Opinion
No. CV 02 0282281S
December 17, 2004
MEMORANDUM OF DECISION
O.J. Mann Electric Services, Inc., brought this action to enforce a subcontractor mechanic's lien it placed on real property belonging to the Village at Kensington Place Ltd. to secure Mann's claim for the unpaid balance of its contract with a general contractor. The case was submitted to the court on a written stipulation of facts, without actual testimony. The dispositive issue is whether payments by the defendant to the general contractor before the plaintiff filed the mechanic's lien were made in "good faith," thereby satisfying the requirements of General Statutes §§ 49-33(f) and 49-36(c). For the reasons stated below, the court finds for the defendant.
The general contractor is not a party to this action.
The complaint alleges that the plaintiff completed its services on June 19, 2001, and the parties' stipulated that plaintiff filed the mechanic's lien on July 14, 2002. The court requested supplemental briefing on whether the plaintiff was required to plead and prove compliance with General Statutes §§ 49-34 and 49-35(a). Although this and other trial courts have held that noncompliance with the requirements of those statutes can defeat a mechanic's lien; see, e.g., Yurchuk v. Soro Land Co., Superior Court, judicial district of Litchfield, Docket No. CV 00-00839995 (July 17, 2003); Santa Fuel, Inc. v. Vargo, Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 00-0374050 (May 30, 2001, Brennan, J.) ( 29 Conn. L. Rptr. 547); Steeltech Building Products v. Viola, Superior Court, judicial district of Hartford, Docket No. CV 98-0580266 S (May 15, 2000, Wagner, J.T.R.); neither party has cited, nor has the court found, authority requiring a party seeking to enforce a mechanic's lien to plead or prove compliance with notice requirements of the mechanic's lien statutes, in the absence of proof of non-compliance. The facts stipulated by the parties do not establish that plaintiff failed to comply with these statutes. As there is no evidence establishing lack of jurisdiction, the court will render judgment on the issue presented by the parties. "It is well established that the trial court is entitled to decide a case on the theory on which it was tried." Swerdloff v. AEG Design/Build, Inc., 209 Conn. 185, 188, 55 A.2d 306 (1988).
The stipulated facts establish that the plaintiff provided electrical contractor services on the defendant's property pursuant to a written contract with Peter J. Sangermano Construction, Inc., a general contractor hired by the defendant to construct a building on the property. In June 2001, defendant paid the entire contract price to the general contractor. In March and June 2001, two other subcontractors working on the same project filed mechanic's liens on defendant's property. The plaintiff completed the contracted worked satisfactorily in July 2001, but received only partial payment of the sums due it from the general contractor. Between September 19, 2001, and November 26, 2001, the defendant made additional payments to the general contractor for extra work not covered by the original contract. After the plaintiff did not receive full payment from the general contractor, it filed a mechanic's lien on the defendant's property on September 14, 2001. The defendant is a Connecticut limited partnership whose general partner is a Connecticut limited liability company with two members. One of those members is a Rhode Island corporation in which Peter J. Sangermano owns fifty per cent of the stock. Peter J. Sangermano is also secretary of Peter J. Sangermano Construction, Inc.
The issue presented by the parties is whether the defendant is relieved of any obligation to satisfy the mechanic's lien because of good faith payments made to the general contractor satisfying its obligations to the general contractor. Section 49-33(f) of the general statutes authorizes a subcontractor to place a mechanic's lien on property subject to the provisions of General Statutes § 49-36. Under § 49-33(f), the total of such subcontractor mechanic's liens
General Statutes § 49-33(f) provides as follows: "Any such subcontractor shall be subrogated to the rights of the person through whom the subcontractor claims, except that the subcontractor shall have a mechanic's lien or right to claim a mechanic's lien in the event of any default by that person subject to the provisions of sections 49-34, 49-35 and 49-36, provided the total of such lien or liens shall not attach to any building or its appurtenances, or to the land on which the same stands or to any lot or to any plot of land, to a greater amount in the whole than the amount by which the contract price between the owner and the person through whom the subcontractor claims exceeds the reasonable cost, either estimated or actual, as the case may be, of satisfactory completion of the contract plus any damages resulting from such default for which that person might be held liable to the owner and all bona fide payments, as defined in section 49-36, made by the owner before receiving notice of such lien or liens."
shall not attach to any building or its appurtenances, or to the land . . . to an amount by which the contract price between the owner and the person through whom the subcontractor claims exceeds the . . . all bona fide payments, as defined in section 49-36, made by the owner before receiving notice of such lien or liens.
Under § 49-36(c), the property owner is entitled to a "credit" of sorts for payments made to a contractor prior to his receipt of notice of the subcontractor's lien. "No mechanic's lien may exceed the price which the owner has agreed to pay for the building being erected or improved, and the owner is entitled, furthermore, to credit for payments made in good faith to the original contractor before receipt of notice of such a lien or liens." Seaman v. Climate Control Corp., 181 Conn. 592, 596, 436 A.2d 271 (1980).
Section 49-36(c) provides as follows: "In determining the amount to which any lien or liens may attach upon any land or building, or lot or plot of land, the owner of the land or building or lot or plot of land shall be allowed whatever payments he has made, in good faith, to the original contractor or contractors, before receiving notice of the lien or liens." (Emphasis added.)
Here, the defendant property owner paid the full contract price owed the general contractor before the plaintiff filed its mechanic's lien. The plaintiff claims, however, that the mechanic's lien remains enforceable because the defendant's payments to the general contractor were not made in good faith. This is a factual question; Rene Dry Wall Co., Inc. v. Strawberry Hill Associates, 182 Conn. 568, 438 A.2d 774 (1980); on which plaintiff bears the burden of proof. Hubbell, Hall Randall Co. v. Pentecost, 89 Conn. 262, 268, 93 A. 672 (1915). In the present case, the plaintiff bases its assertion that the defendant acted in bad faith on the fact that the plaintiff made payments to the general contractor after another subcontractor had filed a mechanic's lien and because a "principal of the defendant was an officer of the general contractor." (Trial Br. of Pl., 5.)
Although the statutes refer to good faith payments made before a property owner receives "notice" of the mechanic's lien, and there is no evidence here as to when the defendant received such notice, the earliest such notice was possible was the date the plaintiff filed the lien. On the facts of this case, the date that the lien was filed is sufficient to resolve the issue presented.
"[G]ood faith . . . in common usage . . . has a well defined and generally understood meaning, being ordinarily used to describe that state of mind denoting honesty of purpose, freedom of intention to defraud, and generally speaking, means being faithful to one's duty or obligation." (Internal quotation marks omitted.) Phillipe v. Thomas, 3 Conn.App. 471, 474, 489 A.2d 1056 (1985). In contrast, bad faith has been defined as "involving actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive." (Internal quotation marks omitted.) Dinnis v. Roberts, 35 Conn.App. 253, 258, 644 A.2d 971, cert. denied, 231 Conn. 924, 648 A.2d 162 (1994).
The plaintiff claims that the mechanic's lien filed in March 2001 by another subcontractor should have put the defendant on notice that the general contractor was not meeting its obligations to subcontractors and imposed a duty on the defendant "to inquire of the general contractor as to whether or not the subcontractors are being paid." (Trial Br. of Pl., 4.) In Rene Dry Wall Co, Inc. v. Strawberry Hill Associates, supra, 182 Conn. 568, however, our Connecticut Supreme Court addressed and rejected a similar argument. Although no other subcontractors in that case had actually filed mechanic's liens, "the owner had information that the general contractor had been delinquent in making some payments to subcontractors, that the general contractor had requested that some checks be pre-endorsed to designated subcontractors, and that the plaintiff had executed one, only partial, lien waiver." Id., 574. That knowledge surely put the owner there with at least the same degree of "notice that the general contractor was not meeting its obligations to subcontractors" as here. Yet the court there specifically rejected the argument made by plaintiff here that such notice imposed a duty of inquiry on the defendant. "The statute, 49-33, imposes no duty of inquiry upon the owner but rather affords protection for bona fide payments made by the owner before receiving notice of such lien or liens." Id. The court then found no evidence of bad faith on the defendant property owner's part:
There was evidence neither of collusion with the general contractor designed to defeat the rights of the plaintiff nor of misrepresentations by the defendant to the plaintiff to induce further performance than was financially warranted. The defendant's conduct is therefore readily distinguishable from the egregious misconduct which this court characterized as constituting bad faith in Purcell, Inc. v. Libbey, 111 Conn. 132, 139-41, 149 A. 225 (1930).
Id., 574-75.
In Purcell, the court found that the defendant property owner did not believe the contractors to be in good financial standing at the time of contract formation, and "knew and intended that no money would be available on the contract to pay the subcontractors of the contractor." J.L. Purcell, Inc. v. Libbey, supra, 111 Conn. 140. The owner and the contractors entered into an agreement, the court continued, "designed to prevent the subcontractors getting any pay for materials and labor supplied by them to the contractors to put into the owner's building, which would and did enrich the owner. This was a very clear case of bad faith by the owner toward these subcontractors." Id., 140. The court noted, moreover, that the facts found supported a finding that the plaintiff subcontractor "was induced by the fraudulent representations and concealment [of the owner] to furnish the material he filed his lien for." Id., 141.
The plaintiff points out that Peter J. Sangermano is both a corporate officer of the general contractor and owns half of the stock in a Rhode Island corporation that is one of two members of a Connecticut limited company that is a general partner in a Connecticut limited partnership that owns the defendant. The plaintiff claims that "this relationship . . . at least put the defendant on notice that payments were not being made to the subcontractors [or] indicates collusion between the defendant and the general contractor to defeat the rights of the subcontractors." (Trial Br. of Pl., 6.) It may be that Sangermano, as secretary of the general contractor corporation that uses his name as its corporate identity, has a substantial interest in and knowledge of the affairs of that corporation. But the relevant factual inquiry here is not his knowledge of the affairs of the general contractor, but whether that knowledge can be imputed to the defendant property owner.
That question is analogous, in some ways, to cases where a party seeks to make a person liable for the acts of a corporation, but considers the question from the opposite perspective: when can a corporation be liable for the acts (or knowledge) of an individual having an interest in that corporation? Our Connecticut Supreme Court has established two tests to determine whether piercing the corporate veil is proper: the instrumentality test and the identity test. The former requires complete domination and control of a corporation in order to perpetuate fraud or injustice with respect to the transaction in question; the latter requires such complete unity of interest that the business is but a conduit for — an "alter ego" of — for the person. There is no evidence here establishing such a degree of identification between Sangermano and the defendant nor of his domination of the defendant.
The instrumentality rule requires, in any case but an express agency, proof of three elements: (1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) that such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of plaintiff's legal rights; and (3) that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
(Emphasis in original; internal quotation marks omitted.) Angelo Tomasso, Inc. v. Armor Construction Paving, Inc., 187 Conn. 544, 553, 477 A.2d 406 (1982).
If a plaintiff can show that there was such a unity of interest and ownership that the independence of the corporations had in effect ceased or had never begun, an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability arising out of an operation conducted by one corporation for the benefit of the whole enterprise. The identity rule primarily applies to prevent injustice in the situation where two corporate entities are, in reality, controlled as one enterprise because of the existence of common owners, officers, directors or shareholders and because of the lack of observance of corporate formalities between the two entities . . . There must be such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own and is but a business conduit for its principal.
(Citations omitted; internal quotation marks omitted.) Litchfield Asset Management Corp. v. Howell, 70 Conn.App. 133, 156, 799 A.2d 298, cert. denied, 261 Conn. 911, 806 A.2d 49 (2002).
Just as merely holding a corporate position does not automatically impose corporate liability on an individual, knowledge possessed by individual corporate owners cannot be imputed to a corporate entity, and the corporation held liable as a consequence, merely because the individuals have an interest in the corporate enterprise. Corporate bodies operate, of necessity, only through the deeds of individual men and women. KLM Indus., Inc. v. Tylutki, 75 Conn.App. 27, 35, 815 A.2d 688 (2003) ("It is axiomatic that while such an entity has a distinct legal life, it can act only through individuals."). The concept of the corporation having a separate identity is a legal fiction so that corporations can function. In a case such as this one, just as in the context of piercing the corporate veil, however, more must be shown than merely owning an interest in the corporate enterprise. As the court held in Zaist v. Olson, 154 Conn. 563, 574, 227 A.2d 552 (1967), "[i]t [was] not the fact that [defendant] held [the positions of majority stockholder, president, treasurer and director] which is controlling but rather the manner in which he utilized them" that would permit piercing the corporate veil. In the present case, there is no evidence of intermingling of assets, finances or liabilities between Sangermano or the general contractor, on the one hand, and the defendant property owner on the other hand. There is no evidence of a plan or scheme to avoid payment or otherwise enrich the defendant, the general contractor, or any of the other subcontractors.
While a court may make subordinate findings from stipulated facts; Peninsula Corp. v. Planning Zoning Commission, 149 Conn. 627, 630, 183 A.2d 271 (1962); State v. Fico, 147 Conn. 426, 162 A.2d 697 (1960); here there is insufficient basis to infer or find, from Sangermano's ownership interest in the defendant, that the defendant knew that plaintiff had not been paid. To paraphrase the court in Rene Dry Wall, the facts here stand in strong contrast to "the egregious misconduct which this court characterized as constituting bad faith in Purcell, Inc. v. Libbey, 111 Conn. 132, 139-41, 149 A. 225 (1930);" Rene Dry Wall Co, Inc. v. Strawberry Hill Associates, supra, 182 Conn. 574-75. The plaintiff has failed to meet its burden of proof to show bad faith on the defendant's part.
Defendant claims that plaintiff's burden of proof here is to show bad faith by clear and convincing evidence. See M.J. Daly Sons, Inc. v. West Haven, 66 Conn.App. 41, 53, 783 A.2d 1138 (2001) ("The standard of proof applicable to claims of bad faith is clear and convincing evidence.") None of the cases this court has found reviewing whether a subcontractor has shown bad faith payments under General Statutes § 49-36(c) specifically addresses the applicable standard of proof. Our appellate courts have held that when "the memorandum of the trial court is silent as to the standard of proof used, it will be assumed that the one ordinarily applied in most civil cases, that of a fair preponderance of the evidence, was used." Kavarco v. T.J.E., Inc., 2 Conn.App. 294, 297, 478 A.2d 257 (1984). Even if the same might be said with regard to appellate decisions reviewing sufficiency of proof on appeal, however, this court's finding that plaintiff failed to satisfy its burden applies regardless of which standard is applied.
The mechanic's lien statutes expressly limit the right of subcontractors to recover on a mechanic's lien. "Once the amount claimed to be due on the subcontractor's contract with the general contractor has been secured by a mechanic's lien, the amount allegedly due the subcontractor may be diminished . . . by . . . any bona fide payments that were made by the owner before it received notice of the lien." Chris Construction Co. v. May Centers, Inc., 23 Conn.App. 453, 457, 581 A.2d 748 (1990). "Under Connecticut law, a subcontractor's right to enforce a mechanic's lien against a property owner is based on the doctrine of subrogation. The theory of subrogation allows the plaintiff to recover only to the extent the general contractor could recover from the defendants." (Citations omitted.) W.B. Glenney Co. v. Bianco, 27 Conn.App. 199, 201, 604 A.2d 1345 (1992). "The purpose of the good faith payment defense is to protect an owner from paying subcontractors and materialmen an amount which exceeds the contract amount owed to the person through whom the subcontractor or materialman claims." Butch v. Mangomutha, Superior Court, judicial district of Hartford/New Britain at Hartford, Docket No. CV-90-0375968S (Aurigemma, J., April 28, 1993) ( 9 Conn. L. Rptr. 51). Thus, once the defendant had paid the general contractor the full contract price in good faith, the plaintiff lost its right to enforce the mechanic's lien.
Judgment shall thus enter for defendant in this action to enforce the mechanic's lien.
BY THE COURT
STEPHEN F. FRAZZINI JUDGE OF THE SUPERIOR COURT