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Village Mortgage Co. v. Veneziano

Court of Appeals of Connecticut

July 25, 2017

VILLAGE MORTGAGE COMPANY
v.
JAMES VENEZIANO

          Argued April 12, 2017

          Gregory T. Nolan, with whom, on the brief, was Patsy M. Renzullo, for the appellant-appellee (defendant).

          Richard P. Weinstein, with whom, on the brief, was Sarah Black Lingenheld, for the appellee-appellant (plaintiff).

          Alvord, Mullins and Beach, Js.

         Syllabus

         The plaintiff corporation brought this action against the defendant, who previously was a founding member, shareholder, officer and director of the plaintiff, seeking an injunction to preclude the defendant from accessing the plaintiff's premises and money damages for the defendant's alleged misappropriation of corporate funds through conversion, statutory theft, and embezzlement from January, 2004 through June, 2014. The defendant filed a counterclaim, which claimed, in relevant part, that the funds alleged to have been taken by him were funds owed to him for back pay, as well as funds he had invested in the plaintiff. The defendant also claimed, by way of special defense, that the plaintiff's causes of action for conversion, statutory theft, and embezzlement were barred by the applicable three year statute of limitations (§ 52-577). Following a trial to the court, the court rendered judgment in part for the plaintiff on the complaint and for the plaintiff on the defendant's counterclaim, from which the defendant appealed and the plaintiff cross appealed to this court.

         Held:

         1. The trial court's factual findings rejecting the amount of claimed contributions made by the defendant to the plaintiff and finding that the advances and withdrawals made by the defendant were unauthorized were supported by the testimony and exhibits in the record and were not clearly erroneous: although the defendant contended that the trial court mistakenly relied on a forensic accountant's report in concluding that the defendant had misappropriated funds and in determining the amount of those funds, the trial court found the forensic accountant's report credible, and this court deferred to the trial court's credibility determinations; furthermore, the trial court also found the report of the plaintiff's chief financial officer accurate and reliable, and relied heavily on the chief financial officer's report and testimony at trial in reaching its determinations concerning the defendant's misappropriation of the plaintiff's funds, and the defendant did not raise a claim on appeal concerning the court's reliance on that report.

         2. The defendant's challenges to certain of the trial court's discovery rulings were not reviewable, the defendant having failed to meet his burden of providing this court with an adequate record from which the alleged claims of error could be reviewed, and having failed to brief one of his claims adequately; moreover, although the defendant claimed that the trial court, in denying his motion for discovery of information, improperly accepted the representations of the plaintiff's counsel concerning compliance and made credibility determinations without a hearing, the court expressly stated that if the defendant disagreed with the plaintiff's representation, he should file a motion to compel to bring the matter properly before the court, which he failed to do, and, therefore, the defendant was not deprived of an opportunity to seek compliance and he presented no evidence demonstrating that he was harmed by the court's ruling.

         3. This court declined to review the defendant's claims that the trial court improperly failed to conclude that the plaintiff intentionally spoliated evidence or engaged in discovery misconduct, the defendant having failed to raise either claim before the trial court or in his posttrial brief.

         4. The trial court properly concluded that the three year statute of limitations under § 52-577 was not tolled, pursuant to statute (§ 52-595), by the defendant's fraudulent concealment of his misconduct, and that the plaintiff, therefore, was precluded from recovering damages that accrued prior to October, 2009, which was three years before the commencement of this action; although the plaintiff claimed that it was unaware of the defendant's misappropriations until an investigation was done in 2012 and that, prior to 2012, the defendant had exclusive control over the plaintiff's finances and used that control to manipulate the accounting records to conceal his activities, the trial court found that there were other employees in the plaintiff's financial department who were inputting entries at the request of the defendant, that, since 2004, the employees were aware of the defendant's misappropriations, which were transparent, open and notorious, and, thus, that the knowledge of the bookkeepers and other financial employees of the defendant's activities could be imputed to the plaintiff, and the plaintiff cited no legal authority for the proposition that knowledge of a corporation can only be imputed through its board of directors.

         Procedural History

         Action for, inter alia, an injunction precluding the defendant from accessing the plaintiff's premises, and for other relief, brought to the Superior Court in the judicial district of Hartford and transferred to the judicial district of Litchfield, where the defendant filed a counterclaim; thereafter, the court, Pickard, J., sustained the plaintiff's objections to the defendant's request for production; subsequently, the court, J. Moore, J., denied the defendant's motion for order; thereafter, the court, J. Moore, J., denied in part the defendant's motions to compel and for sanctions; subsequently, the matter was tried to the court, J. Moore, J.; thereafter, the court, J. Moore, J., granted the plaintiff's motion for a temporary injunction; subsequently, the court, J. Moore, J., rendered judgment in part for the plaintiff on the complaint and for the plaintiff on the counterclaim; thereafter, the court, J. Moore, J., denied the plaintiff's motion for reconsideration and issued an amended memorandum of decision, and the defendant appealed and the plaintiff cross appealed to this court. Affirmed.

          OPINION

          ALVORD, J.

         The defendant, James Veneziano, appeals from 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. On appeal, the defendant claims that (1) the court's factual findings regarding statutory theft were clearly erroneous, (2) the court's discovery rulings on October 27, 2014, December 9, 2014, and January 16, 2015, ‘‘constitute reversible error, '' and (3) the court improperly failed to conclude that the plaintiff intentionally spoliated evidence or engaged in discovery misconduct. The plaintiff cross appeals from the judgment, claiming that the court improperly ruled in favor of the defendant on his statute of limitations special defense and barred its recovery for damages that occurred prior to October 16, 2009. Specifically, the plaintiff argues that the court improperly failed to conclude that the defendant's fraudulent concealment of his misconduct tolled the applicable statute of limitations. We affirm the judgment of the trial court.

         The following facts and procedural history are relevant to the defendant's appeal and the plaintiff's cross appeal. The plaintiff is a closely held stock corporation engaged in the mortgage origination business for residential properties. The defendant was a founding member, shareholder, officer and director of the plaintiff, which was incorporated on July 1, 1998. He has a bachelor's degree in business science and extensive experience in banking. Because of his financial services background, he directed, supervised, and controlled all of the financial aspects of the plaintiff from its inception until his retirement in mid to late 2010. The defendant had served as the plaintiff's vice president and treasurer, and he continued to assert his influence over financial matters until his removal from the board of directors in 2012. The plaintiff's cofounder, Laurel Caliendo, initially was the corporate secretary and subsequently became the plaintiff's president in 2000. She handled the processing, closing, funding, delivery, and servicing of the loans, as well as the selling of the loans in the secondary market.

         At least as early as 2004, the defendant and Caliendo withdrew moneys from the plaintiff's corporate funds. These purported advances and loans were taken without approval from the board of directors. Sometime in 2012, following the defendant's retirement and continued involvement in the plaintiff's financial matters, the plaintiff promoted Justin Girolimon to the position of chief financial officer. Girolimon had worked for the plaintiff sporadically while he was in high school and college. Beginning in 2009, until he was named the chief financial officer, Girolimon had reported to the defendant in the plaintiff's accounting and financial department. Girolimon had expressed concerns in 2010 about certain journal entries that the defendant had directed him to make. Sometime in 2012, after the defendant left the company, Girolimon performed a detailed investigation of the defendant's withdrawals from corporate funds. According to the plaintiff, it first became aware of the defendant's misappropriations at the time of Girolimon's 2012 investigation. The plaintiff filed the complaint in the present action on October 16, 2012.

         The plaintiff's two count complaint sought injunctive relief[1] and damages for conversion, statutory theft, and embezzlement. The defendant filed an answer with four special defenses and a ten count counterclaim. The gravamen of the defendant's defenses and claims was that the funds alleged to have been taken by him were funds owed to him for back pay and funds he had invested in the company. The defendant also claimed that the plaintiff's cause of action was barred by the applicable three year statute of limitations, General Statutes § 52-577.[2]

         During a twelve day trial, the court heard testimony from several witnesses and admitted 113 exhibits. The exhibits included, inter alia, a report by Richard Finkel, a forensic accountant; the plaintiff's yearly audited financial statements; copies of bank checks and withdrawal slips; and the defendant's personal financial statements. Following trial, the parties submitted extensive posttrial briefs summarizing their respective positions. On December 23, 2015, the court issued a memorandum of decision in which it rendered judgment for the plaintiff on the second count of its complaint and on the defendant's ten count counterclaim. The court amended its memorandum of decision on December 31, 2015. The plaintiff filed a motion for reconsideration on January 7, 2016, which it amended on January 12, 2016. On January 27, 2016, the court issued a second amended memorandum of decision, ninety-four pages in length, in which it vacated all prior memoranda of decision. The court also issued a separate memorandum of decision on January 27, 2016, addressed to the plaintiff's motion for reconsideration.

         In its comprehensive memorandum of decision, the court meticulously evaluated the evidence with respect to each of the parties' claims. With respect to the issues on appeal and cross appeal, the court made the following relevant findings and conclusions: (1) the defendant owed fiduciary duties to the plaintiff; (2) the defendant ‘‘offered virtually no resistance to the allegations'' of the plaintiff's complaint; (3) the defendant claimed that the plaintiff improperly withheld documents that would have proven the financial investments he had made in the company, but the court gave ‘‘no credit'' to that argument;[3] (4) Caliendo testified credibly that she had acknowledged her inappropriate withdrawal of corporate funds after Girolimon's investigation and that she had entered into an agreement with the board of directors for the repayment of those funds; (5) ‘‘the defendant's credibility was impeached multiple times throughout the trial and in regard to almost every issue in this case''; (6) ‘‘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''; (7) 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; (8) except for one deposit made in 1998, the defendant failed to prove his claimed investments in the company; (9) the plaintiff's claim that it was unaware of the defendant's misappropriations until Girolimon's investigation in 2012 was not credible; (10) Girolimon 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; (11) because the defendant lacked computer ability, the plaintiff's bookkeepers and other financial employees input the defendant's handwritten notes into the QuickBooks system, and they had actual knowledge of the defendant's inappropriate advances and withdrawals of company funds, beginning in 2004; (12) prior to 2004, when the plaintiff began to employ the QuickBooks system, the plaintiff's accounting records were handwritten; (13) the plaintiff submitted pre-2004 audited financial statements at trial that provided a baseline for its analysis, and none of those statements showed any amount due from the plaintiff to the defendant; (14) Girolimon's written investigative report, which was admitted as a full exhibit, most accurately detailed the defendant's misappropriations from 2004 through 2014; (15) the defendant provided no credible evidence to contradict the conclusions in the reports submitted by Finkel and Girolimon; (16) 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''; (17) the defendant did not produce any evidence that would establish fair dealing in those transactions; (18) the plaintiff sustained its burden of proving that the defendant committed conversion, statutory theft and embezzlement; (19) with respect to the defendant's special defense regarding the statute of limitations, § 52-577 was not tolled by the fraudulent concealment doctrine as claimed by the plaintiff; (20) the knowledge of the plaintiff's bookkeepers and other financial employees, with respect to the defendant's misappropriations, was imputed to the plaintiff, thereby limiting its recovery of damages to a three year period prior to the commencement of this action; (21) pursuant to General Statutes § 52-564, [4] the court trebled the damages that occurred subsequent to October 16, 2009; and (22) the defendant provided ‘‘no credible evidence'' to support the allegations in his ten count counterclaim. Accordingly, the court rendered judgment in favor of the plaintiff with respect to its claims of conversion, statutory theft and embezzlement, and against the defendant on his ten count counterclaim. The court awarded the plaintiff $2, 080, 185.09 in damages.

         In the court's memorandum of decision on the plaintiff's motion for reconsideration, the court responded to the plaintiff's request to reconsider its determination that the doctrine of fraudulent concealment did not operate to toll the statute of limitations. After citing the fraudulent concealment statute; General Statutes § 52-595;[5] and applicable case law, the court acknowledged that it had found numerous examples of the defendant ‘‘trying to camouflage, conceal, and even cover up inappropriate withdrawals of company funds.'' Nevertheless, the court concluded that the doctrine of fraudulent concealment did not apply under the circumstances of this case: ‘‘Under any burden of proof . . . and even if the burden were to be shifted to the defendant to disprove fraudulent concealment [as argued by the plaintiff], the court finds that the defendant openly and notoriously took company money, and therefore, could not have fraudulently concealed his wrongdoing.'' The court recounted the testimony of the plaintiff's two former bookkeepers, one employed from 2003 to 2005, and the other employed from August, 2007, through January, 2009, who testified as to the inappropriate entries made at the defendant's insistence and his request for company checks to purchase personal items. The court also noted that ‘‘the defendant relied upon others in the plaintiff's financial department to input the defendant's handwritten ledger ...


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