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Bongiorno v. Capone

Court of Appeals of Connecticut

October 2, 2018

FRANK BONGIORNO
v.
JOSEPH CAPONE

          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 ...


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