Opinion
No. CV90 0033304S
June 6, 2003
Memorandum
Presently before the court is the amended motion for order in aid of turnover filed by Value Recovery Group, Inc. (Value Recovery) on October 31, 2002. and an objection thereto filed by defendant Stephen Burke on December 19, 2002. Value Recovery seeks a charging order, nunc pro tunc, against Burke's interest in four separate business entities: Burke Properties. LLC (Burke Properties); BD Properties, LLC (BD Properties); 95 Cross Highway. LLC (Cross Highway); and Burke Construction, Inc. (Burke Construction).
On September 10, 1990. Merchants Bank Trust Company (Merchants Bank) filed a three-count complaint seeking to foreclose a mortgage securing a note on property known as 31 Chestnut Tree Hill Extension. Oxford, Connecticut. Among the named defendants were Chestnut Tree Hill Partnership (Chestnut), the maker of the note, and Burke, a guarantor.
The complaint also named as defendants: Eagle Development Group, Inc.; Perico, Inc.; Lawrence Wllcrout; Michael Sonick; and Edward Fantegrossi.
Before judgment entered, however, Merchants Bank was declared insolvent and the Federal Deposit Insurance Company (FDIC) was named as receiver. Thus, on October 15, 1991, this court substituted the FDIC as party plaintiff.
On February 22, 1993, this matter proceeded to a judgment of strict foreclosure in favor of the FDIC. When the parties failed to exercise their right of redemption, the FDIC took possession of the property and moved for a deficiency judgment. On August 1, 1994, this court granted the FDIC's motion and entered a deficiency judgment against Chestnut in the amount of $515,337.01. The court also entered judgment against Burke in the amount of $257,668.50 as he had guaranteed one half of the unpaid balance on the note.
The court also entered judgment against Wilcrout and Fantegrossi as they, along with Burke. were jointly and severally liable for one half of the unpaid balance on the note.
On April 9, 2002, Value Recovery Group, Inc. (Value Recovery) filed an appearance in this matter. Later, on September 19, 2002, Value Recovery filed a motion for order in aid of turnover pursuant to § 34-171. The plaintiff alleged that it was the current holder of the deficiency judgment against Burke and, as such, was entitled to a charging order CT Page 7388-o against Burke's interests in three limited liability companies: Burke Properties; BD Properties; and Cross Highway.
Value Recovery does not seek payment from Wilcrout or Fantegrossi; Value Recovery has settled its claim with Wilcrout and Fantegrossi has received a discharge in bankruptcy.
On October 31, 2002, Value Recovery filed an amended motion for order in aid of turnover. Value Recovery alleges that while the original motion for order was pending. Burke sold his interest in both Cross Highway and BD Properties. Based on these allegations. Value Recovery seeks a charging order nunc pro tunc against the three limited liability companies owned by Burke. Additionally. Value Recovery seeks a charging order against Burke's interest in Burke Construction.
On December 19, 2002, Burke filed an objection to Value Recovery's motion. Burke objects on the ground that: Value Recovery was never made a party to the action as it failed to file a motion to be substituted as party plaintiff; Value Recovery has not submitted sufficient evidence to demonstrate that it is the current holder of the deficiency judgment; § 34-171 is inapplicable to Burke's interest in Burke Construction, Inc.; and a nunc pro tunc order is inappropriate under these circumstances.
Burke also objects on the ground that the motion, as it relates to his interest in BD and Cross Highway, is moot since Burke no longer owns an interest in those entities, and that Value Recovery fails to state the amount of the allegedly unsatisfied judgment. Despite his objections. Burke fails to brief either of these issues. Thus, the court will treat these issues as abandoned.
On November 7 and December 19, 2002, the court held a hearing to allow both parties the opportunity to argue their respective positions and to present evidence on the issue of whether Value Recovery is the current holder of the deficiency judgment. Both parties have since filed a memorandum of law in support of their respective positions.
Value Recovery seeks a charging order under § 34-171. That section provides in relevant part: "On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the member's limited liability company interest with payment of the unsatisfied amount of the judgment with interest . . . To the extent so charged. the judgment creditor has only the rights of an assignee of the member's limited liability company interest." General Statutes § 34-171. "The phrase, limited liability company membership interest, is defined by General Statutes § 34-101 (10) to mean a member's share of the profits and losses of the limited liability company and a member's right to receive distributions of the limited liability company's assets, unless otherwise provided in the operating agreement." (Internal quotation marks omitted.) PB Real Estate, Inc. v. DEM II Properties, 50 Conn. App. 741, 745-46. 719 A.2d 73 (1998). Thus, the court must determine whether, under the circumstances, Value Recovery is entitled to a charging order nunc pro tunc against Burke's interest in the aforementioned entities.
I CT Page 7388-p
The first issue raised by the parties is whether Value Recovery has standing to seek a charging order under § 34-171. Burke argues that Value Recovery lacks standing because it was not substituted as a party plaintiff before bringing the present motion. Burke further argues that Value Recovery lacks standing because it has failed to present sufficient evidence demonstrating that it is the current holder of the deficiency judgment.
Value Recovery, however, claims that it does indeed have standing to seek a charging order under § 34-171. It argues that it was not required to be substituted as a party plaintiff before bringing the present motion. Additionally, Value Recovery contends that it has presented sufficient evidence to demonstrate that it is the current holder of the judgment.
Standing is the legal right to set judicial machinery in motion. One cannot rightfully invoke the jurisdiction of the court unless he has, in an individual or representative capacity, some real interest in the cause of action, or a legal or equitable right, title or interest in the subject matter of the controversy . . . Standing . . . is not a technical rule intended to keep aggrieved parties out of court; nor is it a test of substantive rights. Rather it is a practical concept designed to ensure that courts and parties are not vexed by suits brought to vindicate nonjusticable interests and that judicial decisions which may affect the rights of others are forged in hot controversy, with each view fairly and vigorously represented.
(Citations omitted; internal quotation marks omitted.) Webster Bank v. Zak, 259 Conn. 766, 774, 792 A.2d 66 (2002).
Our courts have consistently held that the party seeking recovery bears the burden of establishing that it has standing to do so. Connecticut Associated Builders Contractors v. Hartford, 251 Conn. 169, 181, 740 A.2d 813 (1999); Fink v. Golenbock, 238 Conn. 183, 199, 680 A.2d 1243 (1996).
A
The court will first consider whether Value Recovery lacks standing as a result of its failure to be substituted as a party plaintiff. Burke CT Page 7388-q argues that Value Recovery is not properly before the court because it was not substituted as a party plaintiff before filing the present motion.
Value Recovery, however, counters that it is properly before the court because it has presented evidence demonstrating that it is the current owner of the deficiency judgment. Alternatively. Value Recovery argues that it made an oral motion to be substituted as a party plaintiff at the hearing on November 7, 2002.
Our Appellate Court addressed a similar issue in Joblin v. LaBow, 33 Conn. App. 365, 635 A.2d 874 (1993). cert. denied, 229 Conn. 912, 642 A.2d 1207 (1994). In that case, the plaintiff, an attorney, obtained a judgment against the defendant for unpaid legal fees. Id., 366. The plaintiff then assigned that judgment to a third party. who in turn obtained a property execution against alimony owed to the defendant by her former husband. Id. Later, the assignee filed a motion to be substituted as a party plaintiff that was subsequently granted by the trial court. Id.
On appeal. the defendant claimed that the trial court improperly granted the assignee's motion to substitute. Id., 367. Based on these facts, the Appellate Court concluded that the trial court erred in substituting the assignee as party plaintiff before opening the judgment. Id. Nevertheless, the court went on to hold: "This conclusion, however, does not alter the result . . . [The assignee] did not have to substitute himself for . . . [the plaintiff] in order to collect on the judgment. Once assigned. the judgment could be enforced by the new judgment creditor . . . Therefore, even though the substitution was improper the result would be the same." Id., 368. Based on the holding in Joblin, the court finds that Value Recovery is not required to be substituted as a party plaintiff to enforce the judgment.
B
The second issue with respect to standing is whether Value Recovery has presented sufficient evidence to demonstrate that it is the current holder of the deficiency judgment. In its motion, Value Recovery alleges that the deficiency judgment was assigned from the FDIC to JDC Finance Company III, LP (JDC III). and then from JDC III to Value Recovery.
Burke argues that Value Recovery has not presented sufficient evidence to demonstrate that the judgment was assigned in the manner alleged in the motion. Value Recovery, on the other hand, argues that it has presented sufficient evidence. CT Page 7388-r
The court, therefore, turns to the evidence presented. With respect to the assignment from the FDIC to JDC III, Value Recovery offered two documents — an assignment agreement and a contribution agreement. The assignment agreement, dated July 8, 1996, provides: "Pursuant to that certain Contribution Agreement . . . dated as of December 13, 1993. made and entered into by and between JDC Finance Company III, L.P. . . . (the `Purchaser'), and the FEDERAL DEPOSIT INSURANCE CORPORATION (the "FDIC") . . . in its corporate capacity (`Seller'), the Seller has agreed to contribute to the Purchaser, and the Purchaser has agreed to accept from the Seller's right, title and interest, if any, in and to the `JDCs' and `Small-Balance Assets' (as such terms are defined in the Contribution Agreement) listed on Exhibit A attached hereto (the `Assets')." Attached to the assignment is an exhibit listing the assets being assigned to JDC III; the list includes a judgment against Chestnut Tree Hill Associates.
Value Recovery also presented a contribution agreement. That agreement, dated December 13, 1993, was entered into by JDC III and a government entity known as the Resolution Trust Corporation (RTC). Section one of that agreement provides in relevant part: "On the date hereof . . . subject to the terms and provisions of this Agreement, the Seller [RTC] shall contribute to the Purchaser [JDC III]. and the Purchaser shall accept from the Seller, all of the Seller's right, title and interest in and to the Assets. In consideration of such agreement to contribute by the Seller, the Seller shall, concurrently herewith, receive a limited partner interest in the Purchaser in accordance with the terms and provisions of the Partnership Agreement." Section two of that agreement states that after the closing date, December 13, 1993, "[t]he Seller may, at its sole option. contribute to the Purchaser, and the Purchaser shall accept from the Seller, such additional JDCs and Small-Balance Assets as the Seller desires to contribute to the Purchaser . . ." Thus, the contribution agreement granted the RTC a limited partnership interest in JDC III in exchange for certain assets held by the RTC. Additionally, the agreement gave the RTC the right to contribute additional assets to JDC III in the future.
Congress created the RTC as part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 . . . As conservator of failed S Ls, the RTC is granted the same powers and rights to carry out its duties that Congress granted the FDIC under 12 U.S.C. § 1821-23." (Internal quotation marks omitted; citations omitted.) In Re McVane, 44 F.3d 1127, 1140 n. 6 (2nd Cir. 1995).
Burke argues that these documents are insufficient to demonstrate that the deficiency judgment was assigned from the FDIC to JDC 111. Specifically, Burke contends that Value Recovery has not presented the complete assignment agreement between the FDIC and JDC III as it has not offered the contribution agreement between the FDIC and JDC III referenced in the assignment. Value Recovery, however, contends that it has indeed presented the contribution agreement referenced in the assignment. CT Page 7388-s
Burke also argues that both the assignment and the contribution agreement are inadmissible. At the hearing. however, the court determined CT Page 7388-x that the documents are admissible. The court, therefore, will not reconsider the issue of admissibility. Nevertheless, the court will address Burke's arguments with respect to the weight that the court should grant to the evidence.
The court agrees with Value Recovery. The contribution agreement contains the same date as that referenced in the assignment from the FDIC to JDC III. Furthermore, although Value Recovery presented a contribution agreement between the RTC and JDC III, "[t]he RTC ceased operations on December 31, 1995 and was succeeded by the FDIC." Carlyle Towers Condominium Association v. F.D.I.C., 170 F.3d 301, 307 n. 3 (2nd Cir. 1999); see also F.D.I.C. v. Barton, 96 F.3d 128, 131 n. 1 (5th Cir. 1996), citing 12 U.S.C. § 1441a (m) (1). Thus, when the assignment was made, the RTC no longer existed; the FDIC had succeeded the RTC. The court, therefore, finds that Value Recovery presented the contribution agreement referenced in the assignment, and thus, presented the complete assignment agreement.
Burke argues further, however, that Value Recovery has not demonstrated how the RTC gained an interest in the deficiency judgment. Furthermore, Burke argues that the contribution agreement is incomplete as it does not include an exhibit to show which assets were actually being contributed to JDC III on December 13, 1993. These arguments, however, fail.
Value Recovery does not allege that the RTC was the holder of the judgment, nor does Value Recovery allege that the RTC ever contributed the deficiency judgment to JDC III. Value Recovery simply alleges that the judgment was assigned from the FDIC to JDC III, and then from JDC III to Value Recovery.
The court notes that the RTC could not have transferred the deficiency judgment to JDC III on December 13, 1993, as the judgment was not entered until August 1, 1994.
Regarding the evidence pertaining to the transfer of the judgment from JDC III to Value Recovery. Value Recovery presented two documents — an asset purchase and sale agreement, and an assignment and bill of sale. Section 2.1 of the sale agreement, dated September 8, 1998, provides in relevant part: "Subject to the terms and provisions set forth in this Agreement, on the Closing Date, Purchaser [Value Recoveryl shall purchase the Assets from Seller [JDC III] and Seller shall sell, transfer, assign and convey all its right, title, and interest in and to such Assets, together with all Collateral Documents relating thereto, to the extent assignable, to Purchaser." Attached to the sale agreement is an exhibit listing the assets to be transferred; the list includes an asset entitled "Chestnut Tree Hill Associates."
The assignment, also dated September 8, 1998, provides in part: "Pursuant to that certain Asset Purchase and Sale Agreement, dated as of September 8, 1998, made and entered into by and between JDC FINANCE COMPANY III, L.P. . . . and VALUE RECOVERY GROUP, INC . . . which provides for the transfer to VRG, all of JDC's rights, title and interest, if any, in and to the "assets listed on Exhibit A attached hereto" . . . and VRG hereby agrees to accept the Assets from JDC." Attached to the CT Page 7388-t assignment is an exhibit listing an asset entitled "Chestnut Tree Hill Associates."
Burke argues that the documents are insufficient to demonstrate that JDC III transferred the deficiency judgment to Value Recovery. Specifically, Burke argues that the attached exhibits list the location of the originating bank as "Kansas City. MO," rather than Norwalk, Connecticut, the location of the bank in this matter. Burke further argues that the exhibits list the failure date of the bank as "November 20, 1992 — almost a full year after the failure date of the bank in this matter.
Burke also argues that the sale agreement and the assignment are inadmissible. At the hearing, however, the court held that the documents were admissible. The court. therefore, will not reconsider Burke's arguments as they relate to admissibility. Nevertheless, the court will address Burke's arguments with respect to the weight that the court should grant to the relevant evidence.
The court notes that Burke introduced certified copies of the orders pertaining to the failure of the bank in Missouri and the FDIC's subsequent appointment.
Value Recovery, however, replies that the documents, when considered together with other evidence offered at the hearing, are sufficient to demonstrate that the deficiency judgment against Burke was transferred to Value Recovery. This court agrees.
At first glance, the attached exhibits appear to support Burke's argument; the exhibits list the failure date of the bank as November 20, 1992 and the location of the bank as Kansas City, Missouri. Furthermore, the exhibits are dated October 28, 1998, rather than September 8, 1998.
Nevertheless, additional evidence offered by Value Recovery leads this court to conclude that the deficiency judgment against Burke was indeed transferred from JDC III to Value Recovery. In a letter introduced by Value Recovery and dated August 29, 1997, JDC III informed Burke that it was the current holder of the deficiency judgment against him. The letter referred to the judgment as "JDC #19-34826." This is the same number used in the exhibits to refer to the asset entitled "Chestnut Tree Hill Associates" that was transferred to Value Recovery. Thus, the letter demonstrates that JDC III did own the deficiency judgment against Burke and that it assigned that judgment to Value Recovery.
Value Recovery also offered a FDIC credit notation system report regarding the deficiency judgment against Burke. The report, dated May 15, 1996, states that the amount due on the deficiency judgment is $471,785.25. This is the same amount listed as due on the judgment in the exhibits attached to the sales agreement and assignment from JDC III to Value Recovery. Furthermore, the report lists the name of the judgment as Chestnut Tree Hill Associates, which is the same name given to the judgment listed in the exhibits. The court, therefore, finds that the letter and report, when considered together with the exhibits, demonstrate that JDC III did indeed transfer the deficiency judgment against Burke to Value Recovery. CT Page 7388-u
Burke further argues, however, that although the exhibits may demonstrate a transfer, they are not the exhibits that were originally attached to the sale agreement and assignment. Specifically, Burke argues that the date on both exhibits is October 28, 1998, rather than September 8, 1998, the date listed on the sale agreement and the assignment This argument, however, fails.
At the hearing, Barry Fromm, the president of Value Recovery, testified that the exhibits were the exhibits originally attached to the sale agreement and assignment. This court finds his testimony credible. Consequently, the court finds that Value Recovery has standing to bring the present motion as it was not required to be substituted as a party plaintiff and has provided sufficient evidence to demonstrate that it is the current holder of the deficiency judgment against Burke.
II
Having determined that Value Recovery has standing, the court must now determine whether § 34-171 applies to Burke's interest in Burke Construction, Inc. Burke argues that § 34-171 applies only to limited liability companies and not to corporations.
A resolution of this issue requires an interpretation of § 34-171. "The process of statutory interpretation involves a reasoned search for the intention of the legislature . . . In other words, we seek to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of [the] case, including the question of whether the language actually does apply. In seeking to determine that meaning, we look to the words of the statute itself, to the legislative history and circumstances surrounding its enactment, to the legislative policy it was designed to implement, and to its relationship to existing legislation and common law principles governing the same general subject matter." (Citation omitted; internal quotation marks omitted.) State v. Courchesne, 262 Conn. 537, 577, 815 A.2d 1188 (2003).
Although the history of § 34-171 provides little insight, the court finds guidance in the statute's language and its relationship to other legislation. The language of § 34-171 clearly allows "any judgment creditor of a member . . . [to] charge the member's limited liability company interest with payment of the unsatisfied amount of the judgment with interest." Thus, the language of the statute does not provide for a charging order against an interest in a business corporation such as Burke Construction.
The statute's relationship with other legislation also leads this court CT Page 7388-v to conclude that § 34-171 is not applicable to Burke's interest in Burke Construction. Section 34-171 was passed in 1993 as part of the Connecticut Limited Liability Company Act, §§ 34-100 through 34-242, inclusive, which created Connecticut's form of the limited liability company. Burke Construction Company. however, is a business corporation. The laws governing such corporations are set out in a separate act — the Connecticut Business Corporations Act, §§ 33-600 through 33-998, inclusive. Thus, the court finds that § 34-171 does not permit Value Recovery to seek a charging order against Burke's interest in Burke Construction.
III
Finally, the court must determine whether Value Recovery is entitled to an order nunc pro tunc under these circumstances. Value Recovery argues that an order nunc pro tunc is appropriate under these circumstances. Specifically. Value Recovery argues that because the court did not immediately schedule a hearing on the original motion. Burke was able to sell his interest in Cross Highway and BD Properties.
Burke. however, responds that an order nunc pro tunc is inappropriate under these circumstances. He argues that the filing of a motion under § 34-171 did not preclude him from selling his interest in the limited liability companies. Burke further contends that by issuing such an order, the court would effectively be giving Value Recovery priority over Burk's other creditors.
At the hearing, Burke testified that he had used the proceeds of the sale to pay other creditors.
"The underlying principle on which judgments nunc pro tunc are sustained is that such action is necessary in furtherance of justice and in order to save a party from unjust prejudice caused by the acts of the court or the course of judicial procedure. In other words, the practice is intended merely to make sure that one shall not suffer for an event which he could not avoid." (Internal quotation marks omitted.) Gary Excavating Co. v. North Haven, 163 Conn. 428, 430, 311 A.2d 90 (1972). Furthermore, nunc pro tunc orders are generally issued to correct pre-existing court orders. See, e.g., Gary Excavating Co. v. North Haven, supra, 163 Conn. 428; Ireland v. Connecticut Co., 111 Conn. 521, 150 A. 520 (1930); State v. Ortiz, Superior Court, judicial district of New Haven, Docket No. CR 6-351435 (March 19, 1992, Levin, J.); Jennings v. Jennings, 11 Conn. Sup. 391 (1942).
In some jurisdictions. "[a] nunc pro tunc order generally is used to correct a ministerial or clerical error or oversight, and cannot be used to correct a judicial error or omission or to change or revise an order or judgment; that is, an order nunc pro tunc cannot do more than supply a record of something that actually was done at the time to which it is retroactive." 56 Am.Jur.2d, Motions, Rules, and Orders § 58 (2000).
The court finds that an order nunc pro tunc is inappropriate under these circumstances. Value Recovery has failed to illustrate that it suffered unjust prejudice that was caused by an act of the court or CT Page 7388-w judicial procedure. If Value Recovery has suffered any unjust prejudice at all, that prejudice was caused by Burke as he is the person that sold his interest in the two limited liability companies. Furthermore, Value Recovery does not seek to correct a prior court order; instead, it simply seeks to make the court's order retroactive. Under these circumstances, the court declines to issue a nunc pro tunc order.
For the foregoing reasons, Value Recovery's motion for order in aid of turnover is denied as to Burke's interest in Cross Highway. BD Properties and Burke Construction. The motion is granted, however, as to Burke's limited liability interest in Burke Properties. Accordingly. the interest of the defendant in Burke Properties is hereby charged with the payment of the deficiency judgment against Burke. Burke Properties shall promptly remit to Value Recovery all the distributions of cash, profits and assets of the limited liability company to which Burke would otherwise be entitled until said judgment is satisfied.