Argued
May 22, 2018
Procedural
History
Action
to recover damages for, inter alia, breach of contract, and
for other relief, brought to the Superior Court in the
judicial district of Stamford-Norwalk, where the plaintiff
withdrew certain counts of his revised complaint; thereafter,
the matter was referred to an attorney trial referee, who
filed a report recommending judgment for the plaintiff;
subsequently, the court, Hon. Kevin Tierney, judge
trial referee, denied the defendant's motion to dismiss,
sustained in part the defendant's objection to the
acceptance of the report, and remanded the matter to the
attorney trial referee; thereafter, the attorney trial
referee filed a revised report recommending judgment for the
plaintiff; subsequently, the court remanded the matter to the
attorney trial referee, who filed a second revised report
recommending judgment for the plaintiff; thereafter, the
court rendered judgment in accordance with the second revised
report, from which the defendant appealed to this court.
Reversed in part; judgment directed.
Richard J. Rapice, with whom, on the brief, were Peter V.
Lathouris and Michael P. Longo, Jr., for the appellant
(defendant).
Mark
F. Katz, for the appellee (plaintiff).
Sheldon, Elgo and Flynn, Js.
OPINION
SHELDON, J.
The
defendant, Joseph Capone, appeals from the judgment of the
trial court, rendered in accordance with the second revised
finding of facts and report of an attorney trial referee
(referee) to whom this case was referred for trial, awarding
the plaintiff, Frank Bongiorno: compensatory damages of $17,
000 on the plaintiff's claim of breach of contract, plus
statutory prejudgment interest on that sum, under General
Statutes § 37-3a, at the rate of 10 percent per annum;
and treble damages of $51, 000 on the plaintiff's claim
of statutory theft under General Statutes § 52-564, less
$17, 000 to avoid duplication of the damages awarded for
breach of contract.[1] The defendant claims that the court
improperly: (1) concluded that the plaintiff had standing in
his individual capacity to pursue claims of breach of
contract and statutory theft against the defendant based upon
his withdrawal of $17, 000 from the checking account of AAA
Advantage Carting & Demolition Service, LLC (company), a
limited liability company in which the defendant had a 50
percent membership interest that he had agreed to sell to the
plaintiff for $200, 000 on the basis of a binding term sheet
that did not authorize the challenged withdrawal; (2)
rendered judgment in favor of the plaintiff on the merits of
his breach of contract claim without making legal conclusions
as to the applicability of the waiver-of-suit provisions in
the contractual documents to that claim; and (3) rendered
judgment in favor of the plaintiff on the merits of his
statutory theft claim.[2]
We
agree with the defendant that the plaintiff lacked standing,
in his individual capacity, to bring an action against him in
this case to recover damages for losses he allegedly caused
to the company. On that basis, we conclude that both the
plaintiff's statutory theft claim and that portion of his
breach of contract claim, in which he sought compensatory
damages for diminishing the value of his own preexisting 50
percent interest in the company, rather than the other 50
percent interest in the company that he agreed to purchase
under the contract, must be dismissed for lack of subject
matter jurisdiction. To the extent, however, that the
plaintiff sought damages from the defendant for losses he
personally suffered due to the defendant's withdrawal of
$17, 000 from the company's account based on the
resulting diminution in value of the 50 percent interest in
the company that the defendant had agreed to sell him in
exchange for his payment of $200, 000, we find that the
plaintiff had standing to prosecute that claim. Even so,
although the defendant admittedly failed to raise before the
trial court, and thus to preserve for appellate review, his
only present challenge to the merits of that judgment, we
further conclude that the amount of that judgment on the
plaintiff's breach of contract claim must be reduced, in
light of our jurisdictional ruling, to reflect the true
extent of the proven diminution in value of the company
resulting from the defendant's $17, 000 withdrawal from
it that he had standing, in his individual capacity, to
recover as damages in this case. Because the proven
diminution of the company's aggregate value that resulted
from the defendant's withdrawal was $17, 000, the
resulting diminution in value of the 50 percent interest in
the company that he received from the defendant in
consideration for his payment was only one half of that
amount, or $8500. We, thus, reverse the court's judgment
for the plaintiff on his breach of contract claim, as to
damages only, and remand this case with direction to render
judgment for the plaintiff on that claim in the modified
amount of $8500, plus prejudgment statutory interest on that
sum, of 10 percent per annum, from the date on which the
defendant's transfer of interest to the plaintiff became
final until the date of judgment.
The
following facts and procedural history are relevant to our
review. The plaintiff and the defendant are brothers-in-law.
For many years, both owned 50 percent interests in the
company. In 2012, however, they decided to end their business
relationship. To that end, the plaintiff and the defendant
signed two documents by which they agreed that the defendant
would convey his 50 percent interest in the company to the
plaintiff for the sum of $200, 000. The parties first signed
a ‘‘binding term sheet'' on August 28,
2012, which provided that the plaintiff would purchase the
defendant's interest in the company for $200, 000, and
that their agreement to make purchase and sale became
enforceable on that date. Pursuant to the term sheet, the
parties agreed to execute a ‘‘settlement
agreement'' no later than September 7, 2012, at which
time the plaintiff would pay the defendant the agreed upon
purchase price, and the defendant would convey his 50 percent
interest in the company to the plaintiff. Although the term
sheet did not specifically define what was to be included in
the company's assets as of that date, August 28, 2012, it
did specify that the defendant's attorneys were to send
to the plaintiff's attorneys a list of all of the
defendant's personal property then located in the company
offices, that the defendant must remove such property by
September 1, 2012, and that the defendant must remove all
confidential or trade secret information of the company from
his personal files.[3] The term sheet did not include a reference
to any checking account belonging to the company.
On
September 7, 2012, the parties executed a settlement
agreement, which expressly incorporated the term sheet and
its provisions. The settlement agreement provided that, upon
its execution, the plaintiff would purchase from the
defendant, and the defendant would sell to the plaintiff, the
defendant's 50 percent interest in the company for the
purchase price of $200, 000, [4] and that upon the delivery of the
purchase price to the defendant, he would execute and deliver
to the plaintiff an assignment of his membership interest,
irrevocably transferring his 50 percent interest in the
company to the plaintiff. The settlement agreement further
provided that the defendant would deliver certain specific
property to the plaintiff at the time of transfer, or as soon
as possible thereafter.[5] The settlement agreement provided that,
immediately following the transfer of his membership
interest, the defendant would have no ownership or any other
interest in the company and no authority to act on the
company's behalf, and that he would be deemed to have
resigned from any and all positions within the company. The
settlement agreement also included provisions as to mutual
special releases and remedies. The parties released each
other from any and all actions against each other relating to
the company, except with respect to any breach of the
settlement agreement or the term sheet.[6] The parties
agreed that, should a party breach the settlement agreement
or the term sheet, the nonbreaching party would not be
prohibited from pursuing or being entitled to available
redress, including the recovery of damages.[7]
On
August 29, 2012, the day after the binding term sheet was
signed, the defendant withdrew $17, 000 from a checking
account owned by the company. On September 7, 2012, the
parties executed the settlement agreement, and the defendant
signed an assignment of membership interest, conveying all of
his rights, title and interest in his 50 percent membership
interest in the company to the plaintiff in exchange for the
purchase price of $200, 000.
The
plaintiff commenced this action against the defendant by
causing him to be served with a writ, summons and complaint
on September 28, 2012. On December 10, 2012, in response to
the defendant's request to revise, the plaintiff filed a
revised complaint, which thereby became the operative
complaint in this action. The operative complaint initially
included the following claims: (1) breach of contract; (2)
violation of the Connecticut Unfair Trade Practices Act
(CUTPA), General Statutes § 42-110a et seq.; (3)
conversion; (4) statutory theft in violation of §
52-564; and (5) breach of contract as to Diaz Boncap,
LLC.[8]
The plaintiff later withdrew his claim under CUTPA and his
breach of contract claim as to Diaz Boncap, LLC.
In his
first count, pleading breach of contract, the plaintiff
alleged that all assets of the company, except for items of
the defendant's personal property that were referenced in
the term sheet, were to have remained the assets and property
of the company when the defendant conveyed his 50 percent
interest in the company to the plaintiff pursuant to the
settlement agreement. He therefore claimed that the defendant
had breached the provisions of the term sheet by withdrawing
$17, 000 from the company checking account on August 29,
2012. The defendant subsequently filed an answer in which he
denied all material allegations of the operative complaint
and asserted seven special defenses, including that the
plaintiff had suffered no actual damages as a result of the
defendant's challenged $17, 000 withdrawal. The plaintiff
denied all of the defendant's special defenses.
The
matter was ultimately referred for trial to a referee, who
conducted the trial on June 24, 2015. The documentary
evidence presented at trial included: the binding term sheet,
the settlement agreement, a copy of the withdrawal slip for
the $17, 000, a list of personal items to be removed from the
company by the defendant, a Sprint phone bill, a Sprint
account history, and a spreadsheet of financial distributions
from the company to the plaintiff and the defendant. The
plaintiff and the defendant both testified at the trial.
The
plaintiff testified that he and the defendant had entered
into an agreement on August 28, 2012, under which the
defendant agreed to convey his 50 percent interest in the
company to the plaintiff. He further testified that the
document dated August 28, 2012, was a binding term sheet that
memorialized generally his agreement with the defendant, and
that another document, dated September 7, 2012, was a more
formalized agreement in which he and the defendant agreed on
the details of the transfer of the defendant's 50 percent
interest. The plaintiff and the defendant arrived at the
purchase price of $200, 000 by considering
‘‘[t]he amount in the [company's] checkbook .
. . the amount of receivables owed to the company, the amount
of payables paid out, and [the value] of the
equipment'' prior to the sale of the company. The
plaintiff testified that the term sheet provided that the
defendant would be permitted to remove all of his personal
property from the company's offices after he furnished a
list of such property, and that the defendant had in fact
come to the offices on August 28, 29 and 30, 2012, to clear
out his computer and personal items.
The
defendant withdrew $17, 000 from the company's account on
August 29, 2012. The plaintiff never authorized the
withdrawal, and the defendant never told the plaintiff that
he intended to make the withdrawal. The plaintiff confirmed
that the checking account from which the defendant made the
withdrawal belonged to the company and was not the
plaintiff's personal checking account. The plaintiff
further testified that, pursuant to the term sheet, he
believed that the defendant's ownership in the company
had ended on August 28, 2012. He contended, on that basis,
that the defendant's August 29, 2012 withdrawal
constituted theft.
According
to the plaintiff, he and the defendant had adopted a standard
business practice for making withdrawals from the company
checking account. In accordance with that practice, he and
the defendant would compensate themselves from the income of
the company, as deposited in the account, by taking weekly
disbursements of $1000, ‘‘if the checkbook . . .
allow[ed] it, '' but they would not take such
disbursements on the weeks when the company did not have
sufficient funds in the account with which to make them. They
did not pay themselves retroactively for any missed weeks.
The plaintiff and the defendant also made withdrawals from
the company account to support other property they jointly
owned; the plaintiff characterized such withdrawals as
capital contributions. Payments from the company account
always were made equally to the plaintiff and the defendant,
with the exception of reimbursements for minor business
purchases that they made. At the end of the year, based upon
their accountant's determination, the plaintiff and the
defendant would issue a check from the company account to the
defendant in an amount representing the taxes he was required
to pay on his income from the company that year, and a check
to the plaintiff in an identical amount.[9] The plaintiff
testified that these tax reimbursement withdrawals were not
made in years when their tax burdens were very low. The
plaintiff testified that the company's business financial
records contained no entry documenting the defendant's
$17, 000 withdrawal from the company checking
account.[10]
The
plaintiff claimed that the effective date of the transfer of
the defendant's interest in the company to him was August
28, 2012, pursuant to the binding term sheet. He confirmed,
however, that the actual closing date for the sale of the
defendant's 50 percent interest in the company to him was
September 7, 2012. Although before the binding term sheet was
signed, the defendant had taken care of the bills and
finances of the company, after it was signed, the
plaintiff's secretary took care of all deposits and the
plaintiff's son wrote all the checks. The plaintiff
reiterated that the defendant did not engage in the company
business activity after August 28, 2012.
In his
testimony, the defendant admitted that, although he had
signed the binding term sheet on August 28, 2012, he withdrew
$17, 000 from the company's checking account on August
29, 2012. The defendant confirmed that there was no mention
of the $17, 000, or of his right to receive that sum from the
company, in either the binding term sheet or the settlement
agreement. He testified that $9000 of the $17, 000 he
withdrew from the company account represented nine weeks of
$1000 disbursements that he had taken retroactively to make
up for weeks when no disbursements could be made because
there were insufficient funds in the account with which to
make them. He testified that the other $8000 of the $17, 000
withdrawal had been taken to cover his estimated tax burden
on income he had received from the company from January 1
through August 30, 2012. He claimed that it was a standard
business practice for him to withdraw money from the account
in this way for tax reimbursement purposes. According to the
defendant, the account contained approximately $60, 000when
he made the $17, 000 withdrawal from it, but he did not tell
the plaintiff about the withdrawal because he and the
plaintiff were not communicating at the time. He claimed that
he was still working for the company until sometime between
August 29 and September 7, 2012. He also claimed that he was
conducting normal business operations for the company,
including making out checks, until September 7, 2012, and
thus, that his duties at the company did not cease, and he
was not out of the company, until that date.
On
November 5, 2015, the referee filed his first report and a
motion for acceptance of the report and the entry of judgment
in accordance therewith. In the report, the referee first
found that, although the settlement agreement was executed
approximately one week after the parties signed the term
sheet, the provisions of the term sheet had become binding
and enforceable as of August 28, 2012. The term sheet
provided that the actual transfer of the defendant's
interest in the company to the plaintiff was to occur no
later than September 7, 2012. The referee further found that,
at the time the term sheet was signed, on August 28, 2012,
the price the parties had agreed to for the plaintiff's
purchase of the defendant's 50 percent interest in the
company had been based in material part upon a valuation of
the company's assets on the date the term sheet became
enforceable, which included all the cash in the company
account from which the defendant made the $17, 000 withdrawal
on August 29, 2012. The referee found, on that basis, that
the defendant had breached his contract with the plaintiff by
taking money from the company account that he had agreed
would remain the property of the company at the time his 50
percent interest in the company was transferred to the
plaintiff. Reasoning further that, upon the completion of the
sale pursuant to the parties' contract, the plaintiff
would become the sole owner of the company and, thus, of all
of its assets, the referee awarded the plaintiff the full
value of the defendant's $17, 000 withdrawal to
compensate him for diminution in the value of the
consideration he received from the defendant for his payment
of $200, 000, plus prejudgment statutory interest on that
amount pursuant to § 37-3a, from the date of the
withdrawal until the date of judgment at the rate of 10
percent per annum. Although acknowledging implicitly that the
actual transfer of the defendant's interest in the
company did not take place until September 7, 2012, when the
settlement agreement was signed and the plaintiff paid the
defendant the sum of $200, 000, the referee found that the
defendant's ownership rights in the company ceased to
exist on August 28, 2012. Therefore, further finding that the
defendant's actions in withdrawing the $17, 000 had been
taken with the intent to deprive the plaintiff, as the sole
member of the company upon completion of the parties'
contract, of the money so withdrawn, he found that the
plaintiff met his burden of proof as to his claims of
conversion and statutory theft, and he awarded the plaintiff
treble damages of $51, 000 for statutory theft, pursuant to
§ 52-564.[11]
The
defendant filed an objection to the referee's report and
a memorandum in opposition to the motion to accept that
report on November 23, 2015, in which he argued, inter alia,
that the referee had failed to file the report in compliance
with Practice Book § 19-8 because the report was
formatted as a memorandum of decision and did not set forth
in separately and consecutively numbered paragraphs the
ultimate facts found and the conclusions drawn therefrom; the
conclusions of facts in the first report were not properly
reached on the basis of the subordinate facts found; and the
referee reached incorrect legal conclusions, including that
the plaintiff had a sufficient personal property interest in
the $17, 000 withdrawn by the defendant to support his
individual claims for damages. The defendant also filed a
motion to dismiss the operative complaint for lack of subject
matter jurisdiction, claiming that the $17, 000 the defendant
had withdrawn ...