Summary
awarding prejudgment interest on breach of fiduciary duty and conversion claims
Summary of this case from Cobalt Multifamily Investors I, LLC v. ShapiroOpinion
No. CV04-0831299
November 7, 2006
MEMORANDUM OF DECISION
On July 11, 2006, the Plaintiffs, Richard Tulisano and Gideon Rutenberg and the Defendant, John A. Raffa, presented evidence to this Court in the above-captioned matter. In their complaint, the plaintiffs seek money damages against the defendant based on allegations of conversion, breach of fiduciary duty and breach of contract.
On the first day of trial, the Plaintiff withdrew all counts against the co-defendant Town of Rocky Hill.
By a preponderance of evidence, the Court finds the following facts. The plaintiffs, Richard Tulisano and Gideon Rutenburg and the Defendant, John Raffa, formed a partnership known as TRII Associates on February 29, 1988. The parties entered into this partnership for the purpose of purchasing and developing a piece of property in Rocky Hill, Connecticut known as Whispering Woods Estates [hereinafter, the "property"]. In 1995, following a downturn in the real estate market, the value of the property dropped sharply. In addition the loan to Farmers and Mechanics Savings Bank, which had financed the property, was in default due to Mr. Tulisano's failure to keep up with his share of payments. In this context, the plaintiffs, Mr. Tulisano and Mr. Rutenberg, executed an agreement on February 17, 1995 transferring to the defendant, Mr. Raffa, all interest they had in the partnership. Specifically on that same date, the plaintiffs and the defendant each signed 1) the agreement releasing the plaintiffs from the partnership, 2) an indemnity agreement, and 3) a notice that the development bond posted by TRII Associates for said property, which when released, shall be made payable to Tulisano, Rutenberg and Raffa.
With respect to the development bond, the parties also signed an agreement on February 17, 1995, which specifically stated that each party has an undivided one-third interest, whose value at that time amounted to $60,000 plus accrued interest. Said agreement stated, in relevant part, that:
Upon sale of the subdivision by TRII Associates, or upon the partial or the entire release of the bond after development by TRII Associates, each of the parties will receive a distribution of return of their capital investment of one-third (1/3) of the total of principal plus accrued interest to date of distribution, whether said distribution is partial or entire.
Exhibit 6.
As indicated by Exhibit 9, which was Fleet Bank's Summary of Activity with respect to the development bond, the original deposit was in fact, $56,400 and the interest earned, as of June 30, 1997 was $8,422.35. Subsequently, the statement indicates that there were checks drawn and made payable to TRII Associates on August 23, 2000 in the amount of $13,316.66, on September 26, 2001 in the amount of $41,185.63, and on January 24, 2002 in the amount of $7,158.03. In addition, a check was drawn and made payable to the Town of Rocky Hill on September 26, 2001 in the amount of $500.00. Finally, as of August 31, 2002, there was a balance of $8,116.36. Neither Mr. Tulisano nor Mr. Rutenberg received any portion of the monies released on the above dates, nor any portion of the remaining balance of $8,116.36.
The evidence also indicates that subsequent to August 31, 2002, the Town of Rocky Hill called the bond due to the defendant's failure to ensure that trees were planted or the sidewalks completely finished. As such, the balance of $8,116.36 was never released to any of the parties, including the defendant.
The defendant, however, did admit that he used the monies that were released for his own purposes. For example, he admitted to using the monies to pay off his debts to the bank saying, "I had to take the bond money to keep going," or that the money "went all back into the subdivision."
In any event, based on the above figures of monies disbursed as well as the remaining balance, the plaintiffs are claiming one-third each, for a total of $46,851.15, plus interest accrued pursuant to General Statutes § 37-3a from August 31, 2002.
As defenses to the complaint, the defendant has claimed that the action is barred by the Statute of Limitations, that the documents signed by the defendant were obtained by fraud, that there was a not meeting of the minds, that the defendant was incapacitated, and that there was a failure of consideration.
Count 1 — Conversion
"The tort of conversion occurs when one, without authorization, assumes and exercises ownership over property belonging to another, to the exclusion of the owner's rights. Wellington Systems, Inc. v. Redding Group, Inc., 49 Conn.App. 152, 169, 714 A.2d 21, cert. denied, 247 Conn. 905, 720 A.2d 516 (1998). "The term owner is one of general application and includes one having an interest other than the full legal and beneficial title . . . The word owner is one of flexible meaning, and it varies from an absolute proprietary interest to a mere possessory right . . . It is not a technical term and, thus, is not confined to a person who has the absolute right in a chattel, but also applies to a person who has possession and control thereof.' . . . Label Systems Corp. v. Aghamohammadi, 270 Conn. 291, 329, 852 A.2d 703 (2004)." Denzing v. Nationwide Mutual Ins. Co., 279 Conn. 745, 770-71, 905 A.2d 623 (2006). Conversion does not need intent, but it "requires the owner to be harmed by a defendant's conduct." Deming v. Nationwide Mutual Ins. Co., supra, 279 Conn. 771 (Citing Howard v. MacDonald, 270 Conn. 111, 129 n. 8, 851 A.2d 1142 (2004).
"Money can clearly be subject to conversion." Omar v. Mezvinsky, 13 Conn.App. 533, 536, 537 A.2d 1039, cert. denied, 208 Corn 803, 545 A.2d 1101(1988) See also Devitt v. Manulik, 176 Conn. 657, 662-63, 410 A.2d 465 (1979) (recovery of money wrongfully taken from joint survivorship bank account); Dunham v. Cox, 81 Conn. 268, 270-71, 70 A.2d 1033 (1908) (recovery of a sum of money entrusted to the defendant for payment to a third person); Shelby Mutual Ins. Co. v. Della Ghelfa, 3 Conn.App. 432, 445, 489 A.2d 398 (1985), aff'd, 200 Conn. 630, 513 A.2d 52 (1986) (recovery by insurer from insured's attorney pursuant to General Statutes [Rev. To 1979] § 38-325[b]).
In Omar v. Mezvinsky, supra 13 Conn.App. 533, the defendant had agreed to use his expertise to invest the plaintiff's money in a series of profitable investments. The court found that the evidence established that the defendant ultimately failed, upon demand, to return to the plaintiff a portion of his original investment as well as the profits earned from the investment. As such, it held that there was sufficient evidence to support the jury's verdict finding that the plaintiff established his claim of conversion. Id.
In the case at bar, the plaintiffs have also met their burden of proof on their conversion claim. By the terms of the agreement between the parties, the plaintiffs were entitled to a distribution of one-third of the monies released from the development bond. As such, the plaintiffs also established that they were therefore harmed by the defendant's failure to disburse two-thirds of those released funds to them. The court, therefore, finds in favor of the plaintiffs with respect to count one.
Count 2 — Breach of Fiduciary Duty
In order for the plaintiffs to prevail in their claim that the defendant breached his fiduciary duty to them, they must establish that a fiduciary relationship exists. "It is axiomatic that a party cannot breach a fiduciary duty to another party unless a fiduciary relationship exists between them." (Internal quotation marks omitted.) Sherwood v. Danbury Hospital, 278 Conn. 163, 195, 896 A.2d 877 (2006). "A fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other." (Internal quotation marks omitted.) Id. The superior position of the fiduciary or dominant party affords him great opportunity for abuse of the confidence reposed in him . . . Once a fiduciary relationship is found to exist, the burden of proving fair dealing properly shifts to the fiduciary." (Internal quotation marks omitted.) Id., 195-96.
"In the seminal cases in which [the] court has recognized the existence of a fiduciary relationship, the fiduciary was either in a dominant position, thereby creating a relationship of dependency, or was under a specific duty to act for the benefit of another." Hi-Ho Tower, Inc. v. Com-Tronics, Inc., 255 Conn. 20, 39, 761 A.2d 1268 (2000). In Konover Development Corp. v. Zeller, supra 228 Conn. 218-19, [the supreme court] recognized that general and limited partners are `bound in a fiduciary relationship' and . . . must . . . represent the interests of each other." Hi-Ho Tower, Inc. v. Com-Tronics, Inc., 255 Conn. 20, 39, 761 A.2d 1268 (2000).
"The law will imply [fiduciary responsibilities] only where one party to a relationship is unable to fully protect its interests or where one party has a high degree of control over the property or subject matter of another and the unprotected party has placed its trust and confidence in the other. (Internal quotation marks omitted.) Ward v. Lange, 553 N.W.2d 246, 250 (S.D. 1996)" Hi-Ho Tower, Inc. v. Com-Tronics, Inc., supra, 255 Conn. 41. Moreover, "[i]t is a well established principle that general partners and limited partner are bound in fiduciary relationship." Cavolick v. DeSimone, 88 Conn.App. 638, 655, 870 A.2d 1147 (2005). "By agreeing to organize as a partnership, the parties agree to certain obligations and liabilities." Id.
In this case, the plaintiffs and defendant originally organized as a general partnership, but when they dissolved that partnership, they entered into an agreement between the parties which ultimately resulted in the defendant assuming control over assets over which the plaintiffs each had a one-third interest. That agreement underscored the understanding between the parties that notwithstanding the transfer of their interest to the defendant of the property, the plaintiffs each retained a one-third interest in the development bond. As such, they had entrusted the defendant with the obligation of ensuring that they would receive their appropriate disbursement in due course under the terms of that agreement. By establishing that the defendant assumed these obligations to the plaintiffs and control over their interest in the development bond, the plaintiffs have established the existence of a fiduciary relationship.
Given this fiduciary relationship, the burden shifts to the defendant to show that he engaged in fair dealing with the plaintiffs. The defendant, however, has failed to meet his burden of demonstrating that he dealt fairly with the plaintiffs. The defendant's testimony indicates that, notwithstanding the bond agreement and the indemnity agreement, he perceived he was justified in taking the monies released from the development bond. The defendant testified that when the monies were released, he either reinvested in the property, or used it to pay off his mortgage to the bank. With respect to the $500 which was issued to the Town of Rocky Hill, the defendant claims no knowledge about these funds. The court, however, finds that his ignorance with respect to those funds does not obviate his responsibility to the plaintiffs with respect to their claim for released funds.
The defendant rationalizes all of his conduct because he perceives that he was essentially burdened with property on February 19, 1995 which, in his view, no longer had value at the time of the transfer. The defendant, however, conceded that he signed the bond agreement because, notwithstanding the drop in the value of the property and the risk that TRII was less profitable, he was willing to assume total control over developing the project because of his concern in losing the money he invested in the property. Thus in consideration for the value he received by the plaintiffs' transfer of their interests in TRII, the defendant assumed all outstanding debts, including but not limited to taxes and interest due to the Town of Rocky Hill, and sole liability for the principal and interest due Farmers and Mechanics Savings Bank, which held the mortgage. Since he alone was liable for these obligations, his unilateral decision to use the bond monies for these purposes, notwithstanding the bond agreement, manifests his failure to deal fairly with the plaintiffs.
It is also significant to this court that the defendant was well aware of this obligation, given that he specifically requested that the plaintiffs advise and authorize the Town of Rocky Hill, in a letter dated November 18, 1998, that $13,000 of the bond may be released directly to the defendant. As the letter indicates, this was accomplished with the understanding by all parties that those funds would operate to be an advance upon his one-third share of the bond.
Given the above, the court finds that the defendant has failed to show that he engaged in fair dealing with the plaintiffs. Specifically, this court finds that by failing to disburse those monies due the plaintiffs per the agreement signed by the parties, the defendant breached his fiduciary duty to them. As such, the court finds in favor of the plaintiffs with respect to count two.
Count 3 — Breach of Contract
Breach of contract is to be proven by the preponderance of the evidence. Waicunas v. Macari, 151 Conn. 134, 137, 193 A.2d 709 (1963). Daley v. Wesleyan University, 63 Conn.App. 119, 131-32, 772 A.2d 725 (2001). See Colliers, Dow Condon, Inc. v. Schwartz, 77 Conn.App. 462, 823 A.2d 438 (2003). `Where . . . there is a clear and definitive contract language, the scope and meaning of that language is not a question of fact but a question of law." (Internal quotation marks omitted.) Santana v. Hartford, 94 Conn.App. 445, 463, 894 A.2d 307 (2006). "It is well settled that we interpret contract language in accordance with a fair and reasonable construction of the written words and . . . the language used must be accorded its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the contract." Rumbin v. Uttica Mutual Ins. Co., 254 Conn. 259, 286, 757 A.2d 526 (2000). "`The elements of a breach of contract are the formation of an agreement, performance by one party, breach of the agreement by the other party and damages.' Bross v. Hillside Acres, Inc., 92 Conn.App. 773, 780-81, 887 A.2d 420." Chiulli v. Zola, 97 Conn.App. 699, 706-07, 905 A.2d 1236 (2006).
"Whether there was a breach of contract is ordinarily a question of fact . . . Further, where a breach of contract is alleged, the amount, if any, of the defendant's actual damages is a question of fact . . . The general rule for the measure of damages in contract is that the award should place the injured party in the same position as he would have been in had the contract been performed . . ." (Citations omitted; internal quotation marks omitted.) Ridgefield v. Eppoliti Realty Co., 71 Conn.App. 321, 338, 801 A.2d 902 (2002).
In this case, the parties have presented evidence of a fairly straightforward contract between the parties, manifested by a written agreement on February 17, 1995 whereby the plaintiffs transferred all interest they had in the TRII Associates to the defendant. As part of that agreement, the defendant agreed to indemnify the plaintiffs and agreed that the plaintiffs would be each entitled to a one-third interest in the development bond posted with the Town of Rocky Hill, which when released, would be disbursed to the plaintiffs and defendant. Of all the defenses originally claimed by the defendant, the court deems them all abandoned with the exception of the claim of failure of consideration, for which evidence and argument was presented to the court.
"Consideration is that which is bargained-for by the promisor and given in exchange for the promise by the promisee . . . We also note that the doctrine of consideration does not require or imply an equal exchange between the contacting parties . . . Consideration consists of a benefit to the party promising, or a loss or detriment to the party to whom the promise is made." (Internal quotation marks omitted.) General Electric Capital v. Transport Logistics, 94 Conn.App. 541, 546-47, 893 A.2d 467 (2006). We also note that the doctrine of consideration does not require or imply an equal exchange between the contacting parties. Parker v. Slosberg, 73 Conn.App. 254, 263 n. 12, 808 A.2d 351 (2002).
Essentially, the defendant claims a failure of consideration by insisting that the property had no value when it was transferred to him in 1995. This court, however, is not persuaded. The property may very well have lost value during that time, but there is no credible evidence that it had no value. Moreover, the defendant, while unhappy about the bond agreement, clearly testified that he wanted control over all of the assets originally shared by the partnership because he would otherwise lose the money he originally invested. The ability to maintain control over the development of the property, to manage the risks attendant to his investment and to ensure he had some possibility of getting at least his original investment back all amount to consideration he received by entering into the agreement. Part and parcel of that agreement was the bond agreement and the indemnity agreement, both of which the defendant knowingly signed.
The defendant also attempts to argue that he was under duress when he entered into the original contract. Duress is a special defense for breach of contract. Noble v. White, 66 Conn.App. 54, 58-59, 783 A.2d 1145 (2001). However, "[t]he burden of proof where undue influence is alleged is on the party who asserts it. Stanton v. Grigley, 177 Conn. 558, 418 A.2d 923 (1979) . . ." Pickman v. Pickman, 6 Conn.App. 271, 276, 505 A.2d 4 (1986).
"`For a party to demonstrate duress, it must prove [1] a wrongful act or threat [2] that left the victim no reasonable alternative, and [3] to which the victim in fact acceded, and that [4] the resulting transaction was unfair to the victim . . . The wrongful conduct at issue could take virtually any form, but must induce a fearful state of mind in the other party, which makes it impossible for the party to exercise his own free will . . .' (Internal quotation marks omitted.) Traystman, Coric Keramidas v. Daigle, 84 Conn.App. 843, 846, 855 A.2d 996 (2004)." Ace Equipment Sales v. H.O. Penn Machinery Co., 88 Conn.App. 687, 696, 871 A.2d 402 (2005).
The defendant, however, has failed to meet his burden of proof that he was under duress when he entered into the agreement. Specifically, he has failed to prove that he was subjected to any wrongful acts or threats which compelled him to act against his will and he has failed to show that the resulting transaction was unfair to him. The defendant was aware of what he was doing and willfully entered into the agreement because his paramount concern was the possibility of losing the money he originally invested.
As such, this court finds that the agreement between the parties was a valid contract, which the plaintiffs performed by transferring their interest to the defendant. As such, the defendant's failure to disburse the monies to the plaintiffs in accordance with the bond agreement, which was an element of the contract, constitutes a breach of that contract. As a result, the plaintiff incurred damages as a result, which will be discussed infra. Therefore, with respect to count three, the court finds in favor of the plaintiffs.
Damages
The plaintiffs are claiming a total of $46,851.15, plus interest accrued pursuant to General Statutes § 37-3a from August 31, 2002 to the date of judgment. The court finds that they have proven their claim for damages by a preponderance of the evidence with respect to the following:
The original deposit: $56,400.00
Interest earned as of 6/30/97 $8,422.35
Checks drawn made payable to TRII Associates on
8/23/00 $13,316.66 9/26/01 $41,185.63 1/24/02 $7,158.03
Check drawn made payable to Town of Rocky Hill:
9/26/01 $500.00
Total of all monies released $62,160.32
Two-thirds due the plaintiffs: $41,440.21
The plaintiffs, however, also claim $8,116.35, which was the balance remaining on August 31, 2002. The evidence indicates, however, that as of that date, those funds were never released, which, short of a sale of the entire subdivision, was one of the prerequisites for disbursement to the plaintiffs. In fact, the Town of Rocky Hill evidently called the bond and such funds were apparently used to make the improvements which the defendant himself failed to complete. While the plaintiffs attempt to make an equitable argument that those funds ultimately and improperly inured to the benefit of the defendant, and should therefore also be subject to their claim for damages, none of the underlying causes of action support an award of damages for this figure. Moreover, nothing in the bond agreement provides for the possibility that the bond might be called. As such, this court finds that the plaintiffs have failed to meet their burden with respect to $8,116.35.
For his part, the defendant attempts to argue that the portion claimed by the plaintiff, Mr. Tulisano, should be offset by the provision in the bond agreement which requires Mr. Tulisano to pay $4250.00 each to Mr. Gutenberg and to the defendant, Mr. Raffa. There is, however, no cross-claim or counterclaim filed against Mr. Tulisano. In the absence of such claims, the defendant essentially asks this court to assume that Mr. Tulisano will not follow through with his own obligations under the contract. Finding no authority to do so, this court accordingly declines.
Having found in favor of the plaintiffs on all counts, the court enters judgment for the plaintiffs and awards damages of $41,440.21 and interest of 10% under General Statutes § 37-3a commencing January 24, 2002 through to the date of judgment.