Opinion
HHDCV166066913S
01-29-2019
VILLAGE MORTGAGE COMPANY v. Ronald GARBUS et al.
UNPUBLISHED OPINION
OPINION
ROBERT B. SHAPIRO, JUDGE TRIAL REFEREE
On October 17, 2018, the parties presented evidence at a bench trial in this case concerning stock ownership. At trial, the court heard testimony from witnesses and received numerous exhibits. Pursuant to a briefing schedule, in lieu of oral argument, the parties filed post-trial memoranda of law, dated December 3, 2018.
After consideration, the court issues this memorandum of decision.
I
Background
In its amended complaint (# 119) (complaint), dated September 27, 2016, the plaintiff, Village Mortgage Company (Village or plaintiff), a corporation, alleges that the defendants, Georganne and Ronald Garbus, were original shareholders when Village was formed in 1998, for a total investment of $ 30, 000.00. The plaintiff alleges that, in the same year, the defendants returned the stock and were reimbursed.
Village also alleges that in June 2011, the stock certificate was apparently returned to the defendants in exchange for $ 30, 000.00, without proper corporate authority, and at substantially less than fair value. Village alleges that the circumstances subsequently came to light as a result of litigation against the co-founder of the company, referring to nonparty James Veneziano, who surreptitiously was involved in the return of stock. See complaint, ¶ 4. The plaintiff contests the defendants’ assertion that they are lawfully stockholders with rights to own, possess, and vote the stock. Village alleges that in regard to the issue of defendants’ ownership, there is no adequate remedy at law and it seeks a judicial determination in the form of a declaratory judgment as to whether or not the defendants are in fact lawfully shareholders of the corporation.
In their November 2016 answer (# 121), the defendants deny the salient allegations and assert special defenses. In their special defenses, they allege that the plaintiff’s claim for a declaratory judgment is barred by various statutes of limitations and by laches. In their third special defense, they allege that the plaintiff’s agent, Veneziano, had the apparent authority to execute a contract on the plaintiff’s behalf.
In its reply (# 122), Village asserts, by way of avoidance, that the defendants conspired with Veneziano to conceal their purported stock interest in Village. Village alleges that the defendants are equitably estopped from asserting their defenses, alleging that Veneziano concealed the facts surrounding the transfers of the stock, and any such action taken by Veneziano was without corporate authority, apparent or otherwise, and constituted an ultra vire act in violation of civil if not criminal law. Village also asserts that the defendants have unclean hands and are precluded from invoking equitable considerations, such as laches.
The defendants did not appear at the trial. No evidence was presented to the court as to their counsel’s assertion that they were not well enough to travel from Florida, where they reside, to attend court in Connecticut.
Additional references to the factual background are discussed below.
II
Discussion
In a case tried to the court, "[t]he ... judge, as the trier of facts, is the sole arbiter of the credibility of witnesses and the weight to be given to their testimony." (Internal quotation marks omitted.) Taylor v. Commissioner of Correction, 324 Conn. 631, 637, 153 A.3d 1264 (2017). "[I]t is the exclusive province of the trier of fact to weigh conflicting testimony and make determinations of credibility, crediting some, all or none of any given witness’ testimony." (Internal quotation marks omitted.) State v. Buhl, 321 Conn. 688, 708, 138 A.3d 868 (2016).
"The purpose of a declaratory judgment action, as authorized by General Statutes § 52-29 and Practice Book § [17-55] is to secure an adjudication of rights [when] there is a substantial question in dispute or a substantial uncertainty of legal relations between the parties ... Subdivisions (1) and (2) of Practice Book § 17-55 respectively require that the plaintiff in a declaratory judgment action have ‘an interest, legal or equitable, by reason of danger of loss or of uncertainty as to the party’s rights or other jural relations’ and that there be ‘an actual bona fide and substantial question or issue in dispute or substantial uncertainty of legal relations which requires settlement between the parties ...’ [O]ur declaratory judgment statute provides a valuable tool by which litigants may resolve uncertainty of legal obligations.
Section 52-29(a) provides, "The Superior Court in any action or proceeding may declare rights and other legal relations on request for such a declaration, whether or not further relief is or could be claimed. The declaration shall have the force of a final judgment."
"... [O]ur declaratory judgment statute is unusually liberal ... [and] ‘is broader in scope than ... the statutes in most, if not all, other jurisdictions ... and [w]e have consistently construed our statute and the rules under it in a liberal spirit, in the belief that they serve a sound social purpose ... [Although] the declaratory judgment procedure may not be utilized merely to secure advice on the law ... it may be employed in a justiciable controversy where the interests are adverse, where there is an actual bona fide and substantial question or issue in dispute or substantial uncertainty of legal relations which requires settlement, and where all persons having an interest in the subject matter of the complaint are parties to the action or have reasonable notice thereof.’" (Citations omitted; internal quotation marks omitted.) New London Cty. Mut. Ins. Co. v. Nantes, 303 Conn. 737, 747-48, 36 A.3d 224 (2012). Here, the issue as to whether the defendants are shareholders in Village presents a justiciable controversy where the interests are adverse, where there is an actual bona fide and substantial question or issue in dispute, and is properly the subject of a claim for declaratory judgment. All parties having an interest in the subject matter of the complaint are parties.
A
Stock Ownership
The court finds the following facts and credits the following evidence, except as noted. The court credits the testimony of Donna McGuire, Veneziano’s former wife, who stated that the defendants were friends of Veneziano and that, for many years, she personally had possession of the original stock certificate on which the defendants’ names appear, of which defendants’ Exhibit D is a copy. See trial transcript (Tr.), p. 138. The stock certificate, No. 2, for 300 shares, is dated May 1, 1998, and lists the registered holders as Ronald S. and Georgette Garbus. Although dated in May 1998, it was not issued until 2000. Tr., p. 13.
McGuire received the stock certificate from Veneziano, who asked her to put it in her safe deposit box, likely in the early 2000s. She held possession of the stock certificate for a long time, which she stated was "quite a few years." Tr., p. 139. It is evident that Veneziano used his wife’s safe deposit box in order to hide the stock certificate there.
Eventually, McGuire gave the certificate to Veneziano or Justin Giroliman, a Village employee, who later became Village’s chief financial officer and senior vice president. Giroliman credibly testified that he had possession of it from 2010 to 2011 and, pursuant to Veneziano’s direction, kept it in his desk at Village’s office. Tr., p. 114.
Besides the evidence showing either that the defendants never possessed or relinquished the stock certificate, the fact that the defendants were not stockholders in Village as of April 1999 is shown also by the fact that Ronald Garbus did not list an ownership interest in Village in Schedule B (Personal Property) on his bankruptcy petition dated April 8, 1999. See plaintiff’s Exhibit 1.
In his deposition testimony, Ronald Garbus’s testimony about being a stockholder was vague; he could not even recall when he filed for bankruptcy. See plaintiff’s Exhibit 22, p. 10. The court does not credit his testimony about being a shareholder.
In contrast, Village’s president, Laurel Caliendo, credibly testified that, as of November 2007, the defendants were not Village stockholders. Tr., pp. 20-23. See plaintiff’s Exhibit 4 (list of Village stockholders as of November 2007).
Thus, even though the defendants were listed as original shareholders in Village, their ownership interest was relinquished soon thereafter. By having his wife put the stock certificate in her personal safe deposit box, and, later, by having Giroliman keep it in his desk, Veneziano kept the certificate secreted away so that he could put it to his personal use later.
The defendants argue that they had a loan from Village, they executed a note, and made payments to Village which are reflected in Village’s records, all of which was authorized by Veneziano. The court is unpersuaded by this argument. Rather, the evidence shows that Veneziano engaged in unauthorized conduct in order to procure money for himself. Payments made by the defendants do not show that they are legitimate stockholders in Village.
Beginning in 2010, by personal checks, the defendants paid a total of $ 40, 000 to Village See plaintiff’s Exhibits 6, 7, and 13. Also, $ 10, 000 was returned to the defendants. See plaintiff’s Exhibit 12. Exhibit 6 is characterized on that check as a "Loan Payment." Giroliman credibly testified that there was no loan made by Village to the defendants. Exhibit 7 is characterized as "Stock."
Giroliman explained that Veneziano directed him as to how to record these payments by the defendants, initially as "Paid in Capital— Excess of Par" (see plaintiff’s Exhibits 8, 9, and 14), but subsequently diverted to Veneziano’s personal account. By email on December 30, 2011 (plaintiff’s Exhibit 5), Veneziano directed that payments by the defendants should be posted "against my advances 4 now." This effort by Veneziano at taking for himself funds paid into the company also undermines the defendants’ claims to be lawful stockholders.
The lack of credibility of defendants’ claim to stock ownership is further undermined by Ronald Garbus’ deposition testimony, in which he stated that he had a demand note with Village. There is no credible evidence that such a demand note ever existed and Ronald Garbus testified that he had no records in regard to that note. See plaintiff’s Exhibit 22, p. 20.
Also, the court does not credit the vague testimony presented by Joseph Veneziano, James Veneziano’s son, about a conversation in 2001 concerning the return of money to defendant Ronald Garbus.
There is also no evidence showing an agreement between Veneziano and the defendants concerning purchasing Village stock in 2010-2011 or afterwards or that he had actual authority to engage in such a transaction. "Actual authority exists when [an agent’s] action [is] expressly authorized ... or ... although not authorized, [is] subsequently ratified by the [principal]" (Internal quotation marks omitted.) Ackerman v. Sobol Family P’ship, LLP, 298 Conn. 495, 508, 4 A.3d 288 (2010).
The court credits Caliendo’s testimony that no sale of stock to the defendants was authorized during that period. There is no evidence that Village’s Board of Directors expressly or impliedly authorized Veneziano to issue stock to the defendants during that period or that such an action was ratified by the Board. There is no credible evidence showing that Veneziano had actual authority to issue Village stock to the defendants during that period.
Although the plaintiff’s allegation in the complaint, paragraph 3, that the stock certificate was apparently returned to the defendants in June 2011 amounts to an admission, see Ferreira v. Pringle, 255 Conn. 330, 345, 766 A.2d 400 (2001) ("Factual allegations contained in pleadings upon which the case is tried are considered judicial admissions and hence irrefutable as long as they remain in the case" (internal quotation marks omitted)), there is no credible evidence before the court showing that the defendants currently possess the subject stock certificate.
It is clear that the explanation for the payments by the defendants to Village is that Veneziano, either alone, or in concert with the defendants, engaged in unauthorized conduct to get money from the defendants in exchange for providing the 1998 stock certificate to the defendants in order for them to appear to be legitimate stockholders. See discussion below at pages 12-13 concerning the prior litigation between the plaintiff and Veneziano, which resulted in findings that Veneziano had engaged in misappropriation of corporate funds through conversion, statutory theft, and embezzlement over a long period of time.
The defendants also argue that Veneziano acted with apparent authority. In contrast with actual authority, "[a]pparent authority is that semblance of authority which a principal, through his own acts or inadvertences, causes or allows third persons to believe his agent possesses ... Consequently, apparent authority is to be determined, not by the agent’s own acts, but by the acts of the agent’s principal ... The issue of apparent authority is one of fact to be determined based on two criteria ... First, it must appear from the principal’s conduct that the principal held the agent out as possessing sufficient authority to embrace the act in question, or knowingly acting in good faith, reasonably believed, under all the circumstances, that the agent had the necessary authority to bind the principal to the agent permitted [the agent] to act as having such authority ... Second, the party dealing with the agent must have, acting in good faith, reasonably believed, under all the circumstances, that the agent had the necessary authority to bind the principal to the agent’s action ..." (Internal quotation marks omitted.) Ackerman v. Sobol Family P’ship LLP, supra, 298 Conn. 508-09.
Here, the defendants’ apparent authority argument is unpersuasive for several reasons. First, there is no evidence of a specific agreement between the defendants and Veneziano to either loan funds or sell stock to the defendants in 2010-2011. In its absence, the contention that Veneziano had apparent authority to make an agreement on behalf of Village is unavailing.
Second, the defendants have not proved that Veneziano was acting with apparent authority to provide stock to them. While there is evidence that Veneziano was listed as a "control person," that fact does not show that he was apparently authorized by Village to engage in stock transactions or issue shares of stock. Third, there is no evidence showing that the defendants, acting in good faith, reasonably believed, under all the circumstances, that Veneziano had the necessary authority to bind Village. Thus, the defendants have not proven their special defense concerning apparent authority, that Veneziano had the apparent authority to execute a contract on Village’s behalf concerning stock in Village. The court addresses the defendants’ other special defenses below.
B
Statute of Limitations
In support of their first special defense, the defendants argue that the plaintiff’s declaratory judgment action appears to be based upon a note or upon fraud or statutory theft, and that the plaintiff pleaded a conspiracy between James Veneziano and the defendants to take the stock for less than full value. They contend that, since fraud and statutory theft are governed by the three-year statute of limitations provided in General Statutes § 52-577, the plaintiff’s action is time-barred. In their first special defense, they also cite other statutes of limitations, such as General Statutes § 52-576, which provides a six-year limitations period for actions based on contract.
"[I]n analyzing whether a declaratory judgment action is barred by a particular statutory period of limitations, a court must examine the underlying claim or right on which the declaratory action is based." Wilson v. Kelley, 224 Conn. 110, 116, 617 A.2d 433 (1992). "[I]f a statute of limitations would have barred a claim asserted in an action for relief other than a declaratory judgment, then the same limitation period will bar the same claim asserted in a declaratory judgment action." (Internal quotation marks omitted.) Travelers Cas. & Sur. Co. of Am. v. Netherlands Ins. Co., 312 Conn. 714, 736-37, 95 A.3d 1031 (2014), citing Wilson v. Kelley, supra, 224 Conn. 116.
In contrast, "an action for a declaratory judgment in this state should be subject to equitable defenses such as laches when the underlying cause of action on which it is based sounds in equity." Caminis v. Troy, 112 Conn.App. 546, 559-60, 963 A.2d 701 (2009), aff’d on other grounds, 300 Conn. 297, 12 A.3d 984 (2011). There, the Appellate Court cited with approval a Superior Court decision, which "determined that the defendant’s counterclaim for a declaratory judgment was subject to laches because the ‘ultimate remedy’ she sought, namely, to declare the referendum and approval of the bond issue void, was ‘akin to that of an injunction’ and ‘quasi-equitable in nature.’" Id., 560.
Here, similarly, the relief sought in the plaintiff’s complaint is also akin to that of an injunction, in that it seeks to prevent the defendants from acting as stockholders in the corporation with rights to own, possess, and vote the stock at issue. The complaint is not based on a note or contract or on a conspiracy and does not plead the elements of fraud or statutory theft. Accordingly, since the remedy sought is equitable in nature, the plaintiff’s claim is subject to equitable defenses, but not barred by the limitations periods set forth in General Statutes § 52-577 and the other statutes cited in the defendants’ first special defense.
C
Laches and Spoliation
As to their second special defense, the defendants assert that the action is barred by laches because the plaintiff delayed in commencing suit until after it had spoliated its general ledgers in October 2013. They contend that there is no excuse for any delay in bringing suit after refunding monies to them in January 2012 for claimed overpayment of interest.
"[T]he burden is on the party alleging laches to establish that defense ... Laches consists of two elements. First, there must have been a delay that was inexcusable, and, second, that delay must have prejudiced the defendants ... A mere lapse of time does not constitute laches unless it results in prejudice to the defendants. Such prejudice results if the defendants are led to change their position with respect to the matter in question ... Whether a plaintiff is guilty of laches is a question of fact for the trier ..." (Citation omitted; internal quotation marks omitted.) Lynwood Place, LLC v. Sandy Hook Hydro, LLC, 150 Conn.App. 682, 690-91, 92 A.3d 996 (2014).
The defendants have not proved that the plaintiff spoliated evidence. "[I]n a civil context, ... the trier of fact may draw an inference from the intentional spoliation of evidence that the destroyed evidence would have been unfavorable to the party that destroyed it ... To be entitled to this inference ... the victim of spoliation must prove that: (1) the spoliation was intentional, in the sense that it was purposeful, and not inadvertent; (2) the destroyed evidence was relevant to the issue or matter for which the party seeks the inference; and (3) he or she acted with due diligence with respect to the spoliated evidence ... [T]he adverse inference is permissive, and not mandatory ..." (Internal quotation marks omitted.) Moore v. Comm’r of Motor Vehicles, 172 Conn.App. 380, 391, 160 A.3d 410 (2017) (citing Beers v. Bayliner Marine Corp., 236 Conn. 769, 775, 675 A.2d 829 (1996)).
As to the first element of spoliation, there is no evidence that the plaintiff’s general ledger was destroyed intentionally. According to the evidence presented, the plaintiff’s records were destroyed due to flooding at the plaintiff’s office. The defendants have not shown "that the evidence had been disposed of intentionally and not merely destroyed inadvertently." Beers v. Bayliner Marine Corp., supra, 236 Conn. 777.
In addition, the court credits the testimony of Caliendo, who stated that, after 2014, she learned that the defendants had sent a payment to the plaintiff and that stock had been transferred to the defendants. She became aware of these matters during the plaintiff’s litigation against Veneziano. See Tr., p. 38.
As requested by the plaintiff during the trial and in its post-trial brief, the court takes judicial notice of that matter. "There is no question that the trial court may take judicial notice of the file in another case, whether or not the other case is between the same parties ... [I]t is understood that matter[s] which it is claimed the court should judicially notice should ordinarily be called to its attention by a party seeking to take advantage of it in the course of presenting evidence in the case so that, if there is ground upon which it may be contradicted or explained, the adverse party will be afforded an opportunity to do so ... Moreover, [j]udicial notice ... meets the objective of establishing facts to which the offer of evidence would normally be directed ..." (Citation omitted; internal quotation marks omitted.) Jewett v. Jewett, 265 Conn. 669, 678 n.7, 830 A.2d 193 (2003).
In Village Mortgage Co. v. Veneziano, 175 Conn.App. 59, 61, 167 A.3d 430, cert. denied, 327 Conn. 957, 172 A.2d 205 (2017), the Appellate Court affirmed "the judgment of the trial court rendered in favor of the plaintiff, Village Mortgage Company (company), after a trial to the court, awarding the plaintiff $ 2, 080, 185.09 in damages for the defendant’s misappropriation of corporate funds through conversion, statutory theft, and embezzlement."
Among the findings and conclusions made by the trial court were that Veneziano’s "credibility was impeached multiple times throughout the trial and in regard to almost every issue in this case; ... the record is rife with examples of the defendant trying to categorize the [plaintiff’s] financial records in dishonest fashion so as to mislead the directors, shareholders, or outside auditors; ... the defendant had the ultimate responsibility for the characterization of transactions and accounting entries, and he was responsible for working with the auditors and reviewing the plaintiff’s audited financial statements; ... Giroliman credibly explained, in his testimony and in his written investigative report, how the defendant misappropriated the plaintiff’s funds and the amount that he had misappropriated; ... Giroliman’s written investigative report, which was admitted as a full exhibit, most accurately detailed the defendant’s misappropriations from 2004 through 2014; ... the defendant provided no credible evidence to contradict the conclusions in the reports submitted by Finkel[, a forensic accountant, ] and Giroliman; ... the evidence ‘incontrovertibly established’ that the defendant breached his fiduciary duty to the plaintiff ‘by engaging in self-dealing by taking [the plaintiff’s] funds for his own personal use at his sole discretion without any regard to [the plaintiff] or its shareholders’; ... the defendant did not produce any evidence that would establish fair dealing in those transactions; [and] the plaintiff sustained its burden of proving that the defendant committed conversion, statutory theft and embezzlement[.]" Id., 175 Conn.App. 65-66.
Thus, according to the trial court’s decision in Village Mortgage Co. v. Veneziano, supra, which was affirmed on appeal, Veneziano’s financial misconduct continued through 2014. The general ledger records were destroyed prior to Ms. Caliendo having a reason to believe that business entries concerning the defendants’ stock ownership would be needed for litigation against them. There is no basis from which to infer that the plaintiff destroyed evidence to avoid having it available concerning this dispute between the parties. See Surrells v. Belinkie, 95 Conn.App. 764, 771, 898 A.2d 232 (2006).
Similarly, the fact that the defendants were listed by Village as shareholders as of May 29, 2014 (see defendants’ Exhibit J) does not show that they actually were legitimate shareholders. Instead, as discussed above, Veneziano’s misconduct resulted in their being so listed at that time. There is no credible evidence showing that the defendants legitimately made an investment to become stockholders of the plaintiff.
In contrast, Davis v. First Baptist Soc. of Essex, 44 Conn. 582, 7 F.Cas. 126, 127 (D.Conn. 1877), cited by the defendants, is unavailing. There, in contrast to the situation here, financial misconduct was not at issue. Instead, the court there noted, "[C]reditors have a right to rely upon the guarantee of those who continue to hold themselves out as stockholders. In ordering an assessment, the stock certificates and the stock ledger are the basis upon which the comptroller of the currency, in the absence of fraud or mistake, must rely ... Some definite and conclusive means of information as to the ownership of stock for the purposes of assessment ought to be furnished to creditors, to the receiver, and to the comptroller. This information should be found, in the absence of fraud or mistake, in the certificates of stock, and in the stock books of the bank." (Emphasis added.) Here, the defendants’ alleged stock ownership resulted from Veneziano’s financial misconduct.
Since, as discussed above, the court has found against the defendants as to each of their special defenses, the court need not consider the legal issues raised in the plaintiff’s reply by way of avoidance.
D
Remedy
In the complaint, paragraph 3, the plaintiff alleges that the stock certificate was apparently returned to the defendants in June 2011 for substantially less than the fair market value of the stock at that time. The defendants argue that the plaintiff’s equitable action must fail because there is no evidence in the record of the fair value of the stock in 2011. They contend that the plaintiff has not shown that the stock was transferred to them for substantially less than fair market value. Plaintiff’s witnesses, Caliendo and Giroliman, stated that they did not know what the fair market value of the stock was in 2011.
Since transfer of the stock certificate to the defendants was unauthorized, the fact that evidence of fair market value was not presented represents an immaterial variance. "A variance is a departure of the proof from the facts as alleged. Not every variance, however, is a fatal one since immaterial variances are disregarded under our practice ... Only material variances, those which disclose a departure from the allegations in some matter essential to the charge or claim, warrant the reversal of a judgment ... A variance is material only if the defendant is prejudiced by it." (Citations omitted; internal quotation marks omitted.) Comm’r of Motor Vehicles v. DeMilo & Co., 233 Conn. 254, 275, 659 A.2d 148 (1995).
Here, the defendants were not prejudiced by the lack of evidence of fair market value. "We cannot say that the defendant was prejudiced in maintaining his defense on the merits, or that he was surprised by the plaintiff’s proof, or that he was misled by the allegations in the complaint. For these reasons, the variance was not a material one." (Internal quotation marks omitted.) Id., 276.
The "trial court [has] wide discretion to render a declaratory judgment unless another form of action clearly affords a speedy remedy as effective, convenient, appropriate and complete." England v. Town of Coventry, 183 Conn. 362, 365, 439 A.2d 372 (1981).
In the exercise of its discretion, since it has been proved that the defendants are not legitimate stockholders, the court concludes that a declaratory judgment is warranted. Another remedy would not be as effective, convenient, appropriate and complete.
The court enters a declaratory judgment that the defendants are not lawful shareholders in Village Mortgage Company. At trial, Caliendo testified that the plaintiff was prepared to refund the net $ 30, 000.00 received from the defendants if the court so found. Tr., pp. 57-58.