Opinion
MMXCV166016252
11-16-2017
Smith v. Marsh View Fitness, LLC
UNPUBLISHED OPINION
MEMORANDUM OF DECISION ON MOTION FOR SUMMARY JUDGMENT
Julia L. Aurigemma, J.
The defendant, Marshview Fitness, LLC (" Marshview"), has moved for summary judgment on all counts of the complaint of the plaintiff, Brant Smith. The defendant has objected to the motion. Both parties have supported their memoranda with affidavits, documents and deposition transcripts. For the reasons set forth below, the motion is granted.
Factual and Procedural Background
The plaintiff was the owner of two fitness centers that had been operated as " Shoreline Health and Fitness" in Clinton and Old Saybrook, Connecticut. On September 15, 2010 the plaintiff and his former partners sold the businesses to Ryan Rothschild. Rothschild bought the businesses through two separate companies, SHF-Clinton, LLC and SHF-Old Saybrook, LLC (the " SHF Entities"). The Rothschild/SHF Entities' purchase of the plaintiff's fitness centers was financed by Wells Fargo Bank under a program sponsored by the United States Small Business Administration. The principal amount of the Wells Fargo loan at the time of the plaintiff's sale to the SHF Entities was $1.2 million. That loan was secured by a security interest in the assets of the SHF Entities which was prior in right to the security interest of the plaintiff.
As part consideration for the sale to Rothschild, the plaintiff took back a promissory note for $150,000 and another note for $300,000. Rothschild defaulted on the notes and the plaintiff commenced a lawsuit against him entitled Brant Smith v. Ryan Rothschild, Judicial District of Middlesex, Docket No. MMX-CV-146012641 (the " Rothschild action"). In that case the plaintiff filed a Motion for Temporary Injunction and Court-Ordered Inspection of Company Records dated October 21, 2014. That motion sought to enjoin Rothschild from selling the interests or assets of the SHF Entities and an order permitting the plaintiff to inspect and copy the books and records of the SHF Entities. The plaintiff never sought a hearing or otherwise proceeded on the foregoing motion.
In connection with the Motion for Temporary Injunction the plaintiff signed an affidavit in which he averred that the $300,000 note referred to above was secured by a Security Agreement which gave the plaintiff " a continuing security interest in all of the assets of SHF-Clinton and SHF-OS." Affidavit of Brant Smith, October 21, 2014, ¶ 15. Mr. Smith also averred that " I maintain that I am entitled to a right of first refusal with respect to any proposed sale of the [SHF Entities]." Id., ¶ 24.
While the plaintiff was litigating his claims against Rothschild, he was simultaneously negotiating with Rothschild to purchase the assets of the SHF Entities. The plaintiff's offer to purchase the assets of the SHF Entities was accepted by Rothschild. However, Wells Fargo did not accept the offer because SBA regulations prohibited repurchase of the assets by the plaintiff, a former owner. At that time Rothschild and the SHF Entities owed Wells Fargo in excess of $800,000 on the SBA loan used to purchase the assets from the plaintiff. Wells Fargo had to agree to release its security interest in the SHF Entities assets before same could be sold.
Marshview was the landlord for the SHF-Clinton fitness center. The members of Marshview are Todd Pozefsky and John Giannoti. After the plaintiff's failed attempt to purchase the assets of the SHF Entities, Pozefsky and Giannotti negotiated with Rothschild for the purpose of purchasing the assets of the SHF Entities so that Rothschild would voluntarily vacate the Marshview premises.
Marshview reached an agreement with Rothschild to purchase the assets of the SHF Entities. The agreement was approved by Wells Fargo, which agreed to accept $100,000 to release its security interest in the SHF Entities' assets, even though its loan exceeded $800,000. Wells Fargo approved the sale by Rothschild contingent on the plaintiff receiving no more than $63,500 in exchange for the release of his subordinate security interest in the assets of the SHF Entities. At his deposition the plaintiff admitted that he was aware of the Marshview purchase and that he was represented by counsel in the preparation of a payoff letter accepting $59,806.13 in exchange for a release " terminating [his] UCC lien on the assets of the [SHF Entities]." Deposition of Brant Smith, March 17, 2017, p. 33.
On February 26, 2016 Wells Fargo released its lien on the SHF Entities' assets in exchange for $100,000 and the plaintiff released his subordinate lien on those assets in exchange for $59,806.13. On February 29, 2016 Marshview then sold the assets to a new tenant in the building for $159,806.13, the exact amount it had paid for the assets.
After the sale of the SHF Entities assets, Rothschild stopped defending the Rothschild action and allowed a default judgment to enter against himself and the SHF Entities. Rothschild then appealed the default judgment and filed bankruptcy proceedings. Although the plaintiff released his lien in order to permit the sale of the SHF Entities assets to occur, he now claims that that sale constituted a fraudulent transfer as to him.
Discussion of the Law and Ruling
Pursuant to Practice Book § 17-49, " summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Rivera v. Double A Transportation, Inc., 248 Conn. 21, 24, 727 A.2d 204 (1999) (quoting Miller v. United Technologies Corp., 233 Conn. 732, 744-45, 660 A.2d 810 (1995)). A material fact is one that would alter the outcome of the case. Southbridge Associates, LLC v. Garofalo, 53 Conn.App. 11, 14, 728 A.2d 1114 (1999), (citing Hammer v. Lumberman's Mutual Casualty Co., 214 Conn. 573, 578, 573 A.2d 699 (1990)). " In ruling on a motion for summary judgment, the court's function is not to decide issues of material fact, but rather to determine whether any such issues exist." Nolan v. Borkowski, 206 Conn. 495, 500, 538 A.2d 1031 (1988). In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party. Miller v. United Technologies Corp., 233 Conn. 732, 745, 660 A.2d 810 (1995).
The party seeking summary judgment has the burden of showing the absence of any genuine issue of material facts which, under applicable principals of substantive law, entitle him to a judgment as a matter of law. D.H.R. Construction Co. v. Donnelly, 180 Conn. 430, 434, 429 A.2d 908 (1980); Charlemagne v. Progressive Northwest Ins. Co., 63 Conn.App. 596, 599, 777 A.2d 741 (2001). The party opposing such a motion must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact. Suarez v. Dickmont Plastics Corp., 229 Conn. 99, 105, 639 A.2d 507 (1994). The existence of a genuine issue of material fact must be demonstrated by counter-affidavits and concrete evidence. Pion v. Southern New England Telephone Co., 44 Conn.App. 657, 663, 691 A.2d 1107 (1997). " It is not enough for the opposing party merely to assert the existence of a disputed issue." Daily v. New Britain Machine Co., 200 Conn. 562, 569, 512 A.2d 893 (1986). Likewise, a party's conclusory statements in affidavits or other pleadings do not constitute evidence sufficient to establish the existence of disputed material facts. Gupta v. New Britain General Hospital, 239 Conn. 574, 583, 687 A.2d 111 (1996).
The purpose of summary judgment procedure is to allow the court to prevent vexatious and dilatory tactics and to facilitate the expeditious disposition of such cases. Ryan v. Dionne, 28 Conn.Supp. 35, 37, 248 A.2d 583 (1968). " Motions for summary judgment are designed to eliminate the delay and expense incident to a trial when there is no real issue to be tried." Wilson v. City of New Haven, 213 Conn. 277, 279, 567 A.2d 829 (1989).
The complaint in this action alleges a violation of the Connecticut Uniform Fraudulent Transfer Act (" CUFTA, " Connecticut General Statutes § § 52-552e and f), common-law fraudulent conveyance and a violation of the Connecticut Unfair Trade Practice Act (" CUTPA, " Connecticut General Statutes § § 42-110a et seq.). Since the CUTPA violation is based on the alleged fraudulent conveyance, the plaintiff cannot prevail on the CUTPA claim (Count Four) if he cannot prevail on the fraudulent conveyance claims (Count One through Three). The plaintiff has alleged that the defendants conspired to fraudulently transfer the assets of the SHF Entities to Marshview for a price that was not reasonably equivalent to their value to " strip the SHF Entities of assets sufficient to satisfy their indebtedness to [the plaintiff]." Complaint ¶ 10, 12. The plaintiff " bears the burden of proving either: (1) that the conveyance was made without substantial consideration and rendered the transferor unable to meet his obligations; or (2) that the conveyance was made with a fraudulent intent in which the grantee participated." Connecticut National Bank v. D'Onofrio, 46 Conn.App. 199, 204, 699 A.2d 237, cert. denied, 243 Conn. 926, 701 A.2d 657 (1997). " [T]he elements of fraudulent conveyance must be proven by a heightened standard of proof, that of clear, precise and unequivocal evidence." (Citations omitted; internal quotation marks omitted.) Litchfield Asset Management Corp. v. Howell, 70 Conn.App. 133, 141, 799 A.2d 298, cert. denied, 261 Conn. 911, 806 A.2d 49 (2002).
The defendant, Marshview, argues that the plaintiff cannot voluntarily participate in a transaction, accept payment, release his security interests in the assets sold as part of the transaction and then later complain that the transaction was fraudulent. The court agrees.
The plaintiff argues without any evidentiary support: he " was not made privy to the details of the sale [to Marshview] at any point prior to the transfer, " and he " was legally obligated to release his security interest in the collateral upon payment of the amount owed him under the $150,000 Note." Memorandum in Opposition to Summary Judgment, pp.11, 12, fn.8. This argument ignores the plaintiff's statement in his affidavit referenced above that the plaintiff had a $300,000 note which was also secured by the assets of the SHF Entities and that the SHF Entities could not sell their assets without his permission.
There is no dispute that the Wells Fargo lien had priority over that of the plaintiff in the SHF Entities' assets. The plaintiff testified under oath at his deposition that he was aware that the amount owed to Wells Fargo was over $800,000. He was also aware that Wells Fargo was willing to release its lien for a payment of $100,000 by Marshview. Such release was necessary before the plaintiff received any money from the sale of the assets of the SHF Entities. If the plaintiff had considered that Wells Fargo was " in the dark" as to the value of the SHF Entities' assets, he could have refused to release his lien, thus forcing Wells Fargo to auction those assets. If the auction brought less than $800,000, the plaintiff would have received no proceeds. However, if the plaintiff truly believed that Wells Fargo was grossly undervaluing the assets, then such an auction would have resulted in proceeds in excess of $800,000, which might have satisfied some of Rothschild's indebtedness to the plaintiff.
Without some credible evidence that the plaintiff was so misled as to the value of the SHF Entities' assets that he acted completely against his own financial interest in releasing his liens, the court must assume that the plaintiff acted in a commercially reasonable manner when he released his liens in exchange for payment from Marshview. Such action would have been predicated on an assessment that the value of the SHF Entities' assets was such that his failure to release his liens would not have resulted in any more payment than he received. This assessment is inconsistent with the plaintiff's current claim that the assets of the SHF Entities were more valuable than the price paid by Marshview and inconsistent with the claim that Marshview acted fraudulently. Therefore, the court grants summary judgment on the grounds that the plaintiff cannot consent to and participate in a transfer of assets as he did in this case and then claim said transfer was fraudulent.
As an additional grounds for summary judgment, the defendant argues that it cannot be held liable for damages in this case because it retained no proceeds. In Litchfield Asset Management Corp. v. Howell, 70 Conn.App. 133, 144-46, 799 A.2d 298, cert. denied, 261 Conn. 911, 806 A.2d 49 (2002), the court held that the transferee in a fraudulent conveyance action can be held liable only to the extent it retained proceeds. In Robinson v. Coughlin, 266 Conn. 1, 9-10, 830 A.2d 1114 (2003), the court approved the foregoing limitation on damages that can be awarded against a transferee in a fraudulent conveyance action. In Robinson a husband transferred property to his wife. The creditor sued the wife for fraudulent conveyance. Prior to the date of trial, the wife transferred the property back to the husband. The trial court held that the original transfer to the wife was fraudulent and in violation of CUFTA. However, the trial court entered judgment in favor of the wife because she had reconveyed the assets " and a transferee who retains no proceeds from the reconveyance of fraudulently transferred assets cannot be held liable for damages." Id. at 4. The Supreme Court affirmed the judgment of the trial court.
In this case Marshview has retained no assets and no proceeds from the transferred assets because Marshview paid $159,806.13 for the assets and then re-sold them for the same price. This constitutes an additional ground for the summary judgment.
As a final ground for the granting of the summary judgment, the defendant argues that the transaction in question was not a fraudulent transfer because the assets sold do not meet the definition of " asset" under CUFTA, which defines the term " asset" as " property of a debtor, but the term does not include: (A) Property to the extent it is encumbered by a valid lien . . ." Connecticut General Statutes § 52-552b(2). " [A] transfer cannot be considered fraudulent if, at the time of the transfer, the transferred property is encumbered by valid liens exceeding the property's value because the property would no longer be considered an asset under § 52-552b(2), and only assets may be transferred fraudulently." National Loan Investors, L.P. v. World Properties, LLC, 79 Conn.App. 725, 732, 830 A.2d 1178 (2003).
It is undisputed that the assets that were the subject of the transaction on February 26, 2016 were encumbered by a UCC lien held by Wells Fargo. The plaintiff averred at his deposition that the amount owed to Wells Fargo at the time of the transaction was in excess of $800,000. The plaintiff's expert, Mr. Fay, has averred in his affidavit that the SHF Entities' assets had a value of $551,437. Therefore those assets were not " assets" within the meaning of CUFTA and the transfer of same could not be a fraudulent transfer, and summary judgment is granted for this additional reason.
In Count Four of the complaint the plaintiff alleges a violation of CUTPA based on the fraudulent conveyances alleged in Count One through Three. As set forth above, the court has found that there were no fraudulent conveyances. Therefore, summary judgment enters on Count Four as well as Count One through Three.