LLC v. LLC (2010)

MEMORANDUM OF DECISION ON DAMAGES

In a memorandum of decision dated August 6, 2009, the court issued a ruling on liability finding in favor of the plaintiffs on their claims that the defendants made fraudulent and negligent misrepresentations, violated the Connecticut Business Opportunity Investment Act, General Statutes §§ 36b-60 et seq.  (“CBOIA”), and violated the Connecticut Unfair Trade Practices Act, General Statutes §§ 42-110a et seq.  (“CUTPA”).  The court reserved decision on the issue of compensatory damages.¹  Pursuant to the parties' pre-trial stipulation, the issues of punitive damages, attorney fees and costs were bifurcated from the trial on liability.   The parties have now been fully heard on the issues of damages in hearings held on September 14, 2009 and February 9, 2010, and the parties have filed post-hearing memoranda.

The parties extensively address the compensatory damages available under CBOIA.   For violation of CBOIA, the plaintiffs, as purchaser-investors, are “entitled to receive from [the defendants as] business opportunity seller[s] all sums paid to such business opportunity sellers.”  General Statutes § 36b-74(a).   In addition, the CBOIA provides that “[p]urchaser-investors shall not be entitled to unjust enrichment by exercising the remedies provided in this section.”  General Statutes § 36b-74(a).²  By definition, unjust enrichment involves a person receiving something of value either unfairly or under circumstances imposing an unjust expense on another person.   See Vertex v. Waterbury, 278 Conn. 557, 573, 898 A.2d 178 (2006).   As applied here, the statutory direction of § 36b-74(a) that an investor-purchaser's recovery under CBOIA should not involve unjust enrichment indicates that this recovery should be premised more on payments it was induced to make specifically as a result of the violations of the CBOIA, and less on payments explicitly made in exchange for goods or services provided by the business opportunity seller.

The court finds that the $75,000 paid by the plaintiffs for the distributorship represents a fair and appropriate basis for compensatory damages under CBOIA, as well as for all of the claims on which the plaintiffs have prevailed.   The $75,000 that the plaintiffs were induced to pay for the distributorship by the defendants' false representations do not implicate any issues of “unjust enrichment” similar to the other compensatory claims asserted by the plaintiffs.   Moreover, the court rejects the plaintiffs' arguments that they may recover for the funds received by the defendant Roll-A-Cover from dealers associated with the plaintiffs' distributorship.   Those dealers are legal entities that are separate from the plaintiffs and are not parties to this action.

The law and criteria governing an award of attorneys fees, costs and punitive damages under CUTPA or an award of punitive damages under common law are well established and will not be repeated here.   See Bridgeport Harbour Place, LLC v. Ganim, Superior Court, judicial district of Waterbury, Complex Litigation Docket, Docket No. 04 0184523 (Oct. 31, 2008;  Stevens, J.) (Memorandum of Decision on the Plaintiff's Claims for Attorney Fees and Punitive Damages.)   Attorneys fees also are recoverable under CBOIA.  General Statutes § 36b-74(b);  see n. 2.

The court finds that attorneys fees should be awarded under CUTPA and CBOIA.   The court's determination of the amount of the attorneys fees is facilitated by the parties' February 9, 2010 stipulation that plaintiffs' reasonable and necessary attorneys fees and expenses total $325,000.   On the basis of this stipulation, the supplemental evidence submitted by the parties, as well as the court's familiarity with the record and trial proceedings, the court awards to the plaintiffs attorneys fees and expenses of $350,000.

In regard to punitive damages under CUTPA, General Statutes § 42-110g(a) provides in relevant part that “[t]he court may, in its discretion, award punitive damages ․” Under CUTPA, the award and the amount of punitive damages are discretionary with the court.  Gargano v. Heyman, 203 Conn. 616, 622, 525 A.2d 1343 (1987).   Although the law is not well developed as to how the court's discretion should be guided in determining punitive damages under CUTPA, a basic criterion for such an award is evidence revealing “a reckless indifference to the rights of others or an intentional and wanton violation of those rights.”  Whitaker v. Taylor, 99 Conn.App. 719, 733, 916 A.2d 834 (2007).   Based on the court's findings that the defendants made intentionally false representations, the court further finds that the defendants' conduct reflects a reckless indifference to the rights of the plaintiffs and an intentional violation of their rights justifying an award of punitive damages.   The court awards the plaintiffs punitive damages in the amount of $150,000 (an amount that is twice the compensatory award).   Cf. Bridgeport Harbour Place, LLC v. Ganim, supra.

Under common law, punitive damages may be recovered for fraudulent conduct.   Plikus v. Plikus, 26 Conn.App. 174, 180, 599 A.2d 392 (1991).   Similar to an award of punitive damages under CUTPA, common-law punitive damages are recoverable “when the evidence shows a reckless indifference to the rights of others or an intentional and wanton violation of those rights.”  Vandersluis v. Weil, 176 Conn. 353, 358, 407 A.2d 982 (1978).   The minority rule followed in Connecticut “is that common law punitive damages serve primarily to compensate the plaintiff for his injuries and, thus, are properly purposes and are limited to the plaintiff's litigation expenses less taxable costs ․” (Citations omitted.)  Berry v. Loiseau, 223 Conn. 786, 827, 614 A.2d 414 (1992);  see also Alaimo v. Royer, 188 Conn. 36, 42, 448 A.2d 207 (1982).

An award of punitive damages rests in the sound discretion of the trier of the fact.  Kenny v. Civil Service Commission, 197 Conn. 270, 277, 496 A.2d 956 (1985);  see generally Freeman v. Alamo Management Co., 221 Conn. 674, 679, 607 A.2d 370 (1992) (“[a]s courts have uniformly held, no plaintiff has a right to punitive damages:  the purpose of punitive damages is to vindicate the public interest, not that of a particular plaintiff”).   In light of the court's awards of CUTPA attorneys fees, expenses and punitive damages, the court exercises its discretion in declining to award common-law punitive damages.

In summary, the court awards damages in favor of the plaintiffs and against the defendants as follows:

$75,000 Compensatory damages;  $350,000 Attorneys fees and expenses under CBOIA and CUTPA;

$150,000 Punitive damages under CUTPA.

Therefore, judgment hereby enters in favor of the plaintiffs James D. Cohen and Roll-A-Cover of New Jersey, LLC and against the defendants Roll-A-Cover, LLC and Michael Morris, in the amount of $575,000, without costs (because as expenses and costs were included as part of the parties' February 9, 2010 stipulation, costs were considered by the court in the award of attorneys fees and costs).

So ordered this 23rd day of June 2010.

STEVENS, J.

FOOTNOTES

FN1. The court also reserved decision on the defendants' third special defense based on the CBOIA exemption under General Statutes § 36b-5(e)(2).   As articulated by the court on the record at the hearing held on September 14, 2009, the court rejects the defendants' defense under § 36b-5(e)(2) because in its decision on liability, the court found that the defendant violated § 36b-67(6)(b) and the exemption of § 36b-5(e)(2) does not apply to this violation of CBOIA..  FN1. The court also reserved decision on the defendants' third special defense based on the CBOIA exemption under General Statutes § 36b-5(e)(2).   As articulated by the court on the record at the hearing held on September 14, 2009, the court rejects the defendants' defense under § 36b-5(e)(2) because in its decision on liability, the court found that the defendant violated § 36b-67(6)(b) and the exemption of § 36b-5(e)(2) does not apply to this violation of CBOIA.

FN2. General Statutes § 36b-74(b) also provides the following:  “Any purchaser-investor injured by a violation of Sections 36b-60 to 36b-80, inclusive, or by a business opportunity seller's breach of contract subject to said sections or any obligation arising therefrom may bring an action for recovery of damages, including reasonable attorneys fees.”.  FN2. General Statutes § 36b-74(b) also provides the following:  “Any purchaser-investor injured by a violation of Sections 36b-60 to 36b-80, inclusive, or by a business opportunity seller's breach of contract subject to said sections or any obligation arising therefrom may bring an action for recovery of damages, including reasonable attorneys fees.”

Stevens, Barry K., J.