Opinion
No. CV02 039 61 68 S
July 7, 2009
MEMORANDUM OF DECISION
This cause of action is based on a claim by the plaintiff, Webster Bank (Webster) that the defendant, Squires High-Tech Corporation, (SHT), breached a contract by defaulting on a revolving note in the amount of $2,500.000.00. The remaining count charges a breach of contract by the guarantors of the defaulted note, William J. Squires and William T. Squires, jointly and separately.
The defendants filed the following special defenses: (1) lack of jurisdiction in that no complaint was served after the entry of the prejudgment remedy pursuant to C.G.S. § 52-278f; (2) estoppel precluding the plaintiff's claims because the plaintiffs unscrupulously and unreasonably coerced the defendants into a commercially unreasonable workout; (3) the plaintiffs are barred under the doctrine of "Unclean hands"; (4) the plaintiffs breached their obligation of good faith under General Statutes § 42a-1-203; and (5) the plaintiffs failed to act in good faith in violation of C.G.S. § 42a-1-203 and in a commercially and reasonable manner with respect to collateral in the violation of General Statutes §§ 42a-9-607, 42a-9-610 and 42a-9-626.
The defendants also filed several counterclaims alleging that the plaintiffs failed to use reasonable care in the custody and preservation of the defendant's collateral, that they violated General Statutes § 42a-9-207; failed to dispose of the collateral in a commercially and reasonable manner in violation of § 42a-9-610 and that after taking the defendant's records failed to collect the accounts receivable in a commercial manner in violation of § 42a-9-607. Another counterclaim alleges that the plaintiffs violated the Connecticut Unfair Trade Practices Act (CUTPA) by an alleged breach of faith under General Statutes § 42a-1-203, bad faith, failure to cooperate or wrongful conduct as to the workout and litigation and failure to commercially act in a reasonably commercial manner especially as to the collateral in a perspective alliance with another manufacture in violation of §§ 42a-9-610 and 42a-9-207.
The plaintiff's special defense alleges that the defendants failed to state claims upon which relief could be granted and were the cause of their own damages by failing to mitigate and through their own negligence and/or fraudulent conduct, failed to turn over receivables they collected, which they converted to their own use, in failing to produce buyers for their collateral at the values alleged by the defendant.
Based on the evidence submitted during several days of hearings and the post-trial memoranda submitted both parties, this court has made the following conclusions:
SHT was a textile manufacturer that has been in business for more than twenty-five years. It owned several patents and trade names for fabrics used by apparel manufacturers to make outdoors sports clothing. It was founded by the defendant, William J. Squires, whose son William T. Squires, joined the company in 1990.
Its leading product was a trademarked fabric called "Saddle cloth." However, the company began to experience net losses from its operations. Extreme competition in the textile industry compounded with many manufacturers transferring operations to China to reduce the cost of labor and avoid excise taxes, resulted in competition which was significantly cheaper.
Despite the attractiveness of "Saddle cloth" from a technological perspective, its higher cost of production began to render it uncompetitive as garment manufacturers began to turn to less costly cloth in use in the manufacturing of recreational and hunting garments. The company's revenues declined from $7,400,000.00 in 1998, $6,400,000.00 in 1999, $5,700,000.00 in 2000 and finally $400,000.00 in 2001. Its net revenues declined from $149,000.00 in 1997 to $68,000.00 in 1998, to $72,000.00 in 1999, to a loss of $102,000.00 in the year 2000 and finally to a loss of $573,000.00 in 2001. As described by their own expert, SHT was a troubled company with an unsophisticated management in financial matters involved in an industry undergoing rapid competitive changes and uncertainties.
Until July of 2001, the defendant was dealing principally with Fleet National Bank averaging capital loans of $1,250,000.00. At that time Fleet changed its policy to deal with only larger financial clients and advised the defendants that they were no longer going to continue their relationship.
The defendants began their financial arrangement with Webster Bank on July 20, 2001. SHT was granted a line of credit, which is the subject of this litigation, in the amount of $2,500,000.00. The defendants William J. Squires and William T. Squires each executed a guarantee agreement for the note. The loan agreement provided for an over-line account which provided the ability to withdraw an additional $150,000.00 in excess of the present amount determined by the asset based formula during certain months. One of the agreed upon conditions for the line of credit was that monthly accounts receivable, accounts payables ageings, inventory listings and calculations of eligibles were required to be furnished within 20 days of the end of the month.
All cash and collections were to be deposited in a Webster Bank Cash Collateral Account. Collections were applied against the outstanding revolving line balance the day of the deposit in order to calculate borrowing availability and subsequent calculations of the interest on the revolving note.
In October of 2001, the defendant William J. Squires requested the bank extend the over-line account for a $100,000.00 to additional months as he claimed an increase production demand arising from WalMart, one of their largest customers, which was approved by the Bank.
On January 9, 2002, as a result of an audit by the bank, the anticipated profit of $423,000.00 submitted by the defendant was corrected to reflect that the company would possibly only realize a profit of $100,000.00 or less. At that time the defendants had represented that WalMart was anticipated to grow from 100,000 yards to 400,000 yards. But the bank noted at that time that WalMart was requiring all apparel suppliers to source in Asia to avoid excise taxes. The bank suggested that Squires will either need to reduce its pricing to compete with the Asian Market or find an Asian manufacturer. WalMart, in fact, had turned to an Asian manufacturer and had declined purchasing the defendant's products through an intermediary company called Woolridge.
On January 28, 2002, the bank noted that they had not been given the monthly collateral package as required under the loan agreement, which became a recurring problem.
On February 18, 2002, it was discovered that from April 2001 through December 2001 the company's profitability was stalled by poor product quality difficulties causing increased pricing discounts and returned goods. It was also disclosed that the accountant responsible for the company's finances had left the company and was accused of embezzling thousands of dollars from the company.
At that time accounts receivable were performing with a dilution of 29.1% for the last twelve months. Collection delays increased from an average of 78 days to 221 days as quality problems in their products developed resulting in delayed delivery of ordered products.
On February 21, 2002, the defendants admitted that they were over the available line of credit by $96,464.95. They requested the allowable over-line formula be further extended to June 30, 2002 and sought an additional loan of $250,000.00.
In March 2002, it was determined that the company was expecting a loss for the year. Although the defendants had represented otherwise, the sales to WalMart through Woolridge had not materialized as WalMart had found a cheaper replacement. The company had credits against receivables totaling $350,000.00 because of a quality problem from their primary vendor. At that time the bank began to lose confidence in the company's ability to keep them informed of collateral issues. They noted the collection efforts had been neglected with over 90-day accounts totaling $258,000.00 representing 22% while 60 to 90 day delays represented 27%. The bank agreed to a forbearance agreement of the company's default in March of 2002.
The individual guarantors provided an in rem agreement and a second mortgage on commercial property they owned. They committed to make subordinated loans to the company of $200,000.00 with $100,000.00 to be paid by March 22, 2002 and another $100,000.00 by March 29, 2002. They further agreed to salary caps and received an over advance availability to $250,000.00 through May 31, 2002.
In April 2002, it was determined that the defendants were in default in failing to infuse the $200,000.00 into the company and further that the defendant, William T. Squires, had been exceeding the salary cap. An additional problem was that the two largest delinquent accounts were questionable with one company offering stock and another disputing the amount due because of late delivery.
In May 2002, the management of the loan had been transferred to the special assets division. At that time the line of credit was overdrawn $340,00.00. There was a liquidity crisis stemming from a variety of factors including: $350,000.00 in credits resulting from quality problems caused by their supplier, the indirect loss of WalMart after the supplying company Woolridge purchased elsewhere and collection efforts for over 60-day accounts represented 49% of the total accounts receivable. The defendants were ordered to engage a financial consultant to create a business plan. At that time the defendants were in a financial crisis as there was a two-week shutdown in textiles that impacted their ability to fill standing purchase orders. The defendants requested $186,000.00 for 17 purchases. In exchange for a forbearance agreement, the defendants committed an expected $112,000.00 tax refund for 2001 collateral and negative pledges on their personal residence and the commercial property owned by the defendants.
On May 8, 2002, the defendant, William J. Squires, wrote a letter admitting that they had failed to submit borrowing based certificates since November 30, 2001. He further admitted that they had corrected their receivables resulting in a decreased collateral base. In addition, it was determined that adjustments in inventory that were necessary had not yet been performed which would further decrease their collateral base. He also concluded that at that point they were overdrawn $530,000.00.
On June 26, 2002, it was determined that the defendants over formula $578,000.00 and were suffering operating losses of $702,000.00 for the three months between February and May of 2002. The losses were due to poor management controls inventory write downs because of defective merchandising costing $313,000.00. The financial consultant advised the bank that the company had exhausted all of its cash resources. They had not submitted a business plan as had been required. He advised the bank that he would be leaving the company because of the non-cooperation of the owners and not having been paid.
On July 15, 2002, as the bank had not received payments due in June or July was declared in default and at that time it was determined that the second largest customer of the company was not receiving its orders because of the machine/operational malfunctions. It was further determined that in spite of its forecast of delivering $271,820.00 in products, the defendants had only received $94,607.50.
On September 17, 2002, the bank made an arrangement for an unannounced visit to the corporate offices of the defendant to conduct a review of the books and records. At that time it was determined that the Squires had diverted hundreds of thousands of dollars of accounts receivables that there required to be deposited in a Webster Bank account were, in fact, secretly deposited in accounts located at other banks. The defendants initially denied the existence of such accounts but eventually did acknowledge an account at Fleet Bank. It was also discovered that there was another bank in which secret deposits were being made in violation of its contract with Webster Bank.
At that time the defendants executed a standard postal service change of address card so all the accounts receivable would be sent directly to Webster Bank. Then next day the bank discovered that the defendants had contacted the postal authorities attempting to rescind the change of address filed earlier in the week. As the matter was in litigation the stipulated prejudgment remedy was entered that required that an independent deposit account would be set up and accounts receivables would be deposited would be held in the account until a written mutual agreement was reached or an order by the court.
Webster notified the inventory warehouse agents/trade vendors that the bank was exercising its right as secured party with respect to the inventory held in their possession. The bank also collected, with the knowledge of the defendants the records for the accounts receivable. The bank engaged Oaktree Enterprises to conduct an appraisal of the various fabrics located at the location of the trade vendors also acting in the capacity of inventory warehouse agents.
Oaktree determined that much of the inventory had been seized by the warehouse agents apparently for unpaid charges. In summary, their appraisal concluded that because of the age of the balance of the inventory remaining at the warehouse agents it was of little or no value at the present time.
On September 19, 2002, William J. Squires wrote a letter to Mr. John Schott, President and CEO of Schott International, one of the leading international manufacturers of recreational fabrics to promote an alliance between the two companies. Squires listed the four patents owned by SHT as well as the seven fabrics for which they owned trademarks. In proposing the alliance he represented to John Schott the patents and trademarks had been appraised for as much as $6,000,000.00.
He predicted an alliance would generate as much as $17 million dollars in annual sales and 4 million dollars in gross profits within the next 5 years. His proposal was that Schott International pay SHT the sum of $250,000.00 for an option to buy their patents and trademarks. That was to be a down payment toward a purchase price of $1 million dollars or higher which would be determined by an appraisal by professional independent appraisers. The sales price would be capped at $1,250,000.00. Squires also requested immediate funding to eliminate the bank debt of $1,100,000.00 in the form of secured loan.
In response to the letter from Michael Squires, the bank received correspondence in October of 2002 from another financial advisor engaged by the defendants indicating that John Schott had serious questions about the current and future value of Squire International's intellectual property. Schott had previously advised the defendants that he would not put any financing into the deal. His proposal was that he would produce and market "saddle cloth" only for 45 days to test market reaction and for which he would require a fee. The advisor did admit that the plan did not consider any procedure to repay the outstanding balance of over 1 million dollars to the bank and further that they were unsure of the status of Saddle Cloth being produced and sold in Asia as being beyond the reach of U.S. vendors as one of their largest trade creditors with about $300,000.00 owed was Mossy Oaks, its graphic designs licensor, who had terminated its license agreement for saddle cloth with SHT.
In exchange for this plan, the bank was asked to release all of its collateral including accounts receivable, inventory, and secured property to generate income to finance the project "assuming that there is life in the trademark."
In March of 2003, the bank advised the latest financial advisor to the defendants that they would not accept their "last and best offer" which was apparently outlined in a previous letter dated February 18, 2003. They rejected an outright offer of $500,000.00 in satisfaction of the $1.5 million dollar obligation. They further rejected a temporary release of collateral including the mortgage liens, pending litigation, secured liens and collateral unless there were a well defined settlement plan establishing a pre-established collateral release deem satisfactory to the bank.
Eventually the negotiations between John Schott and the defendants terminated.
The plaintiff submitted evidence and is claiming the principal balance as of January 27, 2009 of $922,283.20 plus interest of $512,321.26 for a total outstanding balance of $1,434,604.46 and per diem interest of $134.50. They are further seeking reasonable attorneys fees and costs.
The first special defense of the defendants is that the court lacks personal jurisdiction in that no complaint was served after entry of the prejudgment remedy.
The court file reflects that on September 3, 2002 the individual defendants were served with a notice of an ex parte prejudgment remedy/claim to hearing to dissolve or modify and a complaint with supporting exhibits and affidavits. On September 3, 2002 the individual defendants were also served with a notice of lis pendens concerning commercial property for which the defendants given Webster a second mortgage. On September 18, 2002 the defendants were again served with a second notice of ex parte a prejudgment remedy/claim to hearing to dissolve or modify and a complaint with enclosed exhibits and affidavits.
On September 26, 2002, Judge Sheedy denied the application for an ex parte prejudgment remedy and ordered a hearing. On October 7, 2002 the defendants filed an appearance and a stipulated prejudgment remedy. The hearing for an "ex parte" prejudgment remedy was marked "off."
On October 8, 2002 Judge Rush entered an order granting the stipulated prejudgment remedy submitted by the defendants.
Approximately one year after the return date the defendants filed this special defense with their answer. They have never filed a motion to dismiss. They have waived any claim of lack of personal jurisdiction. See Practice Book, Sections 10-30 and 10-32.
"Unless the issue of personal jurisdiction is raised by a timely motion to dismiss, any challenge to the court's personal jurisdiction over the defendants lost." Rock Rimmon Grange #142, Inc. v. The Bible Speaks Ministries, Inc., Conn.App. 410, 415-16, 885 A.2d 768 (2005).
"Thus, thirty-one days after the filing of an appearance . . . a party is deemed to have submitted to the jurisdiction of the court." Pitchell v. Hartford, 247 Conn. 422, 433, 722 A.2d 797 (1999).
Aside from having waived any claim for lack of personal jurisdiction, subsequent service of the complaint was unnecessary they had been served two times with a copy of the complaint. Superior Court, Judicial District of Fairfield, Wojeck v. Rizzardi, CV065003803, January 19, 2007 (Radcliffe, J.) [ 42 Conn. L. Rptr. 669].
In their final reply brief, dated April 30, 2009, defendants apparently changed their special defense now claiming they never received service of the "ex parte" prejudgment remedy order. In fact, there was no "ex parte" prejudgment remedy order entered by the court but the stipulated prejudgment remedy the defendants filed themselves. If there had been such an order, the defendants waived any claim for lack of personal jurisdiction and were served with the complaint twice.
Although this special defense was never raised by the defendants during the trial. They have now decided to unilaterally amend the pleadings and, in effect, offer post-trial testimony which is unacceptable.
The next three special defenses allege that Webster is barred from enforcing its claim under the doctrines of estoppel in that it unreasonably and unscrupulously coerced the defendants into a commercially unreasonable workout of the borrowing agreement; the doctrine of unclean hands in that Webster unreasonably and unscrupulously coerced the defendants into a commercially unreasonable workout of the borrowing agreement and Webster statutorily breached the obligation of good faith in their performance and enforcement of secured transactions with the Squires.
There was no evidence that the employees of the plaintiffs unscrupulously or unreasonably coerced the defendants into the various workout agreements. The workout agreements were necessitated by the financial difficulties caused by the defendant's mismanagement of their company and their ongoing deceptive practices. This court concurs with the opinion of the defendant's own banking expert that the forbearance agreements that Webster required throughout the loan process were within standard banking practice.
It should be noted that the defendants were represented by several attorneys, whom they also blamed for their problems, and had engaged two financial consultants during this process, one of whom resigned because of non-cooperation by the defendants and for not having been paid.
"To constitute a breach of the implied covenant of good faith and fair dealing, the acts by which the defendant allegedly impedes the plaintiff's right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith . . . Bad faith in general implies both actual and constructive fraud, or a design to mislead or deceive another, or neglect a refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights and duties, but by some interest or sinister motive . . . bad faith needs more than mere negligence; and involves a dishonest purpose." Belanger v. Maffucci, no. CV 05-4013892 (January 26, 2007, Elgo, J.).
The Squires claim that their conduct had been "fair, equitable and honest." This court disagrees.
The defendants repeatedly sought and received extensions of their online account, advances and forbearance agreements based on various misrepresentations of the company's financial status. They disregarded their contractual obligations with the bank and they improperly diverted hundreds of thousands of dollars to hidden bank accounts to avoid their financial obligation to the bank and they continued to do so even after they had been caught. This court finds it was, in fact, the Squires who exhibited bad faith throughout this entire process and it was they who violated the implied covenant of good faith and fair dealing.
This last special defense is also the basis for the counter claims the defendants filed against Webster. They allege that they suffered damages by Webster's failure to use reasonable care in the custody preservation of SHT's collateral in their possession, allegedly worth millions. Specifically, they claim Webster failed collect Accounts Receivable of SHT and that Webster also failed to dispose of the inventory of SHT in a commercially reasonable manner. They further charged that Webster caused millions of dollars in damages by not allowing an alliance between SHT and Schott International.
A fourth counterclaim repeats the allegations of the first three counterclaims and concludes that the plaintiff violated the Connecticut Unfair Trade Practices Act (CUTPA).
These counterclaims are primarily based on the testimony of their experts, John Carusone, a banking consultant and Dr. Patricia Poli, a college professor and certified public accountant.
"Credibility must be assessed . . . not by reading the cold printed record but by observing first-hand witnesse's conduct, demeanor and attitude . . . It is the quintessential function of the factfinder to reject or accept certain evidence, and to believe or disbelieve any expert testimony." Sokolski v. McCorison et al., 108 Conn.App. 296 (2008) 947 A.2d 1022.
On cross examination Mr. Carusone was asked whether or not it was his professional opinion that had Webster Bank expeditiously liquidated the Accounts Receivables which he identified as $479,000 and $800,000 of inventory at approximately 50% of face value, and had a strategic alliance, been formulated between SHT and Schott International and had that strategic alliance been successful in generating an income stream to Schott and further, that the agreement that was entered into would have been honored by Schott allowing forthcoming payments to be paid over to Webster Bank to satisfy the defendant's loan.
Mr. Carusone indicated that was an accurate description of the conditions precedent for extinguishing the loan. Mr. Carusone then admitted that every one of those conditions precedent was "potential or speculative."
"An expert opinion that is premised on speculative assumptions and indeterminable contingencies results in testimony that is unreliable and unhelpful. Bridgeport Harbour Place I, LLC v. Ganim et al., X06 CV040184523s, Ct.Sup. 1337. (Stevens, J., Jan. 25, 2009.)
Mr. Carusone testified that as of September 30th the Accounts Receivable totaled $433,000. The bank was ultimately able to collect $20,600. It was his opinion that Webster should have been able to collect 50%. He offered no basis for that percentage.
"In order to render an expert opinion . . . it must be a factual basis for the opinion . . . the facts upon which an expert opinion is based are an important consideration in determining the admissibility of his or her opinion." Borkowski v. Borkowski, 228 Conn. 729 (1994), 638 A.2d 1060.
Mr. Carusone overlooked certain salient facts:
The defendants had diverted hundreds of thousands of dollars of recovered accounts receivables to hidden bank accounts in violation of its agreement with Webster.
The itemized summary of $433,000 in Accounts Receivable was an exhibit submitted by the defendants. It contained the financial details of the accounts for each and every customer. After the defendant's dishonesty in diverting Accounts Receivable was discovered on September 17, 2002, the bank took control of binders containing the Accounts Receivable. The defendants agreed to allow Webster to being the exclusive mail recipient of Accounts Receivable. The next day the defendants unsuccessfully tried to have the post office rescind the forwarding agreement. In spite of that, the defendants were still able to subsequently collect additional thousands of dollars in Accounts Receivable and again improperly divert the money to other banks for their own use.
The summary of Accounts Receivable was prepared by the defendant's former accountant. Its authenticity would have to be considered suspect as the accountant was later accused by the defendants of having embezzled thousands of dollars from the company.
$350,000 in credits were required to be given towards receivables because of the defective quality of the fabrics produced by the defendants.
Finally, the defendants had allowed $334,000 in receivables to be more than 60 days past due and a full $234,000 to be over 90 days past due.
In spite of the claims by the defendants, there was no evidence that the binders for the account receivable were lost or that Webster ever refused any assistance to the defendants to pursue collection. They were obviously able to do so.
The bank did recover $21,000 which is being held in an escrow account to be distributed pursuant to an order of this court. There was no evidence offered that the bank would have been able to collect more than that amount.
Mr. Carusone testified that the defendants could have disposed of 50% of the inventory. He referenced the opinion of Michael T. Squires that the inventory was worth $1 million. No factual basis was given for the percentage.
It is the opinion of this court based on the credible evidence submitted, including Webster's reliance on an independent appraisal, that the defendant's inventory, which was subject to various liens and unpaid shipping charges, had been allowed by the defendants to become of no value because of its age and condition.
With respect to the third counterclaim, Mr. Carusone testified that Webster's failure to allow a reasonable alliance with Schott International would have provided for a total payout to the bank over a three-year period and further would have resulted in a cash flow of royalties from saddle cloth of $3.2 million for SHT. Mr. Carusone's calculations of the loss was entirely based on the values offered by Dr. Poli.
In spite of the fact that as of December 31, 2001 SHT's net revenues had consistently declined from $149,000 in 1997 to $68,000 in $1998 to $72,000 in 1999, to a loss of $102,000 in the year 2000, to a loss of $53,000 in the year 2001 and that the book value of the company, as of December 31, 2001, was $181,000, Dr. Poli testified that the value of Squires' high-tech court as of December 31, 2001 was $5,080,000, and that the value of the intellectual property was $3.5 million.
The singular basis for that opinion was the self-serving letter Michael J. Squires had written on September 19, 2002 to John Schott attempting to induce him to enter into an alliance with SHT. In that letter he claimed that SHT owned seven fabric trademarks and four patents worth value $6 million. He projected an alliance would generate as much as $17 million in annual sales and over $4 million in gross profits within the next five years. Although Dr. Poli based all of her calculations on the September 2002 letter, she admitted that she taken the figures claimed by Squires on face value. She had done nothing to verify the accuracy of the financial claims contained in the letter.
Her valuation was as of December 31, 2001 and Squire's letter was not written until September of 2002. She testified that the retroactive inclusion was justified by the American Institute of Certified Public Accountants as a "subsequent event," as she claimed the negotiations had begun during the year 2001. In fact, the negotiations with Schott did not begin until well into 2002. In addition, the American Institute of Certified Public Accountants requires any "meaningful" subsequent event may warrant disclosure, but only in a separate section of the report and should not affect the determination of the value as of the specified evaluation date. (Exhibit 50.) The book value of SHT as of December 31, 2001 was $181,000.
When asked what would she say if Mr. Squires had claimed a value for SHT of hundreds of millions of dollars, Dr. Poli testified that she would have found it "difficult." When asked as to whether or not her projections were speculative Dr. Poli replied that they were "hopeful."
"Expert opinion must be based on reasonable probabilities rather than mere speculation or conjecture if they had to be admissible in establishing causation . . ." Peatie v. Wal-Mart Stores, Inc., 112 Conn.App. 8 (2009).
The valuations claimed by Dr. Poli and the lost opportunity claim by Mr. Carusone were based on what Dr. Poli described as a "subsequent event." The letter was not a "meaningful" subsequent event, but as she correctly described it. It was a hope. A hope for two events: a contract with Schott International and eventual profitability emanating from that partnership.
"The deficiency of the plaintiff's claim for base the lost profits claim on a nonexistent contract whose potential realization and returns are remote as a matter of law because its evidentiary support is contingent and speculative." Bridgeport Harbour Place, supra 1332.
The defendant's experts inflated the value of this failed company some $5 million and its prospective income $3.5 million solely on the basis of a somewhat specious letter written by the owner.
"It is the quintessential function of the fact finder to reject or accept certain evidence, and to believe or disbelieve any expert testimony . . . It is the right and the duty of the [trier of fact] to draw reasonable and logical inferences from the evidence . . . In considering the evidence introduced in a case, [triers of fact] are not required to leave common sense at the courtroom door . . . nor are they expected to lay aside matters of common knowledge or their own observations and experience of the affairs of life, but, on the contrary, to apply them to the facts in hand, to the end that their action may be intelligent and their conclusions correct." In re Carissa, 55 Conn.App. 768 (1999).
If an expert is inflating the value of a company whose financial status had plummeted consistently for the last five years to five million dollars or claiming $3.5 million in damages for a lost opportunity exclusively on the basis of the letter written by Michael J. Squires to John Schott, basic common sense would have required examining the opinion of the recipient of the letter. In this case it would be John Schott, the most qualified of all the participants in this matter to give an opinion as to financial viability of SHT.
The defendants never offered any direct testimony from John Schott or anyone from his company. However, his reaction to the letter from Michael J. Squires was conveyed through exhibits submitted by the defendants. With respect to the intellectual property claimed by Squires to be appraised at $6 million with a request for payment of a 250,000 option to buy the patents and trademarks for a capped price of $1,250,000, John Schott indicated that he did not think much of SHT's intellectual property nor would he invest any money into an alliance.
With respect to the proposed alliance for five years, which Squires estimated would generate as much as $17 million in annual sales and $4 million in gross profits, John Schott indicated that he was only interested in test marketing saddle cloth for 45 days and he would have to be paid a fee to do so. The defendant's financial advisor admitted that they were worried because of the poor quality of producing saddle cloth they owed $300,000 in credits to their second-largest purchaser who had terminated their license for saddle cloth in the United States. They would have to rely on Schott's license in China.
An objective and credible opinion as to the value of SHT on December 31, 2001 was offered by another expert, Richard Royston. He testified that SHT was worth $181,500 which has dissipated since then.
In spite of the negative opinion of the value of SHT by John Schott, the marginal proposal to pay him to test a troubled fabric for 45 days and the history of the conduct of the defendants, the bank was asked to release all the collateral including secured property to allow them to finance this marginal proposal in another country. Webster was justified in refusing to do so.
Finally, the plaintiffs have filed a special defense to the counterclaims alleging that any damages suffered by the defendants were caused by their own negligence and fraudulent conduct. The special defense actually raises the question of proximate cause. "In determining proximate cause, the point beyond which the court declines to trace a series of events that exist along a chain of signifying actual causation is a matter of fair judgment and a rough sense of justice . . . we've held, moreover, that the test of proximate cause is whether the defendant's conduct is a substantial factor in bringing about the plaintiff's injuries . . . it's called a connection with the based upon more than conjecture and surmise." Bridgeport Harbour Place, Supra 1331.
It is the opinion of this court that the demise of Squires High-Tech Corporation and the financial difficulties of the individual defendants began five years before their relationship with Webster. The proximate cause of the failure of SHT was a combination of mismanagement by the defendants and their failure to adjust to market forces. Webster Bank was not a guarantor of the financial stability of the individual defendants or their company and any subsequent financial damages the defendants incurred during their relationship with Webster were self-inflicted.
This court finds for the plaintiff as to the complaint, special defenses, counterclaims and their special defense.
Judgment shall enter for the plaintiff in the amount of $1,434,604.46 plus interest at the per diem rate of $134.50 from January 27, 2009 plus attorneys fees. The balance of the Accounts Receivable maintained in the escrow account shall be turned over to the plaintiffs as a postjudgment credit. A postjudgment hearing shall be scheduled to determine the additional reasonable attorneys fees and costs to be awarded.