Opinion
FSTCV186037228S
10-30-2019
Javier Villanueva v. Rafael Villanueva
UNPUBLISHED OPINION
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Krumeich, Edward T., J.
MEMORANDUM OF DECISION
KRUMEICH, J.
This case involves a dispute between two brothers, Javier Villanueva ("Javier") and Rafael Villanueva ("Rafael"), concerning a business operated under the name Villanueva Landscaping.
In 2005 Javier started a small landscaping company known as Villanueva Landscaping that mowed lawns and did some patching and sealing pavement driveways. Rafael started working for his brother in 2007; Rafael worked for him initially as an employee, but as the business grew the brothers became de facto equal partners, sharing the profits, and the management of the business. No written partnership agreement was ever entered into by the brothers. The brothers split their duties as over time one crew did landscaping and the other did masonry and tree work. Javier worked on increasing the customer base and supervised a masonry/tree crew in the field; Rafael took over as bookkeeper and was responsible for paperwork, but also supervised the landscaping crew. The business grew from approximately 12 to 15 customers during the first years to approximately 50 customers in 2009, when they purchased a customer list from another landscaper, to approximately 85 customers in 2014. The number of workers grew from Javier in 2005 to the original crew of two, Rafael and Javier, in 2007 to seven workers divided into two crews of four and three by 2014.
Although initially Javier received customer payments, Rafael took over the back-office work, including all billing and banking. The business deposited revenues into two bank accounts at Webster Bank and Bank of America, controlled by Rafael. Javier did not have a tax I.D. number so the business accounts were opened by Rafael and he was in charge of deposits and withdrawals. Funds were withdrawn from the accounts by both brothers as needed to pay their personal expenses rather than drawing a salary. On May 24, 2011, Rafael formed Villanueva Landscaping, LLC with himself as sole member. The reason Javier was not made a member was that he lacked a tax I.D. number, but the business of the LLC was the continuation of Villanueva Landscaping and the brothers remained partners.
They also withdrew funds from the business accounts in 2014 to jointly purchase a house for $150,000, the title to which was in both their names, which they owned 50/50.
Sometime in 2014 Javier found himself locked out of the landscaping business as Rafael, without warning, took all the customers, crew, tools, vehicles and equipment used in the landscaping side of the business together with all the cash in the accounts. Rafael left behind the masonry/tree equipment and vehicles. In 2014 landscaping fees represented 90% of the business income. The portion left to Javier, the masonry and tree work, represented 10% of revenues. Although Rafael referred to the business being "divided" in early 2014, the credible evidence is that there was no discussion or agreement about splitting the business but rather Rafael imposed the division on Javier when he took over the landscaping portion of the business as his own, along with the funds in the accounts.
Javier testified that Rafael had emptied out the garage where the landscaping equipment was stored and called the police on Javier when he tried to reclaim one of the vehicles.
The Defendant Breached the Implied Partnership Agreement.
In Connecticut Light and Power Co. v. Proctor, 324 Conn. 245, 259-60 (2016), the Supreme Court discussed the proof required for a contract implied-in-fact:
With respect to implied in fact contracts, we have recognized that "[w]hether [a] contract is styled express or implied involves no difference in legal effect, but lies merely in the mode of manifesting assent." ... "A true implied [in fact] contract can only exist [however] where there is no express one. It is one which is inferred from the conduct of the parties though not expressed in words." ... ("[t]he intention of the parties manifested by their words and acts is essential to determine whether a contract was entered into and what its terms were"...).
"A contract implied in fact, like an express contract, depends on actual agreement." ... However, "[i]t is not fatal to a finding of an implied contract that there were no express manifestations of mutual assent if the parties, by their conduct, recognized the existence of contractual obligations." ... Thus, "conduct of one party, from which the other may reasonably draw the inference of a promise, is effective in law as a promise." ... "As long as the conduct of [the] party is volitional and that party knows or reasonably ought to know that the other party might reasonably infer from the conduct an assent to contract, such conduct will amount to a manifestation of assent."324 Conn. at 259-60 (citations omitted).
A partnership may be based upon an implied agreement to act as partners, that is, to share profits and losses and management. See generally, Boland v. Catalano, 202 Conn. 333, 340-41 (1987). The law on formation of a general partnership was summed up by Judge Squatrito in Lenoble v. Best Temps, Inc., 352 F.Supp.2d 237, 249 (D.Conn. 2005) (Squatrito, J.).
Connecticut’s legislature has adopted and codified the Uniform Partnership Act, which provides, in pertinent part, that "the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership." Conn. Gen.Stat. § 34-314(a) (2003). "In determining whether a partnership is formed, ... [a] person who receives a share of the profits of a business is presumed to be a partner in the business ..." Id., § 34-314(c)(3). Also, "a mutual agency relationship is[, generally,] an essential element of a partnership."
In Bartomeli v. Bartomeli, 65 Conn.App. 408, 414-15 (2001), the Appellate Court upheld a finding below that two brothers were de facto partners in a business carried out in corporate form and one brother had breached the partnership contract by failing to give his brother an interest in the corporation: "[o]n the basis of the court’s findings that both Thomas and Raymond worked for the company, both contributed personal assets in the form of equipment to the company, both guaranteed notes for the purchase of company equipment, Raymond introduced Thomas as his partner and denied Thomas his interest in the company, we conclude that the court properly found that Raymond and Thomas were de facto partners, and that Raymond had breached the contract of partnership."
Here, there is strong evidence the parties were de facto partners. Although they divided their responsibilities between front office and back-office, and by areas of the business, landscaping and paving, they acted as mutual agents and jointly managed the business and shared its profits. The LLC was formed to facilitate the businesses’ finances, banking and reporting but, as between themselves, the brothers remained general partners. Their joint purchase of real estate using corporate funds epitomized the informal understanding between the brothers. The informal nature of distributions and draws, and the absence of contrary credible proof, suggests they were equal partners. The totality of evidence satisfied the test for formation of a partnership set by statute, C.G.S. § § 34-301 and 34-314, and affirmed by case law. See Gibson v. Scap, 960 F.Supp.2d 373, 381-82 (D.Conn. 2013) (Hall, J.).
Although perhaps plaintiff initially hired defendant as an employee, the credible evidence is that in later years they regarded each other as partners compensated by withdrawals from the business accounts for personal expenses which may be characterized as draws and distributions, not salary.
"(12) ‘Partnership’ means an association of two or more persons to carry on as co-owners a business for profit formed under section 34-314, predecessor law or comparable law of another jurisdiction, and includes for all purposes of the laws of this state a registered limited liability partnership.
(a) ... [T]he association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.
"The Connecticut legislature has adopted and codified the Uniform Partnership Act, which states that, ‘the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.’ Conn. Gen.Stat. § 34-314. ‘In determining whether a partnership is formed ... [a] person who received a share of the profits of a business is presumed to be a partner in the business ...’ In addition, ‘a mutual agency relationship is [generally] an essential element of a partnership ...’
The Action is Not Barred by the Statute of Limitations
The statute of limitations for breach of an implied contract is six years pursuant to C.G.S. § 52-576(a). This action was timely commenced less than four years after defendant took partnership property to start his own landscaping business.
The doctrine of laches is not applicable to this action and is not warranted under the facts found by the court, including lack of material prejudice to defendant from the delay.
Damages for Breach of Partnership Agreement
Partners are held to be fiduciaries as to each other and trustees of partnership property. See Konover Development Corp. v. Zeller, 228 Conn. 206, 218-19 (1994). Under C.G.S. § 34-339(b) a partner may maintain an action against another partner.
In Jacobs v. Thomas, 26 Conn.App. 305, 314 (1991), the Appellate Court discussed damages recoverable for breach of an oral partnership agreement: " ‘[t]he general rule in breach of contract cases is that the award of damages is designed to place the injured party, so far as can be done by money, in the same position as that which he would have been in had the contract been performed.’ ... Damages for breach of contract are to be determined at the time of the occurrence of the breach." In Jacobs the Appellate Court upheld a damages award based on lost profits. Id. at 315.
In Chioffi v. Martin, 181 Conn.App. 111, 128-29, 134-35, 143 (2018), the Appellate Court upheld a damages award based on the disproportionate liability for partnership expenses placed on plaintiff, the non-breaching partner, as damages for breach of a written partnership agreement where the breaching partner transferred partnership assets to himself that could have been used to pay off partnership liabilities; damages were awarded based on what would have been distributed to plaintiff on distribution if the defendant had adhered to the partnership agreement.
Plaintiff here has not sought lost profits or an accounting but rather has claimed damages based on the value of the assets taken by defendant. Defendant has asserted the right to set off for the value of assets retained by plaintiff. Neither party has provided evidence as to the value of the business as of the split-up or today or what each would have received in a distribution upon liquidation, but rather have based their claims for damages and set off on very incomplete and subjective evidence of the value of all the partnership property at the time of the split-up. Defendant took assets with a minimum value of $173,000 based on the most credible testimony as to historic cost of equipment and customer list purchase pricing used to approximate their value in 2014. If the partnership had sold these assets that is the minimum amount that would have been available for distribution assuming all other partnership liabilities and revenues off set. The evidence as to the value of assets retained by plaintiff is sketchy at best, and defendant abandoned those assets to plaintiff when he walked out with the landscaping business, so the Court declines a setoff. Plaintiff is awarded one-half of the value of the partnership property taken by defendant, $86,500, as damages for breach of the partnership agreement.
The partnership has not been dissolved or wound down formally, although the facts found by the court would be grounds for dissolution. C.G.S. § 34-372(5). Neither party has sought an accounting from the other. Each partner accepted the de facto dissolution and winding down that occurred in 2014 and conducted their respective businesses separately since then. The Appellate Court has approved direct damages actions between partners in lieu of formal accountings to wind up a partnership in cases where no complex accounting is necessary. Chioffi, 181 Conn.App. at 145. The parties have waived any rights to an accounting.
(13) ‘Partnership agreement’ means the agreement, whether written, oral or implied, among the partners concerning the partnership, including amendments to the partnership agreement. (14) ‘Partnership at will’ means a partnership in which the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking. (15) ‘Partnership interest’ or ‘partner’s interest in the partnership’ means all of a partner’s interests in the partnership, including the partner’s transferable interest and all management and other rights."
*** (c) In determining whether a partnership is formed, the following rules apply: (1) Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property or part ownership does not by itself establish a partnership, even if the co-owners share profits made by the use of the property. (2) The sharing of gross returns does not by itself establish a partnership, even if the persons sharing them have a joint or common right or interest in property from which the returns are derived. (3) A person who receives a share of the profits of a business is presumed to be a partner in the business ..."
Meanwhile, ‘[a] joint venture ... exists where two or more parties combine their property, money, efforts, skill or knowledge in some common undertaking ... The relationship between contracting parties cannot amount to a joint venture unless the parties so intend [and] ... Joint ventures relate to a single transaction, whereas partnerships exist for a general business.’ ...’A joint venture requires five elements, namely two or more persons must enter into a specific agreement to carry on an enterprise for profit; their agreement must evidence their intent to be joint venturers; each must make a contribution of property, financing, skill, knowledge, or effort; each must have some degree of joint control over the venture; and there must be a provision for the sharing of both profits and losses.’ ... Joint ventures are generally governed by the same principles as partnerships ... However, ‘[g]enerally, joint ventures relate to a single transaction, whereas partnerships exist for a general business.’ ... In addition, ‘although mutual agency is required in order to have a partnership; it is not required for the existence of a joint venture.’ " 960 F.Supp.2d at 381-82 (citations omitted).