The Cadle Co. v. Mark S. Steiner et al. (2011)

MEMORANDUM OF DECISION

The plaintiff, The Cadle Company, brings this action against defendants Mark S. Steiner, Linda Steiner, and Health Care Consulting Corp. to recover the amount due on a judgment with interest, alleging counts of unjust enrichment, constructive trust, violation of Connecticut Unfair Trade Practices Act, fraudulent transfer, piercing the corporate veil, and fraud.   Defendant's answer alleges special defenses of unclean hands, estoppel, unconscionability, fraud, and statute of limitations.   The defendant also counterclaims in counts of fraud, unfair trade practices and seeks a declaratory judgment determining whether or not Mark Steiner should be considered in default and whether he should be allowed to resume payments under the judgment.   The facts are as follows.

On or about August 15, 1982, Mark Steiner executed a promissory note in favor of the Connecticut Bank & Trust Company in the original amount of $75,000.00.   That note was negotiated to the order of the plaintiff.   In 1994, plaintiff initiated an action against Mark Steiner, resulting in a stipulated judgment in favor of plaintiff in the amount of $49,778.28 plus costs taxed at $195,20.   Judgment provided Mark Steiner would make weekly payments of $25.00 on this judgment to the plaintiff, commencing April 1, 1994.   Mark more or less regularly made seventy-nine payments of $100.00 a month from April 1, 1994 to December 2000, when he stopped.   On April 9, 2001, a representative of plaintiff called Mr. Steiner and asked him to continue the payments.   Mr. Steiner returned the call and said he was in the process of putting together a settlement proposal and he would get back to plaintiff.   He also sent $100.00 on May 12, 2001.   On September 29, 2001, a representative of plaintiff again called Mark Steiner about his failure to make his payments and Mr. Steiner said that he would have a settlement proposal in about two weeks.   At that time he also sent another $100.00.   On May 6, 2002, plaintiff called Mr. Steiner and again he said he would have a settlement proposal to the plaintiff within two weeks and sent another $100.00.   On July 21, 2002, plaintiff called Mr. Steiner and he said he was still in the process of putting a settlement proposal together.   Mr. Steiner made another $100.00 payment on January 30, 2003.   Mark never made a settlement offer to plaintiff.

For almost a whole year the matter lay dormant.   On August 21, 2003, plaintiff issued a property execution against Mr. Steiner and several of his corporations.   The execution was returned unsatisfied.   On September 22, 2003, plaintiff took the deposition of Mark Steiner as judgment debtor.   That deposition revealed Mark worked for Health Care Consulting Corp. and that Mark and Linda Steiner owned a valuable residence in Avon, Connecticut.   On August 3, 2004, plaintiff's attorney Paul M. Gaide obtained a wage execution against Mark Steiner, claiming that the total amount of the original judgment was $49,973.48 of which $8,300.00 had been paid, leaving an unpaid amount of $41,673.48.   The wage execution claimed interest due of $51,852.40 and a marshal's fee of $14,034.13, making the total amount $107,595.01.   Upon receipt of that execution, defendant Mark Steiner had his attorney Joseph Vitale call Attorney Gaide.   Vitale said that his client was prepared to pay $40,000.00.   Attorney Gaide said Cadle would not settle for less than $100,000.00.   By a complaint dated November 2, 2005, plaintiff initiated this suit.   Further facts are as follows.

In 1982 Mark and Linda purchased a four-bedroom, eight thousand square foot house in Avon, Connecticut consisting of three acres of land and a swimming pool.   In 1992, Mark owed the banks $12-15 million dollars on a failed business venture.   Later that year he started Health Care Consulting Corp. (HCCC).  His wife Linda owns 100% of the stock of the corporation.   Mark is the president and handles the day to day operation of the company which is engaged in operating nursing homes and developing senior living housing.   Mark has an MBA in real estate from the University of Connecticut.   Linda is a registered nurse.   Mark identifies potential projects, completes the deals, negotiates leases, and provides consulting services.   Linda admitted she has not participated in the operations of the corporation for all of the time the corporation has been in existence.   Mark received no salary and all corporate distributions go to Linda.   In 2002 HCCC made over one million dollars on a real estate deal in Waterford, Connecticut.

In the year 2003, Mark and Linda had gross income of $506,915.00, in 2004, gross income of minus $47,747.00, in 2006, gross income of $307,087.00, in 2007, gross income of $48,389.00, in 2008, gross income of $316,966.00.   All of this income derived from the services rendered by Mark to HCCC. Mark received no salary from the corporation.   All of the profits went to Linda and were used by her to pay all household expenses including the maintenance of their luxurious house in Avon and their style of living.   Mark freely admitted on the stand that he put all his assets in the name of his wife and allowed her to receive all distributions from his corporations in order “to protect his family.”   From this pattern of conduct the court also infers Mark did so to protect himself from the reach of his creditors.

These facts establish that the defendant's perpetrated the fraud of “diversion of the fruits of one's labor.”   The clearest case on point is Cadle v. Zubretsky, 44 Conn. L. Rptr. 843.   In that case the facts were almost identical with those of the instant case.   The wife owned all the stock in a certain corporation and the husband was president and the generator of substantial real estate commissions which were retained by the corporation and paid over in some form to the wife.   The husband received no compensation from the corporation.   He devoted 100% of his time to the business of the corporation, he signed important contracts for the corporation, and signed licensing paperwork for the real estate agents affiliated with the company.   The court found that the reason the corporation failed to make any payment to the husband was to put essentially every dollar of the husband's current and future assets and income out of the reach of his creditors.

Based on these facts, the court in Zubretsy first considered whether the plaintiff had established the doctrine of reverse piercing of the corporate veil.   In the usual case of piercing a corporate veil, a plaintiff seeks the assets of stockholders to satisfy a judgment against a corporation.   In a case of reverse piercing of the corporate veil, the plaintiff seeks the assets of a corporation to satisfy the liability of the owner or insider.  Litchfield Asset Management Corp. v. Howell, 70 Conn.App. 133, 149, 799 A.2d 298, cert. denied, 261 Conn. 911, 806 A.2d 49 (2002).   In determining this issue the court applied the instrumentality rule.   That requires the plaintiff prove not only control but complete domination of the finances, the policies, and business practices of the corporation, that the control be used by the defendant to commit a wrong or a dishonest or unjust act, in contravention of plaintiff's legal right, and that the control and breach of duty must proximately cause the injury or unjust loss complained of.  Angelo Tomasso v. Armor Construction & Paving, Inc., 187 Conn. 544, 553, 447 A.2d 406 (1982).   The court in Zubretsky found sufficient evidence of complete domination of the corporation's finances, policies, and business practice by the husband to justify piercing the corporate veil.

On the facts of this case, this court reaches the same conclusion.   It rules that plaintiff has proven its count of reverse piercing of the corporate veil of the corporation HCCC.

In the Zubretsky case the court also found that the husband transferring to his wife the earnings from the corporation and failing himself to take a salary constituted a fraudulent transfer.

Similarly in the instant case, this court finds that the plaintiff proved the elements of General Statutes § 52-552e in that while Mark was indebted to the plaintiff, he transferred his right to a salary from HCCC. “with an actual intent to hinder, delay or defraud” the plaintiff without receiving a reasonably equivalent value in exchange for the transfer.   To the same effect Cadle v. Ogalin, 495 F.Sup.2d 278 (D.Conn.2007, Arterson, J.).

By the plaintiff proving his count of fraudulent transfer, it also proved the count of fraud based on the same facts.

The evidence also established that defendant Linda Steiner was unjustly enriched by her receipt of the distributions of the earnings of Mark Steiner for the services he rendered to HCCC. The essence of a claim for unjust enrichment is stated in Gagne v. Vaccaro, 255 Conn. 390, 409, 266 A.2d 416 (2001) as follows:  “As we have recognized often, [a] right of recovery under the doctrine of unjust enrichment is essentially equitable, the basis being that in a given situation it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another.”   The elements of the doctrine are:  (1) defendant was benefitted, (2) defendant unjustly did not pay for the benefit, (3) failure of payment was to plaintiff's detriment.  Hartford Whalers Hockey Club v. Uniroyal Goodrich Tire Co., 231 Conn. 276, 282-83 (1994).   As in Zubretsky, this court finds that Linda was unjustly enriched because she received all the profits from HCCC without compensating Mark, to the detriment of the plaintiff.

The court also finds that plaintiff established its count of constructive trust as to Mark's earnings of HCCC paid to Linda with the intent to defraud plaintiff and without Mark receiving an equivalent value.  Gen.Stat. § 52-552e(a).   However, that constructive trust does not extend to the home of Mark and Linda in Avon, Connecticut because the home was purchased in 1982 before the judgment of 1994 and before Mark was insolvent. § 52-552f(b).

Several superior court cases have established that a fraudulent conveyance is a sufficient basis for alleging a CUTPA claim when the conveyance was in the furtherance of a trade or commerce.   See Lenge v. Beizer, superior court, judicial district of Hartford, docket no.   CV 08-02145 (August 30, 2001, Berger, J.);   GICC Capital Corp. v. Technology Finance Group, Inc., superior court, judicial district of Stamford, docket no.   CV 97-159419 (August 28, 1999, Lewis, J.);  22 Conn. L. Rptr. 588, 589;  Chrysler Credit Corp. v. Berman, superior court, judicial district of Litchfield, docket no.   57971 (June 10, 1993, Pickett, J.).

In GICC Capital Corp. v. Technology Finance Group, Inc., supra, plaintiff alleged that a defendant corporation, in the business of originating and collecting computer leases, fraudulently conveyed the right to collect on those leases to a co-defendant corporation and this conduct was within the trade of both defendant corporations.

In the instant case, defendant Mark Steiner arranged for his corporation, HCCC, to pay to his wife Linda, all the earnings he would have realized from his services.   This arrangement was performed in the conduct of that business and so fell within the ambit of CUTPA.

The court now turns to the issue of the amount the plaintiff is entitled to recover on the original judgment of $49,973.48.   That judgment provided that it was to be paid by the defendant Mark Steiner in installments of $25.00 per week starting April of 1994.   The parties agreed the payment should be made monthly at $100.00.   Defendant Mark Steiner made seventy-nine payments from April 1994 until December 2000.   Defendant made four additional payments in 2001, 2002 and January 2003.   If those payments are credited to those due after December 2000, they bring the payments paid through April 2001.   In this action plaintiff claims interest at the rate of ten percent from the date of the judgment, pursuant to General Statutes §§ 37-3a and 52-356d(e).

Defendant contends no interest should run on the judgment because the judgment did not provide for interest.   Defendant bases this contention on the principle that a stipulated judgment is a contract.   As stated in Bernard v. Bernard, 214 Conn. 99, 109 (1990):  “In the present case, the agreement of the parties was ordered incorporated by reference into dissolution decree.   A judgment rendered in accordance with such stipulation of the parties is to be regarded and construed as a contract.”   Therefore, defendant argues, this court cannot add interest to the judgment because it would change the terms of a contract as to which the parties had not agreed.

But a stipulated judgment is nevertheless a judgment.   Both §§ 37-3a and 356d(e) provide for interest on a judgment and neither makes a distinction based on whether or not the judgment is stipulated to.   The parties clearly understood a judgment carries the likelihood of the imposition of statutory interest.   Allowing interest on a judgment does not modify or add a term that is not reasonably foreseeable by the party.   Thus, the court concludes that interest can be allowed on even a stipulated judgment.

The next question is whether or not interest automatically runs on a judgment being paid in installments.   This issue was before the court in Ballou v. Law Offices of Howard Lee Schiff, 713 F.Sup.2d 79 (2010).   In that case the plaintiff had two judgments entered against her in Connecticut small claims court, one for $3,203.11, payable in installments of $35.00 per week, and one for $997.28 payable in installments of $50.00 per month.   The defendant ordered the sheriff to add interest to the amount owed in executing upon plaintiff's property.   The issue in that case was whether defendant's action constituted a violation of the federal Fair Debt Collection Practices Act, 15 U.S.C. 1692.   The federal court recognized the issue turned on an interpretation of two Connecticut statutes:  Section 37-3a(a) which provides that interest at the rate of ten percent a year, and no more, may be recovered in a civil action as damages for the detention of money after it becomes payable, and Section 52-356d(e) which provides that interest on a money judgment shall continue to accrue under any installment payment order on such portion of the judgment as remains unpaid.   On the one hand, the court recognized that under Section 37-3a(a), an award of post-judgment interest is generally within the discretion of the court.   On the other hand, it recognized that the language of Section 52-356d(e) could be read that interest was automatic when there is an installment payment order, and discretionary when so such order has been entered.   As a result of its certainty as to Connecticut law, it certified to the Connecticut Supreme Court these questions.

“A. Does Conn. Gen.Stat. § 52-356d(e) provide for the automatic accrual of post judgment interest on all judgments in which installment payment has been entered by the court?

B. If question ‘A’ is answered in the affirmative, what rate of post judgment interest applies?”

At this writing the case is still pending before the Connecticut Supreme Court.   The parties have not agreed to waive the requirement of § 51-183 and that this court decide this case within 120 days of the trial, and, therefore, this court must proceed without enlightenment of the Supreme Court's opinion.

At the outset, an issue not presented in the Ballou case is whether the plaintiff is entitled to interest during the seven years from April 1994 to April 2001 that Mark paid monthly installments of $100.00 pursuant to the terms of the judgment.   Defendants claims interest should not run during that period and points to language in § 37-3a(a) that interest may be recovered as damages for the detention of money “after it becomes payable.”   Defendants argues that during the time installment payments were being made, the judgment was being paid.   Therefore, during that time, he contends, interest should not run.   This court agrees with the defendant.   Thus the court holds that Section 37-3a(a) should be interpreted to mean that interest does not run on a judgment when it is being paid in accordance with its terms.

Section 52-536d(e) presents another problem.   It provides that interest on a money judgment shall “continue” to accrue under any installment payment order on the portion of the judgment that remains unpaid.   No Connecticut case has construed this statute.   The federal court in Ballou recognized that the word “continue” might imply that interest does not accrue unless a court has first ordered interest to be paid pursuant to Section 37-3a(a).   A pamphlet issued by the Superior Court in 2010, entitled “How Small Claims Court Work,” indicates that creditor may collect post-judgment interest only when it had been awarded by the court.   If as here, interest has not been awarded by the court, § 52-536d(e) would preclude interest accruing during the payment of the installments.   This court concludes that pamphlet properly interprets the law.

Moreover, if interest does not run prior to default, then all installment payments should be applied to the principal amount of the judgment.   This would reduce the judgment debt from $49,973.48 by $8,300.00 to $41,673.48.

The next question is whether or not interest accrues on the judgment after the default in payment of the installments by the defendant.   Now that the debt is payable, pursuant to Section 37-3a, the question is the same posed by the Federal District Court to the Connecticut Supreme Court:  whether interest is mandatory or discretionary.   Under Connecticut law an award of post-judgment interest is generally discretionary.   As stated in Urich v. Fish, 112 Conn.App. 837, 843-44, 965 A.2d 567 (2009), “The allowance of interest as an element of damages is, thus, primarily an equitable determination and a matter lying within the discretion of the trial court.”   Med Val USA House Programs, Inc. v. Member Work, Inc., 273 Conn. 634, 666, 872 A.2d 423 (2005);  Hartford Steam Boiler Inspection & Ins. Co. v. Underwriters at Lloyd's & Co. Collective, 121 Conn.App. 31 (2010).

If the award of post-judgment interest is discretionary, as this court concludes, what factors should the court consider in determining whether or not to exercise its discretion?   Here the plaintiff sought execution on the property of the defendant in 2003 and 2004 based upon a judgment debt of $41,718.48 plus interest of $51,852.40.   That interest clearly related back to the date of the judgment.   Moreover, plaintiff insisted on at least $100,000.00 in negotiations to settle its claim against the defendant and repeatedly said it would not take less.   Since, as this court holds, plaintiff was not entitled to interest until defendant stopped paying the installments, its execution should have been for interest from May 1, 2001 to August 4, 2004, of $13,903.00.   The demand of interest of $51,852.40 was excessive in violation of the federal Fair Debt Collection Act, 15 U.S.C. 1602e, and of Connecticut's Creditors' Collection Practices Act § 36a-646.   It was also unconscionable for plaintiff to insist upon defendant paying more than plaintiff was entitled to.

The evidence in this case was that the plaintiff is in the business of buying defaulted debts and collecting upon them.   Its insistence upon claiming from the defendant more than it was entitled to in the course of its regular business makes its actions more egregious.   Under these circumstances, the court exercises its discretion to deny plaintiff both pre-default and post-default interest.

Defendants interposed a number of special defenses sounding in unclean hands, estoppel, unconscionability, fraud, and fraudulent inducement.   All of them allege that plaintiff induced Mark to stop paying on the judgment during negotiation settlements so that plaintiff could take action to accelerate payment of the judgment.   No evidence supports these special defenses.   The evidence was that Mark ceased making payments in December 2000 unilaterally.   Thereafter, when called by the plaintiff, Mark made installment payments and during this period when defendant was making sporadic payments there were settlement discussions.   There was, however, no evidence that plaintiff induced or even encouraged Mark to stop making the installment payments in order to accelerate payment of the unpaid judgment.

Defendant also counterclaimed in three counts.   Its first count sounds in fraud and alleges that the plaintiff fraudulently induced Mark Steiner to cease making payments in order to create a default so it could accelerate payment of the judgment.   The evidence does not support these allegations.

The second count of the counterclaim sounds in unfair trade practices.   The essence of this count is that the plaintiff contacted Mark about paying a discounted settlement amount and this induced Mark to cease making installment payments.   Defendant further alleges that plaintiff fraudulently induced Mark to enter into negotiations and fraudulently induced Mark to cease making the installment payments in order to create a default.   Again, there is no evidence to support these allegations.

In the third count of his counterclaim the defendant seeks a declaratory judgment determining whether or not Mark should be considered in default and whether he should be allowed to resume payments under the original judgment.   This count is based upon allegations in the previous counts of the counterclaim and it is not supported by any evidence.   This count has not been proven.

Plaintiff, having proven its counts of fraud and of violation of CUTPA, now seeks attorneys fees.  O'Leary v. Industrial Park Corp., 211 Conn. 648, 651 (1984) holds they are allowed in an action of fraud.   CUTPA at § 42-110g(d) provides that “In an action brought by a person under this section the court may award, to the plaintiff, in addition to the relief provided in this section, costs and reasonable attorneys fees based on work reasonably performed by an attorney and not on the amount of the recovery.”   Cases determining the attorneys fees provision of CUTPA indicate that “the awarding of attorneys fees is within the discretion of the trial court ․ The statute contains no standard by which a court is to award attorneys fees, thus leaving it to the sole discretion of the trial court to determine if attorneys fees should be awarded and the amount of such award.”  Staele v. Michael's Garage, Inc., 35 Conn.App. 455, 460-61, 646 A.2d 888 (1994).

This court has found the defendants, Mark Steiner, Linda Steiner and HCCC committed fraud and violated CUTPA by Mark Steiner diverting all his earnings for the services he rendered for HCCC to his wife Linda.   The court finds that conduct to be a violation of common law, to be unethical and unscrupulous, and to injure the plaintiff.   This conduct of Mark Steiner, with the collaboration of Linda Steiner and HCCC, warrants the imposition of attorneys fees in favor of the plaintiff.

Judgment may enter in favor of the plaintiff against the defendants on the defendants' counterclaims.   Judgment may enter in favor of the plaintiff against the defendants on the counts in plaintiff's complaint of unjust enrichment, constructive trust, fraudulent transfer, reverse piercing the corporate veil, violation of CUTPA and fraud.   Damages are awarded in the amount of $41,673.48, without interest.   As to attorneys fees, the court will hear the parties at their convenience as to the amount constituting plaintiff's reasonable attorneys fees.

Satter, J.T.R.

Satter, Robert, J.T.R.