Opinion
CV126034499S
02-10-2016
Nxegen, LLC v. John Carbone
UNPUBLISHED OPINION
MEMORANDUM OF DECISION RE MOTION FOR AWARD OF INTEREST PURSUANT TO CONNECTICUT GENERAL STATUTES § 37-3A (#124)
Jane S. Scholl, J.
Introduction
This is an action to confirm an arbitration award. The Appellate Court set forth the history of this matter. " The following facts were found by the arbitrator. The defendant is the former chief operating officer of the plaintiff. In 2001, the officers of the plaintiff, including the defendant, executed employment contracts and agreements with respect to intellectual property rights. The defendant's employment contract was for a term of one year and was automatically renewed for an additional year if neither party gave sixty days notice of intent to terminate the contract. The defendant held the titles of secretary and vice president of operations; he assumed the role of chief operating officer. In February 2005, two businesses owned by Lynn Sutcliffe agreed to work with the plaintiff for the mutual benefit of all three companies. Sutcliffe became chief executive officer of each of the three companies. The defendant did not get along with Sutcliffe, to whom he technically reported, and he was unhappy with the direction in which the plaintiff's business was going. In 2006, the defendant renegotiated his employment contract. In exchange for an increase in his compensation, he agreed to stay with the plaintiff until May 24, 2008. Meanwhile, in 2006, the plaintiff was awarded a $737,203 contract by the Board of Education of the City of Bridgeport (board) for phase I of a project encompassing energy efficiency upgrades in some of the board's facilities. After completion of phase I, the board asked the plaintiff to prepare a proposal for phase II of the project, which contemplated energy efficiency modifications for thirteen additional school facilities. The work required by phase II involved the use of more complex systems than those with which the plaintiff had previously worked. The defendant was in charge of the plaintiff's proposal for phase II, and he presented it to the board in July 2007. The board approved the proposal at a meeting on August 27, 2007, and authorized the superintendent of schools to enter into a contract with the plaintiff for $2,304,000.Two days later, at the plaintiff's regular sales meeting, the defendant failed to disclose fully the circumstances of the $2,304,000 project and, instead, reported that the phase II project had been held up because of personnel turnover. On September 6, 2007, the defendant announced his intention to resign from the plaintiff, and he submitted his resignation on September 10, 2007, effective at the end of the month. The arbitrator found that on September 14, 2007, the defendant provided the board's purchasing director 'with his business card on which he deleted his . . . office phone number [at the plaintiff] and replaced it with his personal cell phone number.' The defendant then met with the president of the plaintiff on September 27, 2007, to discuss the projects he had been working on. The defendant did not disclose to any of his supervisors at the plaintiff the size, nature, or dollar value of the phase II project proposal, or the fact that it had been approved. The defendant had expressed a willingness to consult for the plaintiff after he resigned, but the parties were unable to come to an agreement on a consulting arrangement, and those discussions concluded in November 2007. On December 12, 2007, the defendant formed his own company, Power Point Energy, LLC, which he owned solely. The defendant worked to secure the phase II contract for his new company. He secured utility incentives for the project in January 2008. On April 9, 2008, the superintendent of schools entered into a contract to complete phase II with the defendant's company rather than with the plaintiff. The defendant's company completed the project and was paid for it. After the defendant resigned, the plaintiff discovered various breaches of his fiduciary duties; one such breach occurred in the context of his involvement with the phase II contract. The plaintiff sought arbitration, per the defendant's employment contract, on November 20, 2009. Following the arbitration hearing, the parties submitted memoranda and reply memoranda, and the arbitrator issued an interim award on April 6, 2012. The arbitrator found that the defendant had willfully and maliciously misappropriated the plaintiff's trade secrets in violation of the Connecticut Uniform Trade Secrets Act (CUTSA), General Statutes § 35-50 et seq., by using work product developed while he was employed by the plaintiff to obtain the contract for his new company and that the defendant had breached his employment contract by resigning before his two-year term was complete. The arbitrator also held that the defendant's actions clearly violated the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq., but dismissed the claim as duplicative because no separate damages were recoverable. Finally, the arbitrator found that the defendant had breached his fiduciary duty to the plaintiff by not disclosing the approval of the phase II contract to his superiors and for various unauthorized uses of funds while he was an employee. The arbitrator awarded the plaintiff compensatory damages and held a second hearing to determine the amount of punitive damages, interest, costs, and attorneys fees. The arbitrator subsequently issued the final award. The arbitrator declined to reconsider his finding that the defendant's misappropriation of trade secrets was malicious, and awarded punitive damages in the amount of $340,156. The arbitrator awarded a total of $1,031,356 in damages for the defendant's violation of CUTSA." (Footnotes omitted.) Nxegen, LLC v. Carbone, 155 Conn.App. 264, 265-9, 109 A.3d 534 (2015). The award was confirmed by this court and the Appellate Court affirmed that decision. The defendant's petition for certification to appeal from the Appellate Court's decision was denied by the Supreme Court, Nxegen, LLC v. Carbone, 316 Conn. 906, 111 A.3d 882 (2015).
Before the court now is the plaintiff's request for an award of pre and post-judgment interest pursuant to General Statutes § 37-3a at the rate of 10% per year.
Discussion
Pre-Judgment Interest
The plaintiff seeks pre-judgment interest from the date of the arbitration award. The defendant argues that the court does not have jurisdiction to award pre-judgment interest once judgment has entered. The court agrees. In Hartford Fire Ins. Co. v. Marsala, Superior Court, Judicial District of Ansonia-Milford, at Milford, Docket No. CV92 003 95 97 (McGrath, J., June 17, 1993) , the court considered a request for interest after the decision confirming the arbitrator's award had been made. The court stated: " In the present case, the court confirmed the arbitrators' award on January 25, 1993. 'The judgment or decree confirming, modifying or correcting an award shall be docketed as if it were rendered in a civil action. The judgment or decree so entered shall have the same force and effect in all respects as, and be subject to all the provisions of law relating to, a judgment or decree in a civil action in the court in which it is entered.' General Statutes, Sec. 52-421. As a result, it is noted that the judgment confirming the arbitrators' award is a final judgment; therefore, the court cannot retain jurisdiction to later grant a motion to award statutory interest."
Implicitly recognizing the issue of the court's lack of jurisdiction to award pre-judgment interest, the plaintiff has moved to open the judgment so that the court can consider its request. But, as the defendant correctly argues, the plaintiff has set forth no reason why the judgment should be opened as required. Practice Book § 17-4 states, in part, : " Unless otherwise provided by law and except in such cases in which the court has continuing jurisdiction, any civil judgment or decree rendered in the superior court may not be opened or set aside unless a motion to open or set aside is filed within four months succeeding the date on which notice was sent." " The principles that govern motions to open or set aside a civil judgment are well established. Within four months of the date of the original judgment, Practice Book . . . § 17-4 vests discretion in the trial court to determine whether there is a good and compelling reason for its modification or vacation." (Citation omitted; internal quotation marks omitted.) Dimmock v. Allstate Ins. Co., 84 Conn.App. 236, 241, 853 A.2d 543, cert. denied, 271 Conn. 923, 859 A.2d 577 (2004). The plaintiff has not offered a good and compelling reason why this court should open the judgment to award pre-judgment interest.
In addition, General Statutes § 37-3a provides: " Except as provided in sections 37-3b, 37-3c and 52-192a, interest at the rate of ten per cent a year, and no more, may be recovered and allowed in civil actions or arbitration proceedings under chapter 909, including actions to recover money loaned at a greater rate, as damages for the detention of money after it becomes payable." Appellate decisions such as Marulli v. Wood Frame Constr. Co., LLC, 154 Conn.App. 196, 213-5, 107 A.3d 442 (2014), cert. denied, 315 Conn. 928, 109 A.3d 923 (2015), and Gary Excavating Co. v. Town of N. Haven, 163 Conn. 428, 311 A.2d 90 (1972), indicate that the provisions of General Statutes § 37-3a do not come into play until the arbitration award is confirmed. The court in Marulli found that the trial court improperly awarded postjudgment interest from the time of the arbitrator's award. The court stated: " Under § 37-3a(a), an award of postjudgment interest may be awarded 'for the detention of money after it becomes payable . . .' (Emphasis added.) . . . The court determined that the $200,000 became payable to the defendant on December 13, 2007. There is no support for the proposition that the arbitrator's decision had the status of an enforceable judgment immediately after it was made, for the propriety of the arbitrator's award timely was disputed by the parties before the trial court, which ultimately entered a binding judgment that vacated the award. Postjudgment interest shall be calculated from the date of the final judgment to the date of payment . . . Moreover, as a result of the defendant's appeal, this court did not modify the judgment of the trial court, which vacated the award. Instead, this court, inter alia, ordered the trial court to enter a new judgment confirming the arbitrator's award . . . As we seek to determine when the money at issue in the present case became payable, it is appropriate that we look to Gary, a case in which a reviewing court mandated a new judgment. Gary, like the present case, presented a circumstance in which a reviewing court ordered the trial court to render judgment confirming an arbitrator's award . . . As we apply Gary to the present case, we observe that this court, in Marulli v. Wood Frame Construction Co., LLC, supra, 124 Conn.App. 505, 5 A.3d 957, mandated a new judgment confirming the arbitrator's award in an opinion that was released on October 19, 2010. In accordance with Gary, this is the first date on which, pursuant to § 37-3a, the money at issue in the arbitrator's decision became payable. Accordingly, the court properly could have awarded interest from October 19, 2010, until the date that payment is made." (Citation omitted; internal quotation marks omitted.)
The court did not discuss the Supreme Court's decision in Middlesex Mut. Assur. Co. v. Walsh, 218 Conn. 681, 701-02, 590 A.2d 957 (1991) where the Court stated: " Gary was decided before the amendment of General Statutes § 37-3a by Public Acts 1979, No. 79-364 which specifically allowed recovery of interest on an arbitration award. [Walsh] claims that the broad language of § 37-3a, unlike the statutory provisions involved in Gary, permits the recovery of interest on an arbitration award prior to the date of the judgment confirming the award. We agree with Walsh insofar as he claims that prejudgment interest on an arbitration award is permissible. Section 37-3a provides . . . that interest 'may be recovered and allowed in . . . arbitration proceedings under chapter 909 . . . as damages for the detention of money after it becomes payable . . .' The proceeding commenced by Middlesex to vacate the arbitration award under General Statutes § 52-418, a provision contained in chapter 909 of the General Statutes, is unquestionably one in which the legislature intended that prejudgment interest might be recovered. In accordance with the permissive language of § 37-3a . . . we have stated that [t]he allowance of interest as an element of damages is primarily an equitable determination and a matter within the discretion of the trial court . . . While the determination depends in part upon when the money involved is 'payable' . . . [t]he real question in each case is whether the detention of the money is or is not wrongful under the circumstances . . . The determination is one to be made in view of the demands of justice rather than through the application of any arbitrary rule . . . Since the court considered itself bound by Gary to award interest to Walsh only from the date of the judgment confirming the award, it did not make a discretionary determination as to when the amount recoverable by Walsh under the policy was 'payable' or whether it was 'wrongfully detained' by Middlesex. We therefore remand Walsh's claim for prejudgment interest to the trial court for a discretionary determination of these issues on the merits." (Citations omitted; internal quotation marks omitted.)
In any event, the court agrees with the defendant that prejudgment interest is not appropriate in this case where the damages awarded by the arbitrator relate to claims which he found were unliquidated and more akin to a fraud claim. " Prejudgment interest pursuant to § 37-3a has been applied to breach of contract claims for liquidated damages, namely, where a party claims that a specified sum under the terms of a contract, or a sum to be determined by the terms of the contract, owed to that party has been detained by another party . . . [T]he determination of whether interest pursuant to § 37-3a should be awarded is a question for the trier of fact . . . It is clear that Connecticut case law establishes that prejudgment interest is to be awarded if, in the discretion of the trier of fact, equitable considerations deem that it is warranted . . . Prejudgment interest in accordance with § 37-3a normally is awarded for money wrongfully withheld, and provides for interest on money that is detained after it becomes due and payable . . . The defendant's counterclaim, although related to performance of a contract, essentially was a claim in negligence, and prejudgment interest has been denied in similar circumstances . . . Prejudgment interest pursuant to § 37-3a is not warranted in cases for breach of contract in which the damages are similar to damages in a personal injury claim in negligence where a party is seeking to be made whole for the loss caused by another." (Citations omitted; internal quotation marks omitted.) Ceci Bros. v. Five Twenty-One Corp., 81 Conn.App. 419, 427-28, 840 A.2d 578, cert. denied, 268 Conn. 922, 846 A.2d 881 (2004). Such is the case here.
Therefore the plaintiff's request for pre-judgment interest is denied.
Post-Judgment Interest
" Section 37-3a provides in relevant part: '(a) Except as provided in sections 37-3b, 37-3c and 52-192a, interest at the rate of ten percent a year, and no more, may be recovered and allowed in civil actions or arbitration proceedings under chapter 909, including actions to recover money loaned at a greater rate, as damages for the detention of money after it becomes payable . . .' Like the version of § 37-3b in effect before the 1997 amendment, § 37-3a provides that interest 'may be recovered' and, therefore, does not require an award of interest in every case in which money has been detained after it has become payable. Rather, an award of interest is discretionary . . . Although § 37-3a does not use the word 'wrongful' to describe a compensable detention of money under the statute, this court has long employed that term to describe such a detention . . . Our earliest cases interpreting § 37-3a reveal that the term 'wrongful' invariably was used interchangeably with 'unlawful' to describe the narrow category of claims for which prejudgment interest was allowed under the statute, namely, claims to recover money that remained unpaid after it was due and payable . . . Consistent with this precedent, we recently clarified that, under § 37-3a, proof of wrongfulness is not required above and beyond proof of the underlying legal claim . . . In other words, the wrongful detention standard of § 37-3a is satisfied by proof of the underlying legal claim, a requirement that is met once the plaintiff obtains a judgment in his favor on that claim . . . In fact, an award of interest under § 37-3a, like an award of interest under the version of § 37-3b in effect before the 1997 amendment, is discretionary with the trial court. Interest is awarded under both provisions when the court determines that such an award is appropriate to compensate the plaintiff for the loss of the use of his or her money. Basically, the question is whether the interests of justice require the allowance of interest as damages for the loss of use of money . . . In this country the principle has long been settled that if a debt ought to be paid at a particular time and is not then paid through the default of the debtor, compensation in damages equal to the value of money, which is the legal interest upon it, [ought to] be paid during such time as the party is in default. The important practical inquiry, therefore, in each case in which interest is in question is, what is the date at which this legal duty to pay, as an absolute present duty, arose . . . Like § 37-3a, § 37-3b does not identify the factors to be considered by the trial court in exercising its discretion under the statute. Accordingly, the court is free to consider whatever factors may be relevant to its determination. Judicial discretion, however, is always a legal discretion, exercised according to the recognized principles of equity . . . Such discretion . . . imports something more than leeway in decision making and should be exercised in conformity with the spirit of the law and should not impede or defeat the ends of substantial justice . . . Inherent [therefore] in the concept of judicial discretion is the idea of choice and a determination between competing considerations . . . A court's discretion must be informed by the policies that the relevant statute is intended to advance . . . As we have indicated, regardless of whether a statute provides for mandatory or discretionary postjudgment interest, the policy behind any such provision is to compensate the successful party for the loss of the use of the money that he or she is awarded from the time of the award until the award is paid in full." (Citations omitted; internal quotation marks omitted.) DiLieto v. Cty. Obstetrics & Gynecology Grp, P.C., 310 Conn. 38, 44-60, 74 A.3d 1212 (2013).
The plaintiff claims post-judgment interest on the full amount of the award, $1,401,741.50. The defendant argues that postjudgment interest should be awarded only on the compensatory damages part of the award, $1,061,585.50, and not on the punitive damages part of the award, $340,156.00, which was the subject of the appeal. In this case, based on the decisions cited above, for purposes of General Statutes § 37-3a, the total amount of the award became payable on the date of the decision affirming the award, July 23, 2013. Interest may be awarded from that date forward to the date the award was paid in full. The court does not believe that the fact that a portion of the award was the subject of an appeal changes that option for the court under the statute. The court, however, has discretion whether to award interest, and in that exercise of the discretion could limit the amounts on which interest is awarded.
In exercising its discretion whether to award interest, the court has considered the arbitrator's opinion as well as that of the Appellate Court. They indicate that the punitive damages awarded here were based on the defendant's willful and malicious violation of the Connecticut Uniform Trade Secrets Act. The compensatory damages award, which the defendant did not contest, was based on his breach of that statute as well as for breaches of his fiduciary duty to the plaintiff and breaches of his contract with it. The factual basis for these conclusions is set forth above. Considering the scope of the plaintiff's conduct, and that the conduct occurred over eight years ago, the court finds that post-judgment interest on the full amount of the award is appropriate.
The plaintiff seeks an award of interest at the rate of 10% while the defendant claims a rate of from 2-6% would be more appropriate. " [U]nder § 37-3a, the court may award a maximum rate of interest of 10 percent per year, but it has discretion to apply a lesser rate." (Citation omitted.) Marulli v. Wood Frame Constr. Co., LLC, 154 Conn.App. 196, 210, 107 A.3d 442 (2014), cert. denied, 315 Conn. 928, 109 A.3d 923 (2015). The defendant cites numerous trial court decisions awarding interest at various rates below the maximum 10% provided for in the statute. Most decisions do not reveal a rationale for the number that was chosen other than the fact that the percentage was awarded in other cases or general market conditions. In a few cases a more detailed analysis has been undertaken. In Alarmax Distributors, Inc. v. New Canaan Alarm Co., Superior Court, Judicial District of Stamford-Norwalk, Docket No. FSTCV095012255S, (June 19, 2013) , Judge Adams found that a rate of 4% was appropriate. He stated: " As to the rate of interest, the court believes it has considerable discretion within the following boundaries: the maximum allowable rate is ten percent annually, and as set forth above, the court is not obligated to order any interest. At least in recent years this has been an era of low interest rates. As back-drop, information from the Federal Reserve shows that on February 14, 2006 the federal funds rate was 4.45%, the prime rate was 7.50%, and a six-month Certificate of Deposit earned 4.89%; on July 23, 2009 (the day Alarmax returned its complaint to court) the federal funds rate was 0.15%, the prime rate 3.25% and a six-month CD provided 0.48%, and on June 14, 2013 federal funds rate was 0.10%, the prime rate was 3.25% and a six-month CD earned 0.25%." In Kasper v. G& J P'ship, Superior Court, Judicial District of Stamford-Norwalk, Docket No. FSTCV075004956S, (Dec. 23, 2011), Judge Tierney found a rate of 6% to be appropriate based on the following: " The court takes judicial notice that savings bank interest rates are below 1% per annum, credit card interest rates are over 18% per annum and first mortgages on residential real estate are regularly offered at 5% or even less."
In DiLieto v. Cty. Obstetrics & Gynecology Grp., P.C., 316 Conn. 790, 803-07, 114 A.3d 1181 (2015), the Court stated: " Section 37-3b authorizes an award of postjudgment interest at an annual rate of up to 10 percent and does not purport to restrict the discretion of the trial court to choose any rate within that range. We must presume that, if the legislature had intended to allow postjudgment interest at a rate not to exceed the interest rates applicable to United States Treasury securities, or had intended to link interest under the statute to any other economic indicator, it would have expressed that intent explicitly . . . The fact that the legislature has linked interest rates to United States Treasury securities in other statutes is strong evidence that it did not intend to do so for purposes of § 37-3b . . . General Statutes § 37-3c, the provision governing the rate of interest recoverable in condemnation cases, provides in relevant part that 'interest shall be calculated from the date of taking at an annual rate equal to the weekly average one-year constant maturity yield of United States Treasury securities, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of taking . . .' Section 37-3c demonstrates that the legislature will link interest rates to specific economic indicators when it concludes that it is appropriate to do so. In the absence of similar language in § 37-3b, we will not impute to the legislature an intent to limit the court's discretion in the same manner as it has under § 37-3c . . . Finally, it is not unreasonable for the legislature to permit courts to consider potential investment income in choosing a fair rate of interest under § 37-3b . . . We do not believe that such a restriction on the court's discretion is supported by the statute's language or purpose. We note, moreover, our agreement with the plaintiff that it would be incongruous to conclude that the trial court abused its discretion in awarding postjudgment interest at an annual rate of 8 percent, because that is the rate that the legislature has set as fair compensation for loans and other agreements that contemplate interest but fail to specify a rate . . . This court has long recognized that interest at the legal rate is presumptively fair and equitable compensation for the detention of money after it is due and payable . . . For all of the foregoing reasons, we reaffirm our prior interpretation of § 37-3b as affording the court broad authority to award postjudgment interest at a rate not to exceed 10 percent per annum. As we also have observed previously, the authority vested in the court under § 37-3b includes the discretion to consider any factors bearing on its decision with respect to an award under that provision. Because the trial court in the present case reasonably concluded that evidence proffered by the plaintiff regarding the investment income that she would have realized if the defendants had satisfied the judgment in a timely manner was relevant to its determination concerning the appropriate rate of postjudgment interest, we agree with the plaintiff that the court's award of 8 percent interest was within its discretion."
Here the plaintiff has proffered evidence of investment returns at an average rate of 12.5% or higher over the period from July 2012 to November 2015.
Considering all the information provided to the court, and the provisions of General Statutes § 37-3a, the court finds that an interest rate of 10%, as allowed by the statute is reasonable.
Conclusion
The plaintiff is awarded interest in the amount of $85,529.01.
This is the amount set forth in the Plaintiff's Corrected Claim For Interest dated December 18, 2015 minus interest for the period July 24, 2012 to July 23, 2013, and interest on the interest. The court has been provided no authority for the award of interest on interest that has not yet been awarded, nor was the court convinced of the accuracy of the plaintiff's calculation of such amount as set forth in its Claim.