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Season-All Industries, Inc. v. R.J. Grosso, Inc.

Supreme Court of Connecticut

January 23, 1990

SEASON-ALL INDUSTRIES, INC.
v.
R.J. GROSSO, INC., et al.

Argued Nov. 9, 1989.

Page 33

David L. Fineberg, with whom was Wesley W. Horton, Hartford, for appellants (defendants).

Kirk D. Tavtigian, Jr., with whom, on the brief, were John B. Nolan, James J. Tancredi and Thomas V. Daily, Hartford, for appellee (plaintiff).

Before ARTHUR H. HEALEY, SHEA, CALLAHAN, GLASS and HULL, JJ.

[213 Conn. 487] CALLAHAN, Associate Justice.

The principal issue in this appeal is whether the trial court erred when it pierced the corporate veil and held an individual defendant personally liable for a debt owed to the plaintiff. The plaintiff, Season-All Industries, Inc., brought a contract action against the defendants R.J. Grosso Enterprises, Inc., its predecessor, R.J. Grosso, Inc., and its wholly owned subsidiary, R.J. Grosso of New England, Inc. (collectively hereinafter Grosso Enterprises), [1] for amounts allegedly due on an open account for windows sold to the defendants. The plaintiff also sought to pierce the corporate veil and to obtain a judgment against the defendant Richard J. Grosso (Grosso) in his individual capacity as the president and sole stockholder of Grosso Enterprises. The defendants filed a counterclaim for damages seeking compensation

Page 34

for defects in windows supplied by the plaintiff. On June 24, 1988, the court rendered a judgment in favor of the plaintiff on all of its claims, including its claim against Grosso individually, and awarded the plaintiff $370,505.89 in damages. The defendants thereafter filed a motion with the trial court to articulate the basis of its decision to pierce the corporate veil and hold Grosso personally liable. The trial judge, Aspell, J., died Before ruling on or complying with the defendants' motion for articulation. The defendants then moved for a new trial pursuant to General[213 Conn. 488] Statutes § 52-268, [2] which motion was denied by the court, Aronson, J. The defendants thereafter appealed from the trial court's judgment. Pursuant to Practice Book § 4023, we transferred the appeal to ourselves. We conclude that there was insufficient evidence presented to the trial court prior to the time that the plaintiff had rested its case against the individual defendant Grosso to hold him personally liable for the debts of Grosso Enterprises. The court, Aspell, J., should therefore have granted Grosso's motion to dismiss for failure to make out a prima facie case pursuant to Practice Book § 302. Accordingly, we find error in part and remand the case to the trial court with direction to render a judgment of dismissal in favor of the individual defendant Grosso.

The trial court found the following facts. In 1980, the plaintiff, a manufacturer of replacement windows, appointed Grosso Enterprises as its exclusive distributor of windows in Connecticut. Beginning in 1982, defects in the windows became apparent. The plaintiff, thereafter, attempted to rectify the problem by making certain design changes. Approximately 17 percent of the windows installed by Grosso Enterprises after June, 1982, however, developed problems. The plaintiff responded by making design changes, supplying the defendants with replacement parts, offering to reimburse distributors for some of the service costs incurred while replacing the windows, replacing defective windows and offering various credits.

[213 Conn. 489] Faced with these difficulties, Grosso formed R. J. Manufacturing, Inc. (RJM), a manufacturer of replacement windows, in August, 1984. Grosso is the president and chairman of the board of directors of RJM, and owns or controls all of its stock. Grosso Enterprises provided RJM with financial support both by making a start-up loan to RJM and by borrowing money and transferring some of the proceeds of the loans to RJM. In 1985, the Bank of Boston (bank) made a $300,000 loan to RJM after both Grosso Enterprises and Grosso, in his individual capacity, had guaranteed repayment. In addition, Grosso Enterprises pledged all of its stock and assets as security for the loan. In the summer of 1986, the bank called the $300,000 loan to RJM and, when RJM could not pay, threatened to liquidate the assets of both Grosso Enterprises and Grosso, which were pledged as security.

Confronted with the obligation to pay RJM's loan, Grosso formed Champion Financial Group (Champion) in September, 1986. Grosso funded, controlled and owned Champion. Champion paid RJM's obligation to the bank and thereafter became the owner of the assets of Grosso Enterprises. Champion then sold the assets to six newly formed corporations owned by former employees of Grosso Enterprises. The sale of assets was part of a complex agreement providing, in part, that Grosso, in his individual capacity, would enter into various agreements with the six corporations. According to the agreements, Grosso, for a fee, would provide consulting services, would license the Grosso trademark and logo and would receive a

Page 35

royalty fee based upon each corporation's sales volume. Each of the six corporations agreed to: (1) purchase all of their windows from RJM; (2) enter into a noncompetition agreement with Grosso; and (3) grant Grosso a security interest in their assets and pledge their stock to him. Grosso Enterprises thereafter ceased doing business.

[213 Conn. 490] The defendants raise three issues on appeal. First, the individual defendant Grosso claims that the trial court erred when it pierced the corporate veil and held him personally responsible for the corporate debts. Second, the defendants assert that the trial court erred when it denied their counterclaim. Third, the defendants claim that their motion for a new trial should be granted because the trial judge died Before ruling on their motion for articulation.

I

The defendants' first claim of error contests the trial court's decision to pierce the corporate veil pursuant to the "instrumentality rule." Under the instrumentality rule, a shareholder, director, or officer of a corporate entity can be held personally liable for corporate actions that, in economic reality, are those of the individual. Campisano v. Nardi, 212 Conn. 282, 291, 562 A.2d 1 (1989). We have consistently held that the instrumentality rule requires proof of three elements: "(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) that such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of plaintiff's legal rights; and (3) that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of." Zaist v. Olson, 154 Conn. 563, 575, 227 A.2d 552 (1967); Campisano v. Nardi, supra.

Grosso claims, inter alia, that the trial court erred because it erroneously relied upon evidence to prove his liability under the instrumentality rule, which evidence[213 Conn. 491] was admitted after the plaintiff and he had both rested their cases in regard to his individual liability. [3] The plaintiff responds by arguing that: (1) the trial court could rely upon this evidence because it had reopened the case against the individual defendant; (2) Grosso waived this claim when he failed to raise it in his posttrial briefs; and (3) even if the trial court improperly ...


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