Michael Dillon et al v. LLC (2010)

MEMORANDUM RE OBJECTION TO REPORT OF ATTORNEY STATE TRIAL REFEREE

BACKGROUND

The plaintiff Michael and Laurie Dillon commenced this action by complaint dated October 24, 2007, naming as defendants.   R.E.J. Housing Resales, LLC, Citation, LLC, Edward Epifano and Robert Johnston.   The plaintiffs thereafter revised the complaint on August 8, 2008.   The Revised Complaint consists of ten separate counts.   The first, second, third and fifth counts allege causes of action against the defendant R.E.J. Housing Resales.   The fourth count alleges a piercing of the corporate veil against the defendant, Robert Johnston.   The sixth, seventh, and eighth counts allege causes of action against the defendant, Citation, LLC. Additionally, the last count of the complaint, which is misnumbered also as count nine alleges negligence against the defendant Citation, LLC. Count nine alleges a cause of action for piercing the corporate veil against the defendant Edward Epifano.   On July 28, 2009, the plaintiff withdrew the action as to the defendant Robert Johnston.   The defendant R.E.J. Housing Resales failed to appear for the trial of this matter and has been defaulted.   The action was assigned to Attorney Trial Referee David Albert.   A hearing was conducted on January 26, 2010.   Thereafter, memorandum were submitted on March 5, 2010.   A report of the attorney trial referee was filed on April 23, 2010.¹  On June 28, 2010 the defendant filed an objection to the report.   Thereafter, on August 9, 2010, the plaintiff submitted a memorandum of law in response to the objection to the report.   Transcripts were filed on June 28, 2010.

DISCUSSION

The defendants, Epifano and Citation, LLC, have objected to the report of the attorney trial referee in two respects.   The defendants contend that the trial referee improperly applied the facts to the law in regard to the judgment against the defendant Edward Epifano.  (Epifano) In particular, the defendant Epifano contends that the law in Connecticut regarding the piercing of the corporate veil requires more than a finding of sole control by an individual who is part of a limited liability corporation to create liability in a civil action as was determined by the trial referee in this matter.   Additionally, the defendants contend that there were no findings of fact to support this claim in accordance with the law in Connecticut.   The second objection is that there is no basis in the law to award attorney fees against all of the remaining defendants.   The plaintiffs contend that the trial referee properly determined that Epifano was liable as an individual because he was the sole individual in control of the limited liability company as found by the trial referee.

P.B. § 19-14 provides that “A party may file objections to the acceptance of a report on the ground that conclusions of fact stated in it were not properly reached on the basis of subordinate facts found, or that the ․ attorney trial referee erred in rulings on evidence or other rulings or that there are other reasons why the report should not be accepted.”  P.B. § 19-17(a) outlines the function of this court in reviewing reports of attorney trial referees and provides:  “The court shall render such judgment as the law requires upon the facts in the report.   If the court finds that the ․ attorney trial referee, has materially erred in its rulings or that there are other sufficient reasons why the report should not be accepted, the court shall reject the report and refer the matter to the same or another ․ attorney trial referee, ․ for a new trial or revoke the reference and leave the case to be disposed of in court.”

“The trial court must review the referee's entire report to determine whether the recommendations contained in it are supported by findings of fact in the report.”  Killion v. Davis, 257 Conn. 98, 102 (2001).   Second, the court must insure that the report does not contain “legal conclusions for which there are no subordinate facts.”  Id., 102.   Third, the report must be reviewed to determine if it is “legally and logically correct.”  Id., 103.

Other principles governing attorney trial referee's report provide that:  “a reviewing authority may not substitute its findings for those of the trier of the facts.   This principle applies no matter whether the reviewing authority is the Supreme Court ․ the Appellate Court ․ or the Superior Court reviewing the findings of ․ attorney trial referees.”  Wilcox Trucking, Inc. v. Mansour Builders, Inc., 20 Conn.App. 420, 423 (1989), cert. denied, 214 Conn. 804 (1990).   A fact finder's recommendation should be accepted when “there is nothing that is unreasonable, illogical or clearly erroneous in the finding of the factfinder and the reasonable inferences that may be drawn therefrom.”  Id., 425.  “The factual findings of [an attorney trial referee] on any fact finder's recommendation should be accepted when “there is nothing that is unreasonable, illogical or clearly erroneous in the finding of the factfinder and the reasonable inferences that may be drawn therefrom.”  Id., 425.  “The factual findings of [an attorney trial referee] on any issue are reversible only if they are clearly erroneous ․ A reviewing court cannot retry the facts or pass upon the credibility of the witnesses ․ A finding of fact is clearly erroneous when there is no evidence in the record to support it ․ or when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.”  Meadows v. Higgins, 249 Conn. 155, 162, 733 A.2d 172 (1999).

The attorney trial referee included twenty-six paragraphs as the findings of fact within the report of the trial referee.   Part of the findings by the trial referee determined that:  “the evidence is clear, convincing, and uncontroverted that Epifano not only participated in, but was the only individual involved in the negotiations, agreements and promises made on behalf of both LLC's and, in particular, on behalf of Citation as its sole and controlling member.   As Citations' sole and controlling member he also, of necessity, participated in the conduct that led to the faulty and defective construction and repairs of the property purchased by plaintiffs.”   The plaintiffs' complaint contains only one count as to Epifano alleging that the corporate veil should be pierced because Edward F. Epifano was “the controlling party of the defendant Citation,” and “any act or omission by Citation was done by the defendant Edward F. Epifano.” and that “Edward F. Epifano's control of Citation was of such character and dominance that the corporate veil should be pierced on accord of Citation (sic) intentional disregard of its contractual obligations and the implied and express warranties set forth in the contract.”   The review of the decision of the trial referee requires that the court accept the facts as set forth in the report and determine if they comply with the law for piercing the corporate veil.   Each of the parties refer to controlling cases in Connecticut in this area and argue different conclusions.   This court has reviewed the claims based upon the two legal theories of instrumentality and identity that apply to a cause of action for piercing the corporate veil.   The trial referee report and the memorandum of the plaintiffs do not clearly enunciate which, if either, theory has been utilized or is applicable to the instant action.

The plaintiffs rely upon the case of Ventres v. Goodspeed Airport, LLC, 275 Conn. 105 (2005).   This action involved the claim of tortuous acts on the part of the corporate individuals.   The defendants have relied upon the standard set forth in Angelo Tomasso, Inc. v. Armor Construction and Paving, Inc., 187 Conn. 544, 557 (1982).   The court in Tomasso enunciates the longstanding law that the corporate veil cannot be pierced unless there are exceptional circumstances.   The defendant recites the two legal theories that will satisfy the criteria of exceptional circumstances to pierce the corporate veil.   The exceptions are well recognized in the law in Connecticut.   They are instrumentality or identity.

The instrumentality rule requires that the plaintiff prove that:  “(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;  (2) that such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of [the] plaintiff's legal rights;  and (3) that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of ․” Mountview Plaza Assoc., Inc. v. World Wide Pet Supply, Inc., 76 Conn.App. 627, 633-34, 820 A.2d 1105 (2003).   The identity exception requires that, “the plaintiff can show that there was such a unity of interest and ownership that the independence of the corporations had in effect ceased or had never begun, an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability arising out of an operation conducted by one corporation for the benefit of the whole enterprise.”  (Citation omitted.)  (Internal quotation marks omitted.)  Labbe v. Carusone, 115 Conn.App. 832, 838, 974 A.2d 738 (2009).   The identity doctrine has been primarily applied to reach beyond the veil to another corporation, it may also be employed to hold an individual liable.  Klopp v. Therman Sash, Inc., 13 Conn.App. 87, 89 n.3, 534 A.2d 907 (1987).

Although neither the trial referee nor the plaintiffs provide an analysis as to which theory applies in the instant case, the arguments and conclusions which address the sole control are more closely connected to the instrumentality exception.   However, a general interpretation of the plaintiffs' argument can apply to a unity of interest between the corporation and the corporate official.   This too could be interpreted as an issue of control.²

The recommendation for judgment in favor of the plaintiffs by the trial referee specifically includes the defendant Epifano.   The only count as to Epifano was the piercing of the corporate veil and the discussion in the report specifically makes a finding as to this claim as stated earlier.  (Report of Trial Referee page 12.)

The trial referee makes specific findings as the matter applies to Epifano and the claim of piercing the corporate veil.  (Trial Referee Report Paragraphs 3, 7, 11, 14, 16, and 17.)   These paragraphs recite the following findings:

“3. During all times pertinent to the instant matter, Epifano was the only member of Citation and the only person who could act for or control actions of Citation. 7. The contract of sale was signed on behalf of Citation by Epifano identified as ‘Its Member.’ 11.   Plaintiffs conducted all negotiations with Epifano, both prior to and at the signing of the contract of sale. 14.   How Epifano was identified on the deed is unknown since it was not offered in evidence. 16.   Although the escrow agreement entered into at or in conjunction with the closing identified both defendant LLC's as seller, only Citation signed the escrow agreement with Epifano signing, but without indication of his position with Citation. and 17.   All negotiations and agreements conducted involving the escrow agreement entered into at or in conjunction with the closing of title were conducted only with Epifano.”

Even if all the findings of fact are correct, which this court accepts, the defendant contends that this is not enough to satisfy the elements required for a finding of piercing the corporate veil under either the instrumentality or the identity exceptions.   The plaintiff argues that the finding of the sole domination and control are sufficient under the law citing Smith v. Kupersmith, Superior Court, judicial district of Stamford-Norwalk, Docket Number CV 08-6000995 (August 31, 2009).   The findings of fact in Kupersmith provided more evidence of control than is present in this matter.   The defendant in Kupersmith engaged the services of the plaintiff and thereafter the evidence demonstrated that he was working directly with the plaintiff.   The facts also demonstrated that the defendant was using the assets of the company for his own personal needs, that he was buying assets such as a private jet with corporate funds and using it for his family and friends for personal use and that he rented a house on Martha Vineyard that he used for both personal and business use and that he utilized the services of the defendant for his personal chores and kept him to assist in his personal care of his home.   Therefore, the reliance on this case is misguided because the findings do not include conduct consistent with either the unity interest or fraud, wrongdoing or dishonest acts by the individual.

The findings of the trial referee set forth in his report are closer to the facts alleged in Girouard v. R.I. Pools, Inc., Superior Court, judicial district, Stamford-Norwalk, Docket Number CV 07 5004474 (January 6, 2009) in which the court granted a motion to strike the claim of piercing the corporate veil.   In the Girouard case the plaintiff alleged “Iannone is the president and sole shareholder of R.I Pools, Inc. that at all relevant times, Iannone was in complete domination of the finances, policy and business practices of R.I., and that [a]ll representations concerning the proposal and contract for construction of the pool were made by and through Iannone.”   The court held that this was “insufficient to show a ‘unity of interest and ownership’ such that the line between corporate officer and corporation is so barely visible that piercing the corporate veil is justified ․ [T]here are no specific facts alleged to demonstrate how Iannone disregarded corporate formalities or failed to maintain separate identities.”  Id. In the present action, the findings after a hearing do not elaborate as to the course of action of Epifano which removed the line between the corporation and the officer.   In comparing this to the Kupersmith case, there are no findings by the trial referee of commingling of funds, use of the corporate property for personal needs, or any combined use of corporate assets that would rise to the level of act to pierce the corporate veil.

The findings of the trial referee minimally addresses the issue of sole control by the defendant but do not specifically provide support for the remaining essential elements to satisfy the exceptional circumstances to pierce the corporate veil.

ATTORNEY FEES

As part of the recommendation, the trial referee awards attorneys fees and costs.   The defendant contends that an award of attorney fees is contrary to law.   The plaintiff does not respond to the arguments of defendants as to this objection.

“Connecticut case law follows the general rule, frequently referred to as the American Rule, that attorneys fees are not allowed to the prevailing party as an element of damages unless such recovery is allowed by statute or contract.”  Atlantic Mortgage & Investment v. Stephenson, 86 Conn.App. 126, 132 (2004).   The findings of the trial referee do not indicate any contractual language that establishes an award of attorney fees under certain circumstances.   The plaintiffs do not cite to any statutory basis for an award of attorneys fees.   The plaintiffs' claims are contractual in nature being based entirely upon the purchase of real estate and a building.

Therefore, the recommendation for an award of attorneys fees must be rejected by the court.

CONCLUSION

Based upon the above, the court affirms the judgment for the plaintiff against the defendant Citation, LLC and enters judgment for the plaintiff against the non-appearing defendant, R.E.J. Housing Resales, Inc.

The court rejects the report of the trial referee as to the claim of piercing the corporate veil for the defendant Edward F. Epifano and as to an award of attorney fees.

ORDER

For the reasons stated herein the case is remanded to the attorney trial referee pursuant to Practice book § 19-17 for the limited purpose of trial as to the defendant Edward F. Epifano.

THE COURT

Brazzel-Massaro, J.

FOOTNOTES

FN1. On April 30, 2010, the defendants submitted a motion for extension of time to file an objection to the report of the trial referee pursuant to Practice Book § 19-18.   This motion was granted permitting the time to be extended until June 3, 2010.   A second motion to extend the time was submitted but this motion was never claimed to the short calendar and therefore, never acted upon.   The memorandum in support of the objection was filed on June 28, 2010.   The plaintiffs have not raised an issue of timeliness.   Likewise, the plaintiff submitted a motion for extension of time to submit their memorandum that was granted until August 4, 2010.   The plaintiffs filed their memorandum on August 9, 2010, without an extension of time permitted by the court.   There is no objection by defendants as to timeliness..  FN1. On April 30, 2010, the defendants submitted a motion for extension of time to file an objection to the report of the trial referee pursuant to Practice Book § 19-18.   This motion was granted permitting the time to be extended until June 3, 2010.   A second motion to extend the time was submitted but this motion was never claimed to the short calendar and therefore, never acted upon.   The memorandum in support of the objection was filed on June 28, 2010.   The plaintiffs have not raised an issue of timeliness.   Likewise, the plaintiff submitted a motion for extension of time to submit their memorandum that was granted until August 4, 2010.   The plaintiffs filed their memorandum on August 9, 2010, without an extension of time permitted by the court.   There is no objection by defendants as to timeliness.

FN2. The Report of the trial referee does not include an analysis of either the instrumentality or identity exception..  FN2. The Report of the trial referee does not include an analysis of either the instrumentality or identity exception.

Brazzel-Massaro, Barbara, J.