Opinion
CV126013964S
06-15-2016
Town of Burlington v. GWT Associates, LLC et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION
Henry S. Cohn, S.J.
The plaintiff, the Town of Burlington (the town) brought this action alleging breach of contract, breach of good faith and fair dealing, fraud, negligent misrepresentation, unfair trade practices, civil conspiracy, conversion, and statutory theft. The defendants named in the summons and complaint were GWT Associates, LLC, a residential home builder, Adam Demeusy, a member of GWT, Fred Ouellette, another member of GWT, and Janet McCallum, fiduciary of the estate of Robert McCallum, allegedly a principal in GWT. Ouellette was never served in this action; in any event there is an ongoing stay in bankruptcy with regard to Ouellette, as he filed for bankruptcy on December 18, 2013. In a ruling issued on July 15, 2013, summary judgment was granted in favor of the estate of Robert McCallum. The complaint was served on Spencer Homes, but there are no allegations against this entity in the body of the complaint.
The evidence produced by the town was that Spencer Homes had a relationship with GWT, but no further evidence regarding this entity was presented.
The case proceeded to a court trial with GWT and Adam Demeusy as the defendants before the court. The court makes the following findings of fact on the conclusion of the evidence.
1. GWT Associates is an LLC formed by members Adam Demeusy and Fred Ouellette.
2. The town's planning and zoning commission gave approval to GWT to construct Table Rock Estates on the condition that it provide security for construction of improvements, including a road running through the subdivision known as " Angela's Way."
3. GWT provided sufficient security for the sections of the subdivision up to section 5.
4. With regard to section 5, there remains a question of whether appropriate security was provided to the town by GTW, but the town is not pursuing this issue in this case due to the running of the statute of limitations.
5. The town's engineer recommended a bond of $165,000 for section 7 and GWT was so informed.
6. The town's building inspector informed GWT member Demeusy on or about July 9, 2009 that a building permit could not be issued for lot 53, section 7, unless a bond was posted by GWT. The town would accept a bank passbook showing a balance of $165,000 in lieu of a full bond agreement, as had been done for other sections along Angela's Way.
The town, as with the other sections of Angela's Way, would accept an actual passbook, not just an electronic record.
7. Demeusy and co-member Ouellette discussed the means to assemble the funds that the town required, to obtain the town building permit as soon as possible, and thereby to preserve an agreement that they had reached with a prospective buyer to purchase a home on lot 53, section 7. They were concerned that the buyer would retract the agreement if construction did not start expeditiously.
8. Ouellette suggested that Demeusy create a passbook by depositing funds as collateral with TD Bank from funds borrowed from companies that Demeusy controlled, New Home Construction, LLC and Coast to Coast Trucking. Demeusy was under the impression that Ouellette's brother would take a loan from TD Bank to replace the funds from Demeusy's companies. Instead Ouellette, on July 9, 2009, applied for the loan himself and Demeusy placed the $165,000 with TD Bank on loan from his companies. The deposited funds became collateral for Ouellette's loan. Demeusy was well aware that the TD Bank loan would result in the creation of a passbook and that this was part of the bank's loan process for the posting of collateral.
9. The name on the passbook was Fred Ouellette, as he was the applicant for the loan.
10. On July 14, 2009, TD Bank approved Ouellette's loan. The funds from the loan in the amount of $165,000 were given by Ouellette to Demeusy. Demeusy used these funds to replace the funds lent by his companies, New Home Construction and Coast to Coast Trucking, on July 9th. A hold on the funds in the passbook was placed by TD Bank as the funds served as collateral for Ouellette's loan.
11. The passbook created as part of the TD Bank loan was given by the bank into the custody of Demeusy and Ouellette. On July 10, 2009, the passbook and a withdrawal slip signed by Ouellette was left by Demeusy and Ouellette at the New Britain office of Charles Bauer, the town's attorney.
12. This passbook was subsequently placed in the town clerk's office in a locked vault. With the submission of the passbook to the town, the building permit was issued to GWT on July 20, 2009, for lot 53 and for subsequent lots in section 7.
13. The passbook was re-issued by TD Bank with the permission of the town on or about August 3, 2009, allowing the town to be an " in trust for" party. Demeusy also became an " in trust for" party at that time. This status for the town did not give it the right to have access to information about the status of the account; only Ouellette had the right to control the account as it was in his name. The passbook as amended again came into the custody of the town and was placed in the locked vault.
14. The amount of the bond to be posted was formally approved by the town's planning and zoning commission on November 12, 2009, after a certificate of occupancy had been issued for the now-constructed home at lot 53. A formal bond agreement was signed in August 2010 by Demeusy as managing member of GWT.
The specific date in August 2010 is not set forth.
15. The " Performance Bond With Passbook Account" provided in part as follows:
Whereas . . . GWT . . . is the owner of the property . . . and TD Banknorth . . . is the depository institution for a certain Passbook Account,
Whereas, the Application and Plans of this subdivision . . . have been filed with and subsequently approved by the Burlington Planning and Zoning Commission on November 12, 2009 . . .
Whereas, [GWT] intends to and hereby does obligate [itself] to complete the approved public improvements and all other conditions of said Approval upon the terms herein contained and in accordance with the approved Subdivision plans . . .
Now, therefore, [GWT] does firmly bind [itself] unto the Town of Burlington in the sum of One Hundred sixty-five Thousand . . . Dollars, secured by a Passbook Account held by the Town . . . in such amount . . . together with a signed withdrawal slip, conditioned upon the performance by [GWT] of . . . its completion of the public improvements . . . for which payment well and truly to be made . . . I/we bind ourselves . . . said Bond . . . to continue . . . until such time as consent to the cancellation thereof is given in writing by the Zoning Enforcement Officer and/or Building Inspector to the First Selectman or authorized agent. The construction and installation of the said improvements shall be completed on or before the 12th day of November 2010 . . . If [GWT] fails to complete construction and installation of the public improvements and/or other conditions of said Approval for the approved Subdivision . . . on or before the Completion Date or fails to well and truly save harmless and indemnify the said [town] from all damages and costs, then the [town] . . . shall be entitled to perform the [outstanding work] . . . The [town] shall have the further right to make demand upon and draw on the Passbook Account as may be necessary to complete such work.
16. After the formal bond agreement was entered into, GWT was issued several other certificates of occupancy for other lots in section 7.
17. Neither Demeusy nor Ouellette kept the July 14, 2009, TD Bank loan current, although Demeusy testified to making some payments on the loan. On or about May 26, 2010, the bank, under the terms of the loan, removed by electronic transfer, $153,308.59 from the passbook held by the town. On September 27, 2011, Ouellette took the balance of $13,449.74 from the account, without submitting the passbook for cancellation to TD Bank.
18. The public improvements associated with section 7 were not completed by November 12, 2010. At this point the town learned that the actual balance in the passbook was $11,692.
19. The town and GWT resolved some issues arising from the failed bond in an agreement with lot 55, after the passbook was found by the town to be depleted. This agreement, dated January 31, 2013, was not meant to replace the performance bond, nor was it a " novation" of the performance bond. It was entered into by the parties to allow a closing on lot 55 with $30,000 to be set aside for the town.
20. The town has spent public funds to repair pot holes and other road defects since 2011 and snowplowed the roadway in 2013 and 2014. It recouped $30,000 with the completion of lot 55 under the agreement after the loss was identified. The town also has received $40,000 credit from the town attorney's professional liability insurer. The town has submitted Exhibit 25, showing the cost to complete the access road to be $124,000.
21. Demeusy testified that the then first selectman released GTW's bond obligations with regard to section 5, and that the first selectman had a relationship with Demeusy such that he was given access to the passbooks held by the town for subdivision sections other than section 7. The court, however, credits the testimony of the town attorney that only the planning & zoning commission could release the obligations of the performance bond. Demeusy's testimony does specifically indicate that he was intimately aware of the process of submitting a passbook as an alternative to a written performance bond and the significance of the passbook to the town first selectman and the other town officials. He and Ouellette agreed that the creation of the passbook for section 7 in July 2009, by any means, was essential to the continued viability of their subdivision enterprise.
Based on these facts, the court concludes as follows. At the first day of trial in this case, July 15, 2015, GWT, through its attorney, stated that it had no defense and was admitting liability. (Attorney Cohen: " [I]t doesn't matter whether your Honor enters liability with respect to [GWT] . . ." Transcript, July 15, 2015).
The amended complaint of April 20, 2016, alleges that GWT breached the terms of the performance bond, and its covenant of fair dealing, and committed fraud and negligent misrepresentation, violated the Connecticut Unfair Practices Act, engaged in a civil conspiracy and committed conversion and statutory theft. See also, on the liability of GWT, Southington v. Commercial Union Ins. Co., 254 Conn. 348, 757 A.2d 549 (2000) (town permitted to recover on performance bond).
This leaves Demeusy as the remaining defendant before this court. The court agrees with the town on counts Two through Seven of the amended complaint as to Demeusy's liability. The first count (breach of the performance bond itself) seeks to impose liability upon Demeusy for having breached the performance bond of August 2010, that he signed as managing member. The fact that Demeusy signed the bond in his membership and management capacity is not sufficient to impose liability. See Joseph General Contracting, Inc. v. Couto, 317 Conn. 565, 581, 119 A.3d 570 (2015).
" It is well established that an officer of a corporation does not incur personal liability for its torts merely because of his official position. Where, however, an agent or officer commits or participates in the commission of a tort, whether or not he acts on behalf of his principal or corporation, he is liable to third persons injured thereby . . . Thus, a director or officer who commits a tort or who directs the tortious act done, or participates or operates therein, is liable to third persons injured thereby, even though liability may also attach to the corporation for the tort." (Internal quotation marks omitted.) Sturm v. Harb Development, LLC, 298 Conn. 124, 132, 2 A.3d 859 (2010). " It is black letter law that an officer of a corporation [or an LLC] who commits a tort is personally liable to the victim regardless of whether the corporation [or LLC] itself is liable." Kilduff v. Adams, Inc., 219 Conn. 314, 331-32, 593 A.2d 478 (1991). The town has sufficiently proved that Demuesy acted in bad faith as one of two members of GWT and is therefore liable on Count Two for the breach of the performance bond.
Count Three of the amended complaint alleges that Demeusy committed the tort of common-law fraud. A plaintiff seeking damages for common-law fraud must establish: (1) a false representation was made as a statement of fact; (2) it was untrue and known to be untrue by the party making it; (2) it was made to induce the other party to act upon it; and (4) the other party did so act upon that false representation to his injury. Weisman v. Kaspar, 233 Conn. 531, 539, 661 A.2d 530 (1995); Billington v. Billington, 220 Conn. 212, 217, 595 A.2d 1377 (1991).
Here the court has found that Demuesy made a false representation to the town regarding the passbook that he knew to be false. He tendered the passbook to the town to induce it to allow the sale of lot 53 to take place. Clearly the town, in permitting the sale to take place, acted on the false representation and when the internal improvements were not made, the town suffered a loss. The town was forced to remedy the situation with its own funds. Thus Demeusy is liable on Count Three.
For determination of this Count, the court has made its findings by clear and convincing evidence.
The Fourth Count of the amended complaint alleges that Demeusy committed the tort of negligent misrepresentation. Similar to fraud, " [t]raditonally, an action for negligent misrepresentation requires the plaintiff to establish (1) that the defendant made a misrepresentation of fact (2) that the defendant knew or should have known was false, and (3) that the plaintiff reasonably relied on the misrepresentation, and (4) suffered pecuniary harm as a result." Nazami v. Patrons Mutual Ins. Co., 280 Conn. 619, 626, 910 A.2d 209 (2006). For the reasons stated above, Demeusy is therefore liable on the Fourth Count.
The Fifth Count of the amended complaint alleges a violation of the Connecticut Unfair Trade Practices Act (CUTPA), § 42-110a et seq. " [General Statutes § ]42-110b(a) provides that [n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce . . . [I]n determining whether a practice violates CUTPA we have adopted the criteria set out in the cigarette rule by the [F]ederal [T]rade [C]ommission for determining when a practice is unfair: (1) [w]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise--in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other businesspersons] . . . all three criteria do not need to be satisfied to support a finding of unfairness . . . In order to enforce this prohibition, CUTPA provides a private cause of action to [a]ny person who suffers any ascertainable loss of money . . . as a result of the use or employment of a [prohibited] method, act or practice . . . [W]hether a practice is unfair and thus violates CUTPA is an issue of fact, to which [an appellate court] must afford our traditional deference." (Citations omitted, internal quotation marks omitted.) Bruno v. Whipple, 162 Conn.App. 186, 209, 130 A.3d 899 (2015).
Here, as found in the facts, Demeusy, as a knowing party, submitted a passbook to the town, representing that the funds on deposit were free of any holds or liens, when he knew this was not the case. This action was unfair and unscrupulous and caused monetary injury to the town. Therefore Demeusy violated CUTPA by his actions.
The Sixth Count alleges a civil conspiracy. " Under a civil conspiracy theory, the requisite elements are: (1) a combination between two or more persons, (2) to do a criminal or an unlawful act by criminal or unlawful means, (3) an act done by one or more of the conspirators pursuant to the scheme and in furtherance of the object, (4) which act results in damage to the plaintiff." (Internal quotation marks omitted.) Charter Oak Lending Group, LLC v. August, 127 Conn.App. 428, 447, 14 A.3d 449 (2011). Here again the town has presented clear and convincing evidence that establishes that Demuesy combined to commit an unlawful act, the submitting of the false passbook, actually acted on their scheme, and caused damage to the town. Therefore the town has prevailed on Count Six.
The Seventh Count is one for conversion. " The tort of [c]onversion occurs when one, without authorization, assumes and exercises ownership over property belonging to another, to the exclusion of the owner's rights." ((Internal quotation marks omitted.) Deming v. Nationwide Mutual Ins. Co., 279 Conn. 745, 770, 905 A.2d 623 (2006). " Thus, [c]onversion is some unauthorized act which deprives another of his property permanently or for an indefinite time; some unauthorized assumption and exercise of the powers of the owner to his harm. The essence of the wrong is that the property rights of the plaintiff have been dealt with in a manner adverse to him, inconsistent with his right of dominion and to his harm." (Internal quotation marks omitted.) Id.
" To establish a prima facie case of conversion, the town had to demonstrate that (1) the material at issue belonged to the [town], (2) that [Demeusy] deprived the [town] of that material for an indefinite period of time, (3) that [Demeusy's] conduct was unauthorized and (4) that [Demeusy's] conduct harmed the [town]." News America Marketing In-Store, Inc. v. Marquis, 86 Conn.App. 527, 545, 862 A.2d 837, aff'd, 276 Conn. 310, 885 A.2d 758 (2015). As such, " [a]s previously stated, an essential element of the tort of conversion is the unauthorized use of another's property." (Emphasis in original.) Hi-Ho Tower, Inc. v. Com-Tronics, Inc., 255 Conn. 20, 47, 761 A.2d 1268 (2000). The town has met its burden as to Count Seven. Demeusy assisted in diverting the passbook which was to protect the town's interest out of its control and caused a loss to the town.
The Eighth Count is a claim for statutory theft. A claim for " civil theft, " sometimes called " statutory theft, " is similar to a claim for conversion. General Statutes § 52-564, the civil theft statute, provides: " A person commits statutory theft when, with intent to deprive another of property of another, or knowingly receives and conceals stolen property, shall pay the owner treble his damages." " A person commits statutory theft when, with the intent to deprive another of property or to appropriate the same to himself or a third person, he wrongfully takes, obtains or withholds such property from an owner." (Emphasis omitted; internal quotation marks omitted.) Masse v. Perez, 139 Conn.App. 794, 801, 58 A.3d 273 (2012). The elements of a cause of action for civil theft are: (1) that the property belonged to the plaintiff; (2) that the defendant intentionally deprived the plaintiff of its property; and (3) that the defendant's conduct was unauthorized. See Discover Leasing, Inc. v. Murphy, 33 Conn.App. 303, 309, 635 A.2d 843 (1993). As such, " [c]onversion can be distinguished from statutory theft . . . in two ways. First, statutory theft requires an intent to deprive another of his property; second, conversion requires the owner to be harmed by a defendant's conduct. Therefore, statutory theft requires a plaintiff to prove the additional element of intent over and above what he or she must demonstrate to prove conversion." (Internal quotation marks omitted.) Rana v. Terdjanian, 136 Conn.App. 99, 114, 46 A.3d 175 (2012). The town has met its burden under this count as Demeusy intentionally engaged in a scheme to deprive the town of the protection due under the passbook.
The court has thus concluded that GWT, Associates, LLC and Demeusy are liable to the town on the counts indicated above. The court has also made some preliminary findings of fact regarding damages against GWT and Demeusy. The finding of specific damages, however, should await further proceedings. By July 8, 2016, the town is directed to file with the court a statement of damages that is alleged to be due by GWT and Demeusy. The defendants shall have until July 28, 2016 to reply. The court, on receipt of these filings, set a date for a further hearing on damages.
So Ordered.