computer to the plaintiff, that she kept him informed of the business operations by showing him periodic profit/loss statements and daily reports of expenses, invoices and purchase orders and that she never denied the plaintiff access to the company books. Thus the plaintiff has failed to prove that the defendant prevented the plaintiff from having control and access to his investment money.
Next the plaintiff claims that the defendant took his investment monies and spent it on personal items for herself. At trial, the plaintiff introduced copies of Oneco's business bank statements for the months of September — December 2006 and January — February 2007. In his testimony, the plaintiff pointed out numerous disbursements from the account which he "assumes" are payments of the defendant's personal expenses. The defendant credibly testified that these disbursements were for legitimate expenses associated with the partnership and she explained the genesis of each payment. Aside from his own testimony, the plaintiff adduced no evidence corroborating his claim that the disbursements were for non-business purposes. The plaintiff has therefore failed to prove that the defendant used his investment money or any other partnership money to pay for her personal expenses. The plaintiff has also failed to prove that the defendant breached their contract.
B. THEFT
In the second count of the complaint, the plaintiff alleges that the defendant committed statutory theft by stealing the defendant's investment money. "Statutory theft under [General Statute] § 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 . . . [S]tatutory theft requires an intent to deprive another of his property. . . . Therefore, statutory theft requires a plaintiff to prove the . . . element of intent . . ." (Citations omitted; internal quotation marks omitted.) Deming v. Nationwide Mutual Ins. Co., 279 Conn. 745, 771, 905 A.2d 623 (2006). "A person acts `intentionally' with respect to a result . . . when his conscious objective is to cause such result . . ." Gen. Stat. § 53a-3(11).
The evidence is uncontroverted that parties agreed the plaintiff's investment money would be paid directly to the Gilsons to retire the existing note between the defendant and the Gilsons. Other evidence shows that the plaintiff never deposited the agreed upon $8,600 into the partnership account. As discussed previously, the plaintiff has failed to prove that the defendant used partnership money for her personal expenses and no other evidence was introduced which proved the defendant misused any of the partnership money. The plaintiff has thus failed to prove that the defendant committed statutory theft.
C. FRAUD
The plaintiff next claims that the defendant, by her false representations, fraudulently induced the plaintiff to turn over his investment money to the defendant. "The essential elements of a cause of action in fraud are: (1) a false representation was made as a statement of fact; (2) it was untrue and known to be untrue by the party making it; (3) it was made to induce the other party to act upon it; and (4) the other party did so act upon that false representation to his injury . . . All of these ingredients must be found to exist; and the absence of any one of them is fatal to a recovery . . . Additionally the party asserting such a cause of action must prove the existence of the first three of [the] elements by a standard higher than the usual fair preponderance of the evidence, which higher standard we have described as `clear and satisfactory' or `clear, precise and unequivocal.'" (Citations omitted; internal quotation marks omitted.) Citino v. Redevelopment Agency, 51 Conn.App. 262, 275-76, 721 A.2d 1197 (1998).
The plaintiff claims that the defendant falsely represented to him that by "contributing" their resources, they would be able to operate a metalworking business; that the plaintiff would have control and access to his investment funds; that the plaintiff would have access to all records regarding the status and activity of the accounts into which the money would be placed; and that the defendant would not have control over the plaintiff's monies or sole control of the account into which the plaintiff's property had been placed.
As noted above the court credits the defendant's testimony that she gave the password to the business' computer to the plaintiff, that she kept him informed of the business operations by showing him periodic profit/loss statements and daily reports of expenses, invoices and purchase orders and that she never denied the plaintiff access to the company books. Moreover, the evidence is uncontroverted that the parties did in fact establish a metalworking business. The plaintiff therefore has failed to prove that any representations of the defendant were false. Accordingly the court need not determine whether the plaintiff has proven any of the other elements of fraud.
D. NEGLIGENT REPRESENTATION
The plaintiff next claims that the defendant carelessly and/or negligently made false representations to the plaintiff which induced him to turn over his investment money to the defendant. "[A]n action for negligent misrepresentation requires the plaintiff to establish (1) that the defendant made a misrepresentation of fact (2) that the defendant knew or should have known was false, and (3) that the plaintiff reasonably relied on the misrepresentation, and (4) suffered pecuniary harm as a result." Nazami v. Patrons Mutual Ins. Co., 280 Conn. 619, 626, 910 A.2d 209 (2006).
The fourth count is merely a reformulation of the plaintiff's claims in the preceding count with the exception that the plaintiff has added an allegation the defendant falsely represented he would have decision making power regarding the day-to-day activities of the partnership. The credible evidence at trial shows that the plaintiff was in fact involved in the day-to-day decision making of the firm. Notably in January 2007, the plaintiff and the defendant jointly decided to lease a lathe for $14,000 from United Leasing Associates of America, Inc. and the plaintiff signed the application for the lease in the capacity of vice-president of Oneco. On another occasion, the plaintiff vetoed the hiring of an additional employee. Aside from his bare assertion, which the court finds not credible, the plaintiff has failed to adduce any evidence that he was not involved in the decision making of the partnership. The fourth count fails for the same reasons as the previous count, i.e., the plaintiff has failed to prove that any representations of the defendant were false.
E. BREACH OF CONSTRUCTIVE TRUST
In the fifth count, the plaintiff claims that the defendant breached both her fiduciary duty and a constructive trust. "A constructive trust arises contrary to intention and in invitum, against one who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment, or questionable means, or who in any way against equity and good conscience, either has obtained or holds the legal right to property which he ought not, in equity and good conscience, enjoy . . . A constructive trust arises whenever another's property has been wrongfully appropriated and converted into a different form . . . [or] when 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 . . ." (Citations omitted; internal quotation marks omitted.) Garrigus v. Viarengo, 112 Conn.App. 655, 672, 963 A.2d 1065 (2009).
"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 Res. Recovery Auth., 291 Conn. 433, 466, 970 A.2d 592 (2009). "Unjust enrichment . . . does not require the performance of any wrongful act by the one enriched . . . see, generally, 5 Scott, Trusts [3d ed.], § 462.2 . . . Innocent parties may frequently be unjustly enriched. What is required, generally, is that a party hold property `under such circumstances that in equity and good conscience he ought not to retain it.'" (Citations omitted; internal quotation marks omitted.) In Re Koreag, Controle Et Revision S.A. v. REFCO F/X Associates, Inc., 961 F.2d 341, 354 (2nd Cir. 1992).
In the present case, the plaintiff claims that the defendant came into possession of his investment money by fraud, theft, unconscionable conduct or other deceitful behavior. As discussed more fully previously, the plaintiff has wholly failed to prove these allegations. Despite the fact that the defendant is innocent of any wrongdoing, the defendant has, however, been unjustly enriched by her failure to completely repay the plaintiff's investment money.
The oral partnership agreement between the parties provided that the plaintiff pay to the partnership $65,000 which sum was to be financed by a home equity loan on the plaintiff's house. It was further agreed that a portion of that money would be used to pay the Gilson loan and the balance would be placed in Oneco's bank account. The parties further agreed that the plaintiff's home equity loan was to be repaid from the gross receipts earned by Oneco. The inescapable conclusion, therefore, is that the parties intended the home equity loan to be a liability of the partnership and not a "buy-in" to the partnership home solely by the plaintiff.
At present the defendant has the benefit of sole and unfettered ownership and use of the lathe and the milling machine as well as the benefit of not repaying the loan which financed these purchases. Such a result is inequitable and unjustly enriches the defendant. For this court to conclude otherwise would render meaningless the parties' agreement that the partnership repay the loan from its funds. The defendant has repaid $12,501.96 of the plaintiff's home equity loan and the outstanding balance is $43,898.04. The court, therefore, imposes a constructive trust in favor of the plaintiff in the amount of $43,898.04.
Although the original amount of the home equity loan was $65,000, the plaintiff never deposited the agreed upon $8,600 to Oneco's account. Thus Oneco was unjustly enriched only to the extent of the payment of the Gilson loan, i.e., $56,400.
F. CONNECTICUT UNFAIR TRADE PRACTICES ACT
In the final count of the complaint, the plaintiff avers that the defendant's actions were unscrupulous, oppressive and amount to unfair trade practices in violation of the Connecticut Unfair Trade Practices Act (CUTPA), Gen. Stat. § 42-110b, et seq. "CUTPA provides 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.' General Statutes § 42-110b(a). In order to enforce this prohibition, CUTPA provides a private cause of action to `[a]ny person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of a [prohibited] method, act or practice . . .' General Statutes § 42-110g(a)." (Citations omitted.) Stevenson Lumber Co. — Suffield, Inc. v. Chase Associates, Inc., 284 Conn. 205, 213-14, 932 A.2d 401 (2007).
Purely corporate acts, however, do not constitute CUTPA violations. Ostrowski v. Avery, 243 Conn. 355, 379, 703 A.2d 117 (1997); see also, Fink v. Golenbock, 238 Conn. 183, 212, 680 A.2d 1243 (1996). Nor do acts which solely involve the internal workings of a partnership. Brunette v. Bristol Savings Bank, Superior Court, judicial district of Hartford/New Britain at Hartford, Docket No. 453957 (April 7, 1995) (Holzberg, J.); Lapuk v. Simons, Superior Court, judicial district of Hartford/New Britain at Hartford, Docket No. 704542 (January 3, 1995) (Corradino, J.); Lougee v. Tanner, Superior Court, judicial district of New London, Docket No. 523840 (December 20, 1993) (Hurley, J.); Chester v. Schatz Schatz Ribicoff Kotkin, 6 Conn.L.Rptr. 526 (1992); Heller v. North American Rock Co., 3 Conn. L. Rptr. 215 (1991). But see, Visconti v. Cotsinger, 1 Conn. L. Rptr. 386 (1990).
In the present case, the CUTPA count is a reformulation of the claims and allegations set forth in the previous five counts which are nothing more than grievances by the plaintiff regarding the internal workings of the partnership. As such these activities were not undertaken in the conduct of the defendant's trade or commerce and therefore are not covered by CUTPA.
Even if it could be said that CUTPA applies to the present case, for the reasons previously set out in this opinion, the plaintiff has failed to prove that the defendant made any false misrepresentations, stole or misappropriated any partnership funds or engaged in any prohibited practices. The plaintiff has additionally failed to show that any such act of the defendant was the proximate cause of any injury to him. Stevenson Lumber Co. — Suffield, Inc. v. Chase Associates, Inc., supra, 284 Conn. 214 (a plaintiff must establish both that the defendant has engaged in a prohibited act and that as a result of this act, the plaintiff suffered injury.) The plaintiff therefore has wholly failed to prove his CUTPA claim.
II. SPECIAL DEFENSE AND COUNTERCLAIM
In her counterclaim, the defendant claims that she is entitled to recover from the plaintiff the partnership's payment of the plaintiff's home equity loan, the cost of training the plaintiff in precision machining and the amount paid out in overtime necessitated by the plaintiff's precipitous action in walking off the job. For his part, the plaintiff concedes that the partnership has paid $12,501.96 in repayment of his home.
The evidence at trial shows that the plaintiff quit the partnership on March 24, 2007 and at that time Oneco had $31,788.30 in contracts for which time was of the essence. The defendant and her husband, Oneco's sole employee, were each required to work approximately seventy-seven hours per week for a period of three weeks in order to complete these jobs. The defendant claims that this overtime expense would not have been necessary if the plaintiff had continued to work at Oneco. Other evidence shows that a typical work week for the Oneco partners and its sole employee was approximately fifty-five hours and that by industry standards, a precision machinist is paid sixty dollars per hour.
The defendant testified that they typically worked from 7:30 — 5:00 on a daily basis and one-half day on Saturdays.
"[N]o partner is entitled to remuneration for acting in partnership business, where the skill and labor of a partner are his contribution to the capital assets of the partnership, particularly under an express or implied agreement to that effect." 59A Am.Jur.2d Partnerships § 633, Cautionary Note. See Uniform Partnership Act § 401(h)(1997). Connecticut has adopted this principle in General Statutes § 34-335(h) which provides that: "A partner is not entitled to remuneration for services performed for the partnership, except for reasonable compensation for services rendered in winding up the business of the partnership." The machining work performed by the defendant cannot be considered work in winding up the affairs of the partnership. Accordingly the defendant is not entitled to compensation for her efforts. The defendant and Oneco are, however, entitled to reimbursement for the overtime paid to its employee which the court calculates to be $3,960.
Twenty-two hours at sixty dollars per hour for three weeks.
The defendant also claims as damages $31,788.30 from contracts Oneco had in place when the plaintiff quit. There is no evidence that Oneco was deprived of the benefit of these contracts as a result of any action by the plaintiff. In fact the evidence is to the contrary; the defendant testified that Oneco completed these contracts. Presumably Oneco also received payment for this work. Accordingly the defendant has failed to prove that she is entitled to damages.
The defendant also seeks reimbursement in the amount of $18,186 for training the plaintiff in the field of precision machining. It is uncontroverted that when the partnership was formed, the plaintiff lacked the necessary skills to be considered a precision machinist and the defendant was fully aware of this fact. It was agreed between the partners that the defendant's husband would teach the plaintiff the necessary skills and during June and July 2007, the plaintiff spent approximate ten hours per week as an apprentice. Thereafter the partnership received the benefit of the plaintiff's work as a precision machinist for the next eight months until the plaintiff abruptly quit. The defendant has provided no authority for her claim for damages in the form of reimbursement for training the plaintiff. Even if such an expense were an allowable item of damage, the evidence presented in the present case as to the value of such expense is speculative. Accordingly the court declines to award damages for the cost of training the plaintiff.
CONCLUSION CT Page 14074
For the foregoing reasons, the court enters judgment in favor of the plaintiff on the fifth count in the amount of $43,898.04 and in favor of the defendant on the counterclaim in the amount of $3,960. The court orders that the defendant pay $39,938.04 to the plaintiff.