Opinion
No. CV-06-5000985-S
September 15, 2010
MEMORANDUM OF DECISION
I. INTRODUCTION
The plaintiff Stephen D. Williams ("Stephen"), by way of his complaint dated November 2, 2006 brought this action on behalf of himself and Sugar Hill Associates ("SHA") against his brother and partner in SHA, a real estate development venture, Alan Williams. In his complaint Stephen alleged various misdeeds on the part of Alan in connection with SHA and sought an accounting of SHA's activities from 1984 as well as damages for conversion, breach of partnership agreement, and breach of fiduciary duty. Stephen also sought a constructive trust over property Alan purportedly purchased with partnership funds and profits he purportedly earned off of partnership assets. Finally, Stephen sought to enjoin Alan from operating the partnership for his own benefit.
On February 5, 2007 Alan filed his answer, special defenses and counterclaims to Stephen's complaint. In addition to denying Stephen's claims of wrongdoing, Alan raised special defenses based on the statute of limitations, laches, unclean hands and failure to mitigate. In addition, Alan pled as a fifth special defense to the first count of the complaint that sought an accounting that: 1. At all times Stephen had the same access to the books and records of SHA as did Alan; 2. Stephen and SHA had been provided with the accounting they sought or were provided access to it; and 3. "As such, neither Alan or Sugar Hill Associates should be burdened with producing what Stephen already has or has access to but failed to obtain." Answer, pp. 5-6.
Alan's answer states that it is responding to the complaint dated October 16, 2006. As noted above though, the complaint was dated November 2, 2006. A review of the complaint and answer makes clear that the answer is directed to the November 2, 2006 complaint.
Alan also filed his own three-count counterclaim alleging wrongdoing by Stephen. In particular, in count one, Alan claimed that Stephen breached his fiduciary duty by manipulating partnership transactions to his benefit and taking partnership assets as his own. In count two Alan sought a dissolution of the partnership. Finally, in count three Alan sought his own accounting of SHA books and records.
On May 11, 2007 Stephen filed his reply to Alan's special defenses and answered his counterclaim. Stephen denied each of the special defenses. He also denied any acts of wrongdoing alleged by Alan in his counterclaim. Stephen also asserted a number of special defenses to the counterclaims. Not surprisingly, those special defenses mirrored those raised by Alan, including the statute of limitations, laches, unclean hands, and failure to mitigate damages. As to Alan's request for an accounting, in his eighth special defense Stephen alleged that "[Alan] has admitted in his Answer that he managed the day-to-day affairs of the partnership, had the responsibility of maintaining the books and records of Sugar Hill Associates, and the responsibility to interface with its accountants and attorneys. Accordingly, neither Stephen nor the partnership should be burdened with the cost of providing such documents and information to him or for paying for a third party accounting as to partnership matters for which Alan had a duty to account for and report upon to Stephen." Plaintiff's Reply, p. 5. Stephen also asserted special defenses based on waiver and estoppel, and the implied covenant of good faith and fair dealing.
Stephen asserted two other special defenses that have little meaning. First, his third special defense alleges that the counterclaim "fails to state a claim upon which relief can be granted." The court understands that parties often assert this vague claim as a special defense. Nevertheless, such a claim alleges no facts and no legal basis. Thus, it is not a valid special defense and should not be pled as such. Second, Stephen's final special defense is a reservation of rights to amend his answer and add additional special defenses that might become available during discovery. This is also an improper special defense. The Practice Book provides specific procedures for amending pleadings. Reserving the right to amend in a special defense is not one of them.
The court will also not consider Stephen's seventh special defense which relies on the implied covenant of good faith and fair dealing. While such a claim can be a proper special defense, Stephen has not briefed or argued the defense beyond the bare allegation set forth in his answer. As such, the court deems the claim waived. Ansonia v. Stanley, Conn.Sup. 574, 584, n. 4, 854 A.2d 101 (2004) (Cremins, J.)
On June 21, 2007, Alan filed his reply to his brother's special defenses to Alan's counterclaim. Alan summarily denied all of the allegations in the special defenses. Thus, issue was joined on all the claims as of that date.
On December 24, 2007, Alan filed an amended answer, special defenses and counterclaims. The most significant part of this amendment was the deletion of Alan's breach of fiduciary claim in his counterclaim. Following the amendment, Alan sought, by way of counterclaim, just a dissolution and an accounting.
On February 11, 2008, new (and current) counsel appeared for Stephen and SHA. On the same day, SHA's claims against Alan were withdrawn. Thus, the action officially became what it had really been from the outset, a battle between two brothers over how the assets of SHA had been handled.
There were no further attempts to modify the pleadings until January 2010 when Alan filed a request to amend his counterclaim to add back the breach of fiduciary duty counterclaim he had voluntarily withdrawn when he filed his amended counterclaim two years earlier. Stephen objected to the proposed amendment, noting, CT Page 18173 inter alia, that trial was scheduled for March 2010 and that discovery had been limited on the claim because Alan had withdrawn it two years earlier. The court (Sferrazza, J.) denied Alan's request to amend his counterclaim.
Thereafter, on March 11, 2010, Stephen withdrew his complaint in its entirety against Alan. Thus, the only issues left to be resolved were: 1. Alan's claim for dissolution of SHA; and 2. Alan's claim for an accounting.
The court then met with counsel to determine the scope of the upcoming trial. At that time, the parties were in agreement that the partnership should be dissolved. They were further in agreement that as part of that dissolution an accounting would be required. It was further agreed by the parties that, pursuant to Conn. Gen. Stat. § 52-401 et seq., any such accounting would be performed by a third party appointed by the court who would then provide a report to the court for consideration. What remained in dispute was the scope of the accounting. Alan sought an accounting from the beginning of SHA to the present. Stephen argued, relying on his special defenses, that the accounting should be limited to simply resolving how the current assets of SHA should be divided between the brothers.
As a result, the court held a hearing to consider what issues would be submitted for the accounting. The purpose of the hearing was not to determine whether the issues raised by Alan for inclusion in the accounting had merit. Instead, the court merely considered whether the issues raised should be considered in light of the special defenses raised by Stephen. The only witnesses who testified at the hearing were Alan and Stephen. In addition, the court received dozens of exhibits regarding SHA and its operation. Finally, the parties submitted both pretrial briefs and post-trial proposed findings of fact. The last filing received by the court was a letter dated May 18, 2010 submitted by Alan's counsel as a "supplement to his Post-Hearing Brief dated March 26, 2010." The letter had attached to it the Appellate Court's recent decision in Barber v. Barber, 121 Conn.App. 96, 994 A.2d 284 (2010) and a brief summary of why that case supported Alan's position on the scope of the accounting. While the letter invited a response on Barber from Stephen's counsel, the court has received none.
II. LAW GOVERNING THE DEFENDANT'S RIGHT TO AN ACCOUNTING CT Page 18174
As noted above, Stephen agrees that his partnership with Alan should be dissolved and that Alan is entitled to an accounting. In fact, our Supreme Court has long held that "upon a termination of a partnership either by act of the parties or operation of law, an accounting usually becomes necessary." Weidlich v. Weidlich, 147 Conn. 160, 164, 157 A.2d 910 (1960). Our Appellate Court, quoting Weidlich, recently observed that: "Where a partner presents a petition in equity against the other partners, stating that the accounts are unsettled and praying for an account, the usual course for the court is to appoint a committee or auditors before whom the parties can produce their accounts and be heard on oath and who will conduct a minute and patient examination of their claims." (Internal quotation marks omitted) Barber v. Barber, 121 Conn.App. 96, 101, 994 A.2d 284 (2010). As the Supreme Court noted: "A final account is the one great occasion for a comprehensive and effective settlement of all partnership affairs. All the claims and demands arising between the partners should be settled upon such an accounting." Weidlich v. Weidlich, supra, 165.Nevertheless, the right to such an accounting is not absolute. As to the details of the accounting, the Legislature has made clear that: "in any judgment or decree for an accounting, the court shall determine the terms and principles upon which such accounting shall be had." Conn. Gen. Stat. § 52-401. The latitude given the court under § 52-401 is consistent with the principle that "actions for accounting generally invoke the equitable powers of the court." Mangiante v. Niemiec, 98 Conn.App. 567, 573, 910 A.2d 235 (2006). Consequently, a party's right to an accounting may be limited by other equitable considerations, for example a claim of laches. See, e.g., Sanzo v. Skuret, 1998 Ct.Sup. (LOIS) 6785 (Conn.Super.Ct., June 26, 1998) (Curran, J.); Hartford Art Sch. v. University of Hartford, 2001 Ct.Sup. (LOIS) 11811 (Conn.Super.Ct., August 22, 2001) (Bishop, J.)
III. LAW GOVERNING THE PLAINTIFF'S DEFENSES
The plaintiff has raised a number of defenses to the defendant's request for an accounting. Before turning to the specifics and the evidence regarding each, it is helpful to set forth the legal framework for each defense. Of course, the plaintiff bears the burden of proof of establishing each defense by a preponderance of the evidence.
A. Prior Statements of Capital Accounts
Stephen first argues that Alan is not entitled to an accounting of past transactions because the capital accounts of the parties have been previously established, and, hence, the brothers know what is due each of them. Mankert v. Elmatco Products, Inc., 84 Conn.App. 456, 460, 854 A.2d. 766, cert denied 271 Conn. 925, 859 A.2d 580 (2004). The Appellate Court addressed this issue in August v. Moran, 50 Conn.App. 202, 717 A.2d 807 (1998). In that case, the plaintiff sought an accounting of his interest in his former law partnership. The trial court granted the defendant's motion for summary judgment on the basis that a prior litigation between the parties had determined the value of the plaintiff's capital account. The court concluded that the plaintiff was collaterally estopped from asking for an accounting in light of the earlier determination.
The Appellate Court reversed the trial court. In doing so, the court held that there is a material difference between a partner's capital account and his partnership interest. According to the court: "First, a partner's `capital account' in a partnership is defined as an account that represents his contribution or his investment in the partnership . . . A partnership interest, however, includes all of the partner's interests in the partnership, including the partner's transferable interest and all management and other rights . . . as well as his share of the profits and losses . . . and the right to receive distributions of the partnership assets . . . which necessarily involves consideration of all assets, including cash and accounts receivable." (Internal quotation marks omitted; citations omitted.) August, supra, 206. Due to this distinction, the court held that a determination of a capital account is not the same as an accounting of a partner's interest in the partnership, and that it was error for the trial court to equate the two.
In this case, while there was evidence that both Stephen and Alan were aware of and to some degree participated in the establishing and adjusting of their capital accounts, that alone does not preclude either from seeking an accounting of his interest in SHA. Having said this, part of Alan's claim is that Stephen took "inappropriate adjustments to his capital account." As to this specific claim, a prior resolution or agreement would be relevant.
B. Alan's Withdrawal of His Breach of Fiduciary Duty Claim CT Page 18176
Stephen argues that any accounting should not address issues that were previously raised in Alan's withdrawn breach of fiduciary duty claim. Stephen notes that Alan attempted to reintroduce such claims earlier this year, but the court specifically rejected his proposed amended complaint that would have done so. He argues that Alan should not be permitted to bypass the court's ruling by seeking accounting adjustments, which would have the same effect as an award of damages, based on the very same claims.In response, Alan argues that because an accounting is an equitable remedy the court can, and should, direct that all issues between the parties be finally resolved. He also argues that specific allegations of misdeeds by Stephen were alleged in his counterclaims seeking dissolution and an accounting. Thus, the withdrawal of the breach of fiduciary duty claim is of no significance.
In general, "a plaintiff must allege breach of fiduciary duty with specificity before liability can attach on such grounds." Pergament v. Green, 32 Conn.App. 644, 651, 630 A.2d 615, cert. denied, 228 Conn. 903, 634 A.2d 296 (1993). This rule has been applied to accounting actions where the plaintiff sought an accounting based on a claim of breach of fiduciary duty. In Zuch v. Connecticut Bank Trust Co., 5 Conn.App. 457, 500 A.2d 565 (1985), the plaintiff beneficiary of a trust sought an accounting from the trustee. Although he did not allege a breach of fiduciary duty, the plaintiff sought and the court ordered an accounting not just as to the inflow and outflow of funds through the trustee but also as to the trustee's investment policies and decisions. The Appellate Court held that the trial court erred by ordering such a broad accounting because "the plaintiff has not alleged that the defendant engaged in mismanagement of the trust funds, in some type of wrongdoing, or in the breach of its fiduciary relationship." Id., 464.
In this case, Alan does allege, in support of his requests for dissolution and an accounting, that "Stephen has taken excessive draws, abused partnership assets, taken inappropriate adjustments to his capital account and generally manipulated the business books and records of SHA to enhance his benefit or that of entities owned solely by him to Alan's detriment." Amended Answer, p. 7. Even though such allegations fail to provide the specificity suggested in Pergament, they might arguably be sufficient to permit the court to order an accounting on such issues.
Alan relies on the Appellate Court's decision in Russell v. Russell, 91 Conn.App. 619, 882 A.2d 98 (2005), cert. denied, 276 Conn. 924, 888 A.2d 92 (2006) to support his position that a claim of breach of fiduciary duty is not required for the court to order an accounting on various allegations of self-dealing. While it is true that the accounting in that case covered such issues, there is nothing to suggest that the question raised here was ever addressed by either the trial court or the Appellate Court in Russell. In fact, the only issue relating to the accounting on appeal was the allocation of the expenses of the accounting between the parties. For this reason, Russell is of little help to the court.
The problem for Alan though is the manner in which he has chosen to alter his pleadings in this case. His breach of fiduciary duty counterclaim filed in January 2007 detailed specific instances in which Stephen allegedly breached his fiduciary duty. Had the case proceeded on the basis of those allegations there is no question that Stephen would have known full well that he would have to address such issues. By voluntarily withdrawing such allegations though, Alan clearly communicated to Stephen that he was no longer pursuing those issues. While Alan's amended counterclaim did add the general allegation noted above to his claims for dissolution and an accounting, there was no reference made to the withdrawn specific allegations of wrongdoing. Further, when Alan attempted to reinsert those specific allegations into the case on the eve of trial, the court denied his request to do so.
Alan has made it clear that what he is seeking in this accounting is not just a division of the current assets of SHA, but contributions back to SHA, and therefore to him, from Stephen for Stephen's alleged past misdeeds. Such contributions would be the functional equivalent of an award of damages in Alan's favor for breaches of fiduciary duty by Stephen. Consequently, permitting an accounting on such issues would allow Alan to gain the benefit of claims that: 1) are not in the case; 2) were specifically withdrawn by Alan; and 3) were explicitly excluded by the court when it denied Alan's request to amend his counterclaim earlier this year. Given this history, the court concludes, that, as in Zuch, it would be error to permit an accounting on issues not properly pled. For this reason, the court will review each of the issues as to which Alan seeks an accounting to determine if they are in fact the same breach of fiduciary duty allegations that are no longer part of this case.
C. Statute of Limitations
In his first special defense to Alan's counterclaim, Stephen relies on the statute of limitations. Given that the claims left to be resolved are equitable in nature, typically no statute of limitations would directly apply. However, the court could consider an analogous statute of limitation when considering Stephen's laches defense. Rossman v. Morasco, 115 Conn.App. 234, 256, 974 A.2d 1, cert. Denied, 293 Conn. 923, 980 A.2d 912 (2009). Despite this general rule, Stephen nonetheless argues that the three-year statute of limitation for torts claims applies to Alan's request for an accounting because the issues on which he seeks an accounting are tort claims, i.e., breaches of fiduciary duty. In support of this argument Stephen relies on Dowling v. Finley Associates, 40 Conn.App. 330, 335, 714 A.2d 694 (1998), rev'd, 248 Conn. 364, 727 A.2d 1245 (1999). Such reliance is misplaced. That case does nothing more than state the long-standing rule that where a party seeks equitable relief in a cause of action that would also allow for legal relief the statute of limitation for that cause of action nonetheless applies. Here, there is no legal relief available in an action for an accounting. It is strictly an equitable action with an equitable remedy. For this reason, the court rejects Stephen's first special defense as to all issues raised by Alan.
As noted above, in this case the equitable remedy could be the functional equivalent of a legal award of damages. Nevertheless, this does not alter the fundamental nature of a request for an accounting as an equitable action to which no statute of limitation would apply. Nor is the court aware of any case that has applied a statute of limitation to an accounting action.
D. Laches
Stephen's second special defense is laches. This being an equitable claim, there is no dispute that it is an appropriate defense. To establish the defense, Stephen must prove both that there was an inexcusable delay by Alan in seeking the accounting, and that Stephen has been prejudiced by the delay. Traggis v. Shawmut Bank of Connecticut, N.A., 72 Conn.App. 251, 262, 805 A.2d 105, cert. denied, 262 Conn. 908, 810 A.2d 870 (2002). Further, the court may consider analogous statutes of limitation when evaluating a laches claim, but is not obligated to apply any such statute. Dunham v. Dunham, 204 Conn. 303, 326-27, 528 A.2d 1123 (1987). In the end, whether the defense of laches has been established is an inherently fact specific question that can only be resolved by a close examination of the circumstances of the particular case. Consequently, the court will analyze the facts regarding each issue claimed by Alan to see if Stephen has proven his defense of laches.
E. Unclean Hands
In his fourth special defense, Stephen alleges that Alan is precluded from an accounting on the issues he seeks based on his unclean hands. "It is a fundamental principle of equity jurisprudence that for a complainant to show that he is entitled to the benefit of equity he must establish that he comes into court with clean hands . . . The clean hands doctrine is applied not for the protection of the parties but for the protection of the court . . . It is applied not by way of punishment but on considerations that make for the advancement of right and justice." (Internal quotation marks omitted; citations omitted.) CT Page 18179 Thompson v. Orcutt, 257 Conn. 301, 310, 777 A.2d 670 (2001). For this reason, the misconduct relied upon must relate specifically to the matter in litigation. Id. The issue when such a defense is raised whether the conduct of the party seeking relief "has been fair, equitable and honest as to the particular controversy and issue . . . Unless the plaintiff's conduct is of such a character as to be condemned and pronounced wrongful by honest and fair-minded people, the doctrine of unclean hands does not apply." Id.
In this case, the bases for Stephen's unclean hands defense are Alan's delay in asserting his breach of fiduciary duty claims, his dropping of those claims and his attempt now to reinsert them into the litigation. The court has already addressed these issues in connection with other defenses raised by Stephen. As to delay in asserting the claims, the appropriate analysis is done under the doctrine of laches. If the court determines that Stephen has failed to prove his defense of laches then it has also determined that there has been no prejudice to the court's resolution of the issue, and hence no interest of the court that needs protecting. As to Alan's withdrawal of his breach of fiduciary duty claims and attempt to reassert them the court has already stated that it will not consider any claims that are no longer pled as a result of the earlier withdrawal. Stephen has not proven that Alan's actions in his pleading were "of such a character as to be condemned and pronounced wrongful by honest and fair-minded people." Consequently, it is not the doctrine of unclean hands that precludes Alan from pursuing such claims. Instead, it was his conscience decision to abandon those claims, coupled with the court's later refusal to allow him to reinsert those claims into this case that have that effect.
It is also worth noting that Stephen pled his unclean hands defense at a time when Alan had his breach of fiduciary duty claims in his counterclaim. Thus, Stephen must have been relying on some facts, perhaps the alleged delay in asserting those claims, other than the withdrawal and subsequent attempt to reinsert those claims in the case. The special defense was never amended to add these additional grounds after Alan changed the nature of his counterclaim.
F. Waiver and Estoppel
In his Sixth Special Defense Stephen asserts the doctrines of estoppel and waiver. A waiver is an intentional relinquishment of a known right. Wagner v. Kevan, 27 Conn.Sup. 508, 512, 245 A.2d 881 (1968). Stephen claims that Alan waived his right to an accounting because he previously agreed to the status of the brothers' capital accounts. As noted above though, the determination of a partner's capital account is not the same as an accounting of his interest in the partnership. August v. Moran, supra, 50 Conn.App. 206. Consequently, a waiver as to the status of his capital account, would not act as a waiver of Alan's right to an accounting of his partnership interest. However, to the extent Alan seeks a restatement of his capital account through the accounting process whether he waived such a right through his prior words or deeds is an appropriate area of inquiry. Thus, to the extent any of the issues raised by Alan seek a restatement of capital accounts the court will consider Stephen's waiver defense to such claims.
The same analysis applies to Stephen's claim of estoppel. The "two essential elements [of equitable estoppel] are that one party must do or say something which is intended or calculated to induce another to believe in the existence of certain facts and to act on that belief, and that the other party, influenced thereby, must change his position or do some act to his injury which he otherwise would not have done." Bozzi v. Bozzi, 177 Conn. 232, 242, 413 A.2d 834, 839 (1979). Stephen claims that Alan should be estopped from asking for an accounting because he previously agreed to the status of the capital accounts which Stephen relied upon to his detriment. Again, because the issue of capital accounts is different than the issue of an accounting, this defense cannot preclude completely Alan's request for an accounting. It will be considered though to the extent Alan is seeking restatement of capital accounts regarding any of the issues he has raised.
G. Alan's Access To SHA's Books and Records
Stephen's eighth special defense claims that Alan is not entitled to an accounting because he managed the day-to-day affairs of the partnership and was responsible for maintaining its books and records and for interacting with SHA's accountants and attorneys. For the reasons discussed in Wiedlich, such facts would not preclude Alan from asking for and receiving an accounting. As noted by the Supreme Court, the purpose of the final accounting is to put all issues among the partners to bed, fully and finally. All partners, even those with responsibility for the financial records of the partnership are entitled to this final resolution. Thus, even if Alan was fully responsible for the partnership's books and records, he still has the same right as Stephen to a final accounting.
This does not mean that issues of control and knowledge are not relevant to the scope of the accounting. They are. What Alan knew, what he controlled and what he told and learned from the partnership's lawyers and accountants could impact how the court views Stephen's other special defenses of laches, estoppel and waiver. Thus, the court has considered the evidence on such issues as it relates to those defenses.
III. FINDINGS OF FACT
SHA is a real estate partnership Stephen and Alan started in 1984 for the purpose of buying, owning, and developing real estate. While most of SHA's projects were located in Connecticut, the partnership also owned undeveloped real estate in the U.S. Virgin Islands. The disputes involved in this case relate solely to SHA's Connecticut projects. From the inception of the partnership, Alan managed the day-to-day affairs of the partnership, maintained the books and records of the partnership, and coordinated and communicated with the partnership's accountants and attorneys. Alan is a licensed real estate broker and studied accounting and business administration in college. Until at least the mid-nineties, Alan maintained all of the partnership's books and records at his office.
Stephen focused his efforts on the physical development of SHA's Connecticut projects. He graduated from Windham Technical School with a focus in carpentry and has no post-high school education.
In addition to working together in SHA, Stephen and Alan also participated in a number of other ventures together. A couple of those ventures are tangentially related to this matter, but no issues from those ventures are before the court here. By the mid-nineties, Stephen and Alan also were focusing much of their attention on ventures each of them was pursuing on their own. They did so in large part because their relationship as partners (and brothers) began to deteriorate. Ultimately, all of SHA's Connecticut projects were concluded and the assets liquidated. Stephen and Alan agree it is time to dissolve the partnership. What remains now is Alan's claims that there should be an accounting for all transactions of the partnership from its inception to the present. Alan has identified specific claims that he feels should be encompassed by such an accounting. The court has set forth below its findings of facts on each, not as to the merits of Alan's claim, but as to the special defenses raised by Stephen.
A. The Goodstein Property 1. Settler's Ridge I (Four Lots From 28 acres)
In 1987, SHA identified for possible development a 300-acre parcel of property located off of Old Stafford Road in Tolland. SHA signed a Bond for Deed for the property with the property's owners, Charles and Florence Goodstein in the amount of $1,200,000. The transaction called for regular payments of $100,000. SHA's books and records reflect that by the end of 1991 the partnership had paid the Goodsteins $491,229 towards the purchase of the property. Deft. Ex. T. As of that date, the Goodsteins had deeded no portion of the property to SHA, and it appears that SHA was in default under the terms of the Bond for Deed.
On January 2, 1992, the Goodsteins quit-claimed a little over 28 acres of the property to Stephen. Deft. Ex. U. The deed does not reflect what additional consideration, if any, Stephen paid for the property other than the funds previously provided by SHA. Stephen could not recall what additional amount he paid the Goodsteins or how he financed the transaction. Alan was aware that Stephen acquired title to the 28 acres in his own name. The land was approved for 17 building lots. After the approvals were obtained, Stephen transferred 13 of the lots into SHA. These lots were developed and sold as what became known as the Settler's Ridge I subdivision. He kept the other four lots for himself, developed them and sold them. Stephen sold the lots he owned individually prior to August 31, 1993. At the same time Stephen was individually developing the four lots for sale, Stephen and Alan were working together on the development of the other 13 lots. Thus, it is inconceivable that Alan did not know and understand what was happening with those four lots during 1992 and 1993, and Alan acknowledged on cross-examination that he knew the four lots were sold in 1993. He also admitted that Stephen did not hide the fact that he had kept four lots for himself. In fact, the accounting records for SHA as of December 31, 1994 specifically note that four of the lots were developed and sold individually by Stephen. Deft. Ex. TT ("4 of 17 lots were sold prior to 31 August 1993. These sales will be recorded on SDW personal tax return. The remaining 13 lots were transferred to SHA as of 30 September 1993.") As a result, the capital accounts of the brothers reflect their shares in the 13 lots developed by SHA. However, Alan's capital account reflects no credit for any share of the four lots sold by Stephen. Nor was Stephen's account debited because he got the benefit of those sales.
Alan claimed at trial that he did not see this document until 1998. The court does not find this claim credible. The document was prepared at a time when Alan was in control of the partnership's books and records and had the primary responsibility for communicating with the accountants.
Alan claims that appropriate adjustments to the capital accounts need to be made because the four lots should really have been partnership assets because they were acquired with partnership funds. Stephen disputes this claim.
The evidence showed that the capital accounts of the brothers were adjusted on an annual basis. Alan testified that he needed to know where he stood relative to Stephen on an annual basis. He also acknowledged that how the capital accounts were adjusted would affect what actions the brothers took together in the future. Alan understood that Stephen needed the same information and relied on it the same way. Stephen confirmed in his testimony that he did in fact rely on the annual statement of capital accounts in making decisions about how to proceed with SHA, with other ventures with Alan and individually.
The court finds that Alan was aware at least as early as 1993 that Stephen kept the four lots himself, developed them separately and sold them for his own benefit. Alan was also aware, at least as early as December 1994 that SHA's accountants were not including any portion of the proceeds from the sales of those four lots in SHA's income. Alan, therefore knew at that time that he was getting no financial benefits in the form of capital account adjustments from those sales.
2. Settler's Ridge III (219 acres)
There was also a Settler's Ridge II. And there is a dispute between Stephen and Alan over how they dealt with the land that made up that stage of the development. However, that dispute involves another partnership between the brothers and does not raise any issues this court needs to address.
On January 5, 1999, a real estate holding company owned by Stephen acquired 219 acres from the Goodsteins, which Stephen subdivided, developed, and sold. SHA was not involved in the transaction at all. By this time Alan and Stephen had to a large degree gone their separate ways and were working on different projects individually. The court finds that Alan was aware that Stephen was separately developing Settler's Ridge III. In fact, Alan acknowledged receiving real estate commissions on sales from that development. Nevertheless, he never complained to or disputed Stephen's right to proceed with his plans for that land.
Alan now claims that a decade earlier Stephen misled him about the suitability of at least some of the land in Settler's Ridge III for development. In particular, he claims that although Stephen was aware of test results in 1988 showing that the land could be developed, Stephen told Alan the opposite. Alan claims that he only recently learned of this when he went to look at town records and saw the 1988 test results. Stephen disputes this claim.
For purposes of considering Stephen's special defenses, the court finds that any misrepresentation that may have occurred regarding this property occurred no later than 1989. The court further finds that because the test results were a matter of public record, Alan had at least constructive notice of them. The court further finds that the 219 acres at issue on this claim were never a part of SHA, and never believed by Alan to be a part of SHA.
Alan also claims that part of the 219-acre parcel sold to Schaefer, Hulstein, Isch and DeFelice in the spring and summer of 1999 had been acquired with partnership funds. As noted above, there is no question that Alan knew that Stephen purchased the entire 219-acre parcel in his own name. Thus, Alan should have been aware of this claim no later than when Stephen acquired the 219 acres in 1999.
3. The 72-Acre Correcting Deed
The final claim made by Alan relating to the Goodstein property is that Stephen received from Goodsteins an additional 72 acres by way of a "Correcting Deed" on December 21, 1998. He claims that this land was paid for by SHA and he is therefore entitled to a capital account adjustment. Stephen claims that the "Correcting Deed" conveyed no additional land to him but is just part of 219 acres conveyed as part of the Settler's Ridge III conveyance.
Alan's claim here is very unclear. He could not identify what land he claims was transferred. The court also notes that simple addition suggests that there was not an additional 72 acres to convey. As noted above, Settler's Ridge I involved 28 acres, Settler's Ridge II involved 54 acres and Settler's Ridge III involved 219 acres. Altogether, this equals approximately 301 acres, which was the entire size of the Goodstein property covered by the original Bond for Deed in 1987. Alan did not explain from where these other 72 acres sprang. Thus, the court does not understand what Alan is seeking.
In any event, the court finds that Alan had at least constructive notice of the "Correcting Deed" as of December 21, 1998, the date it was filed on the public land records. The court further finds that Alan never raised an issue with Stephen regarding any additional 72 acres despite the fact that he was fully aware of the size and bounds of the Goodstein property since at least 1987.
B. Clough Property
Stephen acquired 83.3 from Emery Clough in 1985. The property was adjacent to property in Tolland originally owned by the Williams family that had been deeded to SHA. This land and the Clough property would later be developed as what became known as Brookview subdivision. In September 1986 Stephen quit-claimed his ownership in the Clough property, less two building lots he retained to Alan and himself, effectively putting the Clough property, except for the two building lots, in SHA. Deft. Ex D. Alan testified that he did not realize that these two lots were not included in the quit-claim deed from Stephen. He claims that he did not read the deed. The court finds this claim not credible. The court believes that Stephen's account that he discussed specific carve outs from the Clough property to be much more credible. Alan is an experienced businessman and licensed real estate broker. The court finds it hard to believe he would not understand or appreciate the terms of the transaction with his brother. In any event, failing to read the deed is no excuse. Alan had actual notice of the scope of Stephen's conveyance through the explicit terms of the document.
On May 29, 1993, Alan quit-claimed his interest in 24.4 acres of the Clough property to Stephen. He testified that he did so because Stephen told him that he needed the land as collateral to get financing to pay certain payables that his construction company owed. He testified that Stephen promised him that some credit would be made in the future to adjust for this transfer. He claims that instead Stephen used the property to obtain financing for the purchase of another parcel of land known as the Skungamaug property. He further claims that the adjustment promised by Stephen has never been made. Alan claims that he is entitled to some credit for either the value of the land he gave to Stephen or the value Stephen realized from his acquisition of the Skungamaug property.
Stephen disputes this claim and testified that the 24.4 acres that Alan transferred to him was part of the carve out the brothers discussed when Stephen contributed the Clough property to SHA in 1986.
Putting the merits of Alan's claim aside, it is clear that Alan knowingly transferred the 24.4 acres to Stephen in May 1993. It is also clear that any representations that induced that transfer necessarily occurred on or before May 29, 1993. Furthermore, there is no evidence that Alan complained about the transfer or sought the alleged adjustment from Stephen. This is true despite the fact that Alan was assessed a gift tax in 1995 for giving the property to Stephen. In response, he resolved the gift tax issue, but did not seek the supposedly due adjustment from Stephen. Finally, the evidence established that Alan was aware of Stephen's acquisition of the Skungamaug property shortly after it occurred, and, in fact, hunted the property with Stephen.
In August 1993, Alan and Stephen conveyed approximately 11 acres from the Clough property to Robert and Brandy Gadoury. Alan testified that he did so because Stephen told him that Robert Gadoury would be providing service to SHA and this would be part of his compensation for doing so. Alan claims that this was a misrepresentation because Gadoury only provided services to Alan's construction company and not to SHA. Stephen disputes that claim and testified that the Gadoury conveyance was part of the original carve out he discussed with Alan in 1986. Whatever the merits, it is clear that any representations made by Stephen to induce Alan to transfer property to the Gadourys were made no later than August 6, 1993.
C. Lot Adjustments
Throughout the development of Settler's Ridge, Stephen's construction company built the homes on the lots sold by SHA. Between 1993 and 1996, Stephen and Alan would discuss how the purchase price paid by people who bought the houses and lots would be divided between SHA and Stephen's construction company. In July 1997, at Alan's request, SHA's accountant, Martin Fagan, prepared a schedule showing any adjustments from the original lot sale price to the final lot sale price recorded on SHA's books. It also showed any discrepancies as to how the prices were recorded between Stephen's construction company books and SHA's books. Deft. Ex. WWW. The schedule was sent to Alan, with a copy to Stephen on July 11, 1997. Alan claims that the schedule shows total unwarranted adjustments in Stephen's favor of $255,037.20. He claims that he expected an adjustment would be made to his and Stephen's capital accounts to correct this inequity, but none was ever made. Again putting aside the merits of this claim, it is clear that Alan was aware of it at least as early as July 1997. In fact, given that Alan requested the information from SHA's accountants it appears that he thought he was being treated unfairly on this issue even before then. Yet, there is no evidence that Alan did anything to pursue this issue at that time, or at any time before asserting his claim in this action. And he did nothing despite the fact that his relationship with Stephen had become antagonistic.
D. Performance Bonds and Utility Deposits
In the course of developing its various subdivisions between 1989 and 1996, SHA was required to post with municipalities performance bonds and to make substantial deposits to utility companies for installation work. Alan claims that when these bonds or deposits were returned upon completion of SHA's work, Stephen would personally keep the bonds and not return them to SHA. He makes the same claim as to customer deposits made towards purchases in Settler's Ridge between 1993 and 1995. While there was little evidence supporting such claims, the court will not address the claims on the merits for the reasons previously stated. Instead, the court finds that Alan was in charge of the day-to-day operations of the partnership for most, if not all of the time period involved. He had access to the partnership's books and records and accountants throughout the period in question, and actual physical possession of the books and records for most of the time. There is no evidence that he ever raised any of these issues with Stephen, the accountants, or any municipality, utility or customer prior to asserting his claims in this lawsuit.
E. The Debt Owed To Wayne Williams
Stephen and Alan have another brother, Wayne. Unfortunately, Wayne also had a dispute with his brothers. Wayne provided various construction services to SHA. As a result, Wayne billed SHA. As of 1990, the amount claimed by Wayne was a little over $209,000. Pltf. Ex. 10. Alan and Stephen disagreed with Wayne over the amount of his bills and a dispute ensued. Alan did not want to pay what Wayne demanded, and instead wanted to try to negotiate a reduction in his claim. The issue remained unresolved for years. Finally, Stephen offered to take full responsibility for dealing with Wayne. Alan agreed. As a result, SHA's general ledger and working trial balance reflect that as of December 31, 1994 Stephen assumed the full debt claimed by Wayne and received a corresponding credit to his SHA capital account. Deft. Ex. PP, QQ. Thereafter, Stephen resolved the debt with Wayne for something less than the amount originally claimed. Alan claimed at trial that he did not know that SHA assigned the debt to Stephen. He claimed to know that the debt was resolved for a discount, but thought it was done for SHA's benefit, not Stephen's. Alan's claims are not credible. As noted above, the assignment of the debt to Stephen is reflected on the partnership's accounting records. Alan had access to these records, the accountants who prepared them, and the financial training and education to understand what they say. It is inconceivable to the court that Alan would never look at these records until asserting his claims here, particularly given the increasingly contentious nature of his relationship with Stephen starting in the mid-nineties.
F. ASW, Inc. Loan Proceeds
Alan claims that in 1998 SHA borrowed $110,000 from ASW, Inc. (Not related to Alan Williams) which Stephen then used for his personal acquisition of two lots from Donald Fish. Alan claims that Stephen represented to him that the money was going to be used to cover payables for his construction company. The evidence shows that of the $110,000 loan proceeds only $95,000 was disbursed to Stephen. The partnership's records then show a $95,000 deduction in Stephen's capital account. Consequently, it is unclear what Alan's complaint is. In any event, any misrepresentation by Stephen to Alan occurred no later than April 1998 when SHA borrowed the money and disbursed it to Stephen.
G. White Road Property
In 1989, Alan conveyed his interest in a 1.26-acre parcel owned by SHA to Stephen. As a result, an adjustment was made to Stephen's capital account in the amount of $18,000. Alan claims that the property was worth $87,500, and, therefore, a larger adjustment was required. Stephen disputes this claim. Whatever the merits of the claim might be, the transaction occurred in 1989. Alan was in charge of the day-to-day operations of SHA at the time. He had access to, and possession of, the books and records of the partnership. He had access to SHA's accountants. Finally, he participated in several annual capital account reviews since the date of the transaction. He knew, or should have known, how the transaction was reflected on the partnership's books and records.
IV. ANALYSIS AND CONCLUSION
The first issue the court must address is whether any of the issues discussed above should even be considered in light of the manner in which Alan has pled and pursued his counterclaim. Of those claims, the claims relating to the Wayne Williams debt, the lot adjustments, construction bonds, and the suitability of a portion of Settler's Ridge III for development were all particularly alleged in Alan's counterclaim dated February 2, 2007. These specific allegations were also specifically withdrawn from Alan's December 24, 2007 Amended Answer. He attempted to reinsert these issues into the case in his proposed amended counterclaim dated January 11, 2010, which was rejected by the court. In that proposed counterclaim Alan also alleged his claims regarding the Clough property, the Skungamaug property, the White Road property, and the portion of Settler's Ridge III he claims was purchased by Stephen using SHA's money. The court refused to allow him to assert those claims at that time. For the reasons set forth above, each of these claims having previously been excluded by the court, Alan may not rely on any of them in seeking an accounting.
In addition, the court finds that the doctrine of laches precludes Alan from seeking an accounting on any of the issues he claims. First, the court finds that there has been inexcusable delay in asserting any of the claims. The most recent claims, those relating to Settler's Ridge III date back to 1999. Most of the claims date back to the early 1990s. Some go back as far as 1986. Alan did not raise any of these claims until February 2007. While the court is not bound in this equity action by any statute of limitation, it notes that the most analogous statute, that for breach of fiduciary duty or misrepresentation, is three years from the date of the breach or misrepresentation. All of Alan's claims are far beyond that period.
In addition to the delay being long, it is inexcusable. For most of the time involving these transactions Alan was in charge of the day-to-day operations of SHA. Alan either had actual or constructive knowledge of every transaction of which he now complains. All of the transactions involving SHA were recorded on the partnership's books and records which he had access to. Those, like Settler's Ridge III, that did not involve SHA were a matter of public record and known to him anyway. He also knowingly and willingly participated in transactions he now takes issue with. For example, he complains that the 1986 Clough transaction did not convey to SHA all that it should have. Yet he was the recipient of the deed that conveyed the property. He will not be heard over 20 years later to say he did not read it. Alan is a college graduate who focused his studies on business and accounting. There is simply no justification for his claim today that he was uninformed of the important of matters that were happening in front of him, with his participation, and were for the most part recorded by SHA's accountants. Significantly, Alan acknowledged during the trial that he could not identify a single instance where money going to Stephen was not accounted for on SHA's books. Instead, he testified that he just did not look for or did not see the issues. Given his background and experience, the court does not find such claims credible.
Furthermore, it is clear to the court that Alan's delay in asserting his claims has prejudiced Stephen. Both brothers testified that they relied on the annual reconciliation of their capital accounts in moving forward with SHA and other ventures. Had Stephen known of the issues raised by Alan in a timely manner, it is likely that he would have approached his involvement in SHA differently. More importantly, the passage of time puts Stephen at an unfair disadvantage in responding to the merits of Alan's claims. Because many of Alan's claims involve how transactions were or were not recorded by SHA's accountants an analysis of those claims would likely involve testimony from the accountants. For example, Martin Fagan prepared the schedule that directly relates to Alan's $255,000 claim regarding lot adjustments. His testimony regarding that schedule, Alan's request for it, and how the lot adjustments were arrived at, would be important to a resolution of the issues on the merits. Yet, how much Mr. Fagan might remember of a schedule he prepared for a client a decade before the claim relating to that schedule was made is questionable, at best. Furthermore, Alan testified that while Mr. Fagan worked with SHA for a period of time, he left the firm. The partnership worked with at least three other accountants and a number of lawyers, some of whom are no longer available and beyond the subpoena power of this court.
In addition, while the court was presented with a substantial amount of accounting records, they are by no means complete. Stephen would be at a distinct disadvantage if he were required to recreate or find decades of accounting records prepared by a variety of accountants.
Similarly, tracking down records relating to municipal bonds or utility deposits fifteen to twenty years after the fact would be a Herculean task. The court has considered each of Alan's claims separately, and finds, as to each, that Alan has inexcusably delayed in pursuing the claim. The court also finds that as to each, the delay has substantially prejudiced Stephen both in how he went about his business and how he would be able to respond to the claim. While an accounting upon a dissolution of a partnership may be the final opportunity for the partners to square up, where one partner ignores issues year after year and allows the other partner to proceed along thinking everything is fine, the first partner cannot be heard to cry upon dissolution a decade or more later, "I'd like a do over." The court finds that Stephen has met his burden in proving his laches defense.
Given the court's ruling on the laches defense, the court need not address Stephen's other special defenses. Nevertheless, the court finds that as to each of his claims, the relief Alan seeks involve capital account adjustments. The parties reviewed their capital accounts annually and went over any adjustments. Alan knew it was important to do so. He knew the respective capital accounts of the partners would affect each's future actions. Stephen also relied on the annual reconciliation of the capital accounts in deciding how we wanted to proceed. Each year, Alan agreed to the statement of the capital accounts with this knowledge. He did so also knowing that he could raise any questions necessary with the accountants, and could look at whatever financial records he wanted to. Plus, he had the experience and education to understand the information. Under these circumstances, the court finds that Alan knowingly waived his right to seek adjustments to the capital accounts by agreeing to the annual statements. He also is equitably estopped from seeking adjustments to the accounts because Stephen relied on Alan's annual agreement to the account statements.
For all the foregoing reasons, judgment shall enter dissolving the partnership pursuant to the stipulation of the parties. In addition, the court orders a final accounting of SHA. However, the scope of that accounting shall be limited to a reconciliation of the partner's interest in the partnership from January 1, 2009 to the present. The parties shall contact the court to schedule a date for a hearing on the appointment of the third party who will conduct the accounting and the specific procedures for the accounting. The parties are encouraged to submit recommendations on these topics to the court prior to the hearing.