William Nostin v. Chad Longo (2011)

MEMORANDUM OF DECISION

In this case, Plaintiff William Nostin has sued Defendant Chad Longo, on several theories of liability, to recover money damages, costs and attorneys fees in connection with the Defendant's alleged misconduct in the course of business dealings between them concerning his purchase of an ownership interest in and securing of long-term employment with the Defendant's automobile restoration business, Unlimited Motor Sports and Paint, Inc. (“UMSP”).  In his Revised Complaint dated April 16, 2009, the Plaintiff claims, inter alia, that the Defendant is liable to pay him damages for breach of oral contract, fraudulent misrepresentation, unjust enrichment, conversion, civil theft and violation of the Connecticut Unfair Trade Practices Act, Conn. Gen.Stat. § 42–110a et seq.(“CUTPA”).  In the alternative, the Plaintiff seeks to obtain an order of rescission with respect to the underlying oral contract pursuant to which his above-referenced business dealings with the Defendant took place.   On that score, he claims that he is entitled to rescind the underlying contract because there was never a meeting of the minds between himself and the Defendant as to all of its material terms, and thus that they should be returned to status quo ante by requiring the Defendant to return to him all the money he paid for the Defendant's UMSP stock and requiring him to return to the Defendant all stock certificates evidencing and embodying his rights to and interest in such stock.

The Defendant has denied all claims of liability against him, insisting that he and the Plaintiff entered into two separate contracts instead of one—the first for purchase by the Plaintiff of UMSP stock, and the second for employment of the Plaintiff by UMSP—and that he fully performed all promises made to the Plaintiff under both agreements.   The Defendant has denied that he ever misrepresented anything to the Plaintiff in connection with either agreement, that he ever acquired anything of value from the Plaintiff for which he was not given full consideration, and that he owes the Plaintiff nothing on any theory of liability.

This case was tried to the Court on September 2, 2010.   Thereafter, upon the preparation of the trial transcript, both parties submitted proposed findings of fact and conclusions of law.   The matter was argued before the Court on February 15, 2011.

I. Findings of Fact

1. The Plaintiff is a resident of South Windsor, Connecticut.   At all times relevant to this case, he was trained and licensed as a plumber.   He was so employed, at the rate of $18.00 per hour, when he first met the Defendant while having work done on his car at UMSP, the Defendant's automobile restoration business in South Windsor, Connecticut, sometime in 2006.

2. The Defendant is a resident of Bolton, Connecticut.   At all times relevant to this case he was a specialist in the repair and restoration of automobiles who owned, operated and served as President of UMSP.

3. In the weeks and months after the Plaintiff and the Defendant first met, the Plaintiff frequently visited the Defendant's business when he passed through the area and struck up a friendship with the Defendant.   In conversations between them, they often discussed the Defendant's business and the Plaintiff developed an interest in the business.

4. In March or April of 2007, while the Plaintiff was performing some plumbing work for the Defendant on the premises of UMSP, the Defendant offered the Plaintiff the opportunity to buy into the business.   The Defendant's stated reason for making the offer was to recruit the Plaintiff as his partner so that he could find some more time for himself.   According to the Plaintiff, the offer was to sell him up to 999 shares of the business's 2000 outstanding shares of stock, all of which were then owned by the Defendant, at the rate of $450.45 per share, and to take on the Plaintiff as an employee of the business who, although he would start working in the office due to his lack of training and experience in automobile restoration, would soon be trained in the shop to perform all aspects of UMSP's work.   The details of the employment arrangement, which was not limited in duration, included 40 hours per week of work at the rate of $23.00 per hour and health care insurance.

5. As inducements for the Plaintiff to make the proposed investment in and change of employment to UMSP, the Defendant told the Plaintiff that the business was worth at least $1 million, that it had substantial assets and “lots of work” lined up, that there was unlimited cash flow coming into the business, and that if he came to work for the business he could expect to retire within 8–10 years because by then the business would have made enough money that it could run itself.   At trial, the Defendant testified that, although he had never expressly stated that his business was worth at least $1 million or claimed that it had unlimited cash flow, it did have approximately $400,000.00 worth of work in progress when the Plaintiff was considering his offer to purchase stock and it then owned several hundred thousand dollars in equipment.   The Court believes, on that basis, that the Defendant made the claimed representations about the market value and liquidity of his business, and finds additional support for that belief in the Defendant's valuation of the corporation's 2000 shares of stock at $900,900 (calculated at the proposed sales price of $450.45 per share).   With respect to the corporation's liabilities, the Defendant told the Plaintiff, in conversations between them, that his business owed unpaid taxes of between $40,000.00 and $60,000.00, but did not mention that it had any other substantial debt obligations.

6. To validate his representations about his business's past performance, current business prospects and resulting market value, the Defendant gave the Plaintiff the following documents and materials to review before deciding whether or not to purchase any of his UMSP stock:

a.  The 2005, 2004 and 2003 tax returns of UMSP;  and

b. A compact disk (hereinafter the “CD”) containing the books and records of UMSP in Quickbooks format from the date of its inception through and including the first quarter of 2007.

The Plaintiff denied in his testimony that the CD contained data of any nature but admitted that he did not inquire further of the Defendant seeking to remedy the alleged lack of data.   The Court finds that the disk and data were in fact provided to the Plaintiff as the Defendant claimed at trial.

7. Also before deciding whether or not to accept the Defendant's offer, the Plaintiff:

a.  Frequently viewed the premises within which the tangible assets of UMSP were located and observed the type and condition of equipment that comprised those assets;

b. Was afforded the opportunity to view the paper records of the business, including those documenting its “work in progress,” and personally viewed the actual work in progress on various ongoing automobile restoration projects at UMSP;  and

c. Was given unrestricted access to all accounting documents, loan papers, and tax papers of UMSP at its office in South Windsor.

8. Finally, before deciding whether or not to accept the Defendant's offer, the Plaintiff conferred with his wife, consulted with his mother, and consulted with an accountant of his own choosing after showing them the corporate tax returns the Defendant had given to him, including the schedule L's attached to those returns which documented the business's current assets and liabilities.

9. On or about May 22, 2007, after conducting his due diligence about UMSP as aforesaid, the Plaintiff accepted the Defendant's offer, as he understood it, by making his initial purchase of the Defendant's UMSP stock for $120,000.00 and leaving his job as a plumber so that he could start his new and better-paying job with UMSP forthwith.   The Plaintiff's first day of work at UMSP was May 24, 2007.

10. Material to the Plaintiff's acceptance of the Defendant's offer was the opportunity he believed it afforded him to start a new and better-paying career in the automobile restoration business with UMSP. Although, as previously noted, he had no prior training or experience in automobile restoration, the Defendant's offer, as he understood it, included giving him the necessary training in that field so that he could become an integral part of the Defendant's business and a real contributor to its long-term financial success.   The prospect of achieving such success was important to him, not only, or even primarily, as an investor in UMSP, but as a prospective long-term employee whose bright financial future and early retirement would depend on such success.   He would not have invested in UMSP or left his job as a plumber to become its employee had he understood that the Defendant's offer to sell him stock did not include, as an integral part thereof, the offer to train him in automobile restoration and give him long-term employment in UMSP's automobile restoration business.

11. The Defendant, by contrast, knew full well that the Plaintiff might never become a successful automobile restorer.   The job requires both technical skill, which can often be taught, and a measure of artistry, which cannot so easily be taught, even to an eager trainee.   The Defendant thus differentiated in his mind between his offer to sell the Plaintiff part of his UMSP stock and what he conceived of as the separate offer to employ the Defendant in the business.   The former, as he conceived it, was an offer to sell the Plaintiff a significant minority ownership interest in the business, which in turn afforded the Plaintiff the opportunity both to become an officer of the company and to make money from corporate profits as the business grew and prospered.   He conceived of the latter, by contrast, as an offer to hire the Plaintiff for an indefinite period of time to do whatever work he was capable of doing for the business, which might eventually involve some work in the shop, but in the short run could be no more than running the office, meeting new customers and occasionally quoting jobs.   Because the Plaintiff was not trained as an automobile restorer, he could not be hired for that purpose and was not in fact so hired.   By working in the office, as the Defendant planned that he would, the Plaintiff was expected to replace another UMSP employee named Doug, who would train the Plaintiff how to do his job before he left UMSP.

12. Consistent with the Defendant's understanding of the dual nature of his business dealings with the Plaintiff, the Defendant treated each undertaking separately from the outset.

13. As for what he referred to as the buy-in agreement, the Defendant reduced that agreement to writing without including anything in it about the Plaintiff's employment with UMSP. The written agreement, which was dated August 17, 2007, confirmed certain aspects of the Defendant's oral offer to sell the Plaintiff stock in UMSP by specifying a purchase price of $450.45 per share for such stock and providing that the Plaintiff could purchase, at his option, up to 999 shares of such stock at that price.   Ultimately, the Plaintiff purchased a total of 776.5 shares of the Defendant's stock for the total cost of $349,774.43.

14. As for the Plaintiff's employment agreement with UMSP, the Defendant treated the Plaintiff from the outset as an at-will employee assigned to work in the office rather than as a new partner in the business or a special trainee in automobile restoration.   Thus, while the Defendant had his departing employee, Doug, train the Plaintiff to perform office duties for UMSP and regularly assigned the Plaintiff to perform such duties thereafter, the Defendant made no special effort to train the Plaintiff to perform other tasks essential to the automobile restoration business.   Some such training was provided to the Plaintiff from time to time, but in no regular or predictable manner and with no resulting change in the Plaintiff's work duties.   The Defendant duly paid the Plaintiff for all the hours he worked for UMSP at the agreed-upon rate of $23.00 per hour, but often was constrained to do so out of his own pocket rather than with corporate funds because the latter, due to problems with cash flow, were often in short supply

15. During the first few months of the Plaintiff's employment, the Defendant determined that the financial situation of the company no longer enabled it to provide health insurance to any of its employees, including the Plaintiff.   The Defendant informed the Plaintiff of this determination at a UMSP board meeting in September 2007, which he and the Plaintiff attended in their respective roles as President and Vice President of the corporation.   According to the Defendant, the reasons for the business's financial difficulties were its indebtedness of $45,000.00 in unpaid sales and use taxes, its indebtedness of $90,000.00 in unpaid payroll taxes—a sum assertedly stolen from the business by the Defendant's former business partner—and its obligations to repay loans to three different people, including the Defendant and his mother.   Although the Plaintiff claimed at trial that the September board meeting was the first time he had learned of the company's unmet payroll tax and the loan repayment obligations, the existence of such corporate liabilities was reflected, at least in general terms, on the Schedule L attached to the business's 2005 federal income tax return, which he had been given to review before making his initial purchase of the Defendant's UMSP stock.

16. Although the Plaintiff agreed at the September 2007 board meeting to the elimination of health insurance from his and all other employees' compensation packages as of October 2007, the company's financial difficulties continued thereafter and the working relations between the Defendant and the Plaintiff deteriorated.   The Plaintiff was upset that the Defendant did not always give him forty hours per week of work and that he continued to make no serious effort to train him to restore automobiles.   Even so, he accepted a voluntary reduction in work hours as of February 2008.   The Defendant, for his part, believing that he had made no long-term commitment to the Plaintiff either to train him in automobile restoration or to provide him with long-term employment at UMSP, considered the Plaintiff to be a poor, lazy and generally disruptive employee who was frequently absent from work and didn't do much work while he was there.   According to the Defendant, the Plaintiff often came to work high on drugs and spent much of his time while he was there either working for his mother's unrelated business or taking care of his children.   Thus, although the Defendant made some effort to find the Plaintiff something other than office work to do to earn his pay, the Defendant ultimately decided to fire the Plaintiff as a UMSP employee, which he did on September 14, 2008.   In the 68 weeks of his employment with UMSP, from May 24, 2007 through September 14, 2008, the Plaintiff was paid a total of $26,818.00 in corporate funds for all the work he performed.   Although such reported wages are far lower than those he would have earned had he worked full time throughout that period, the Court has no non-speculative basis for finding that the Defendant ever failed to pay him for any work he actually performed in light of the Plaintiff's admission that the Defendant often paid him out of his own pocket instead of from corporate funds.

17. On or about October 10, 2008, the Plaintiff, through his attorney, sent the Defendant a letter formally demanding the rescission of their oral contract and offering to return to the Defendant all the UMSP stock he had received from him pursuant to that contract in exchange for the return of all the funds he had paid the Defendant for such stock.

18. Notwithstanding his demand for rescission, the Plaintiff later signed and the Defendant conveyed to him Share certificate # 9 dated November 9, 2008, which evidenced the Defendant's transfer to him of 776.5 shares of UMSP stock.   As of the time of trial the Plaintiff retains such shares in his name.

II. Conclusions of Law

A. Claims of Breach of Oral Contract and Rescission

The Plaintiff's initial claim of breach of oral contract is based upon the threshold assertion that he and the Defendant entered into a single, indivisible agreement, under which he would both purchase stock giving him a minority ownership interest in UMSP and come to work for UMSP as a long-term employee, where he would be fully trained in all aspects of its automobile restoration business.   The Plaintiff claims that the Defendant breached that oral contract by failing to train him in accordance with its terms, failing to pay him for all the hours he worked for UMSP, terminating his employment with UMSP and failing to provide him with promised and adequate or sufficient information regarding the shares and the corporation, most particularly its liabilities for unpaid payroll taxes and the repayment of loans.   The Defendant has opposed this claim by insisting, inter alia, that his employment agreement with the Plaintiff was entirely separate from their agreement for the sale and purchase of UMSP stock, and that he has scrupulously honored all promises made to the Plaintiff under both agreements.

“The existence of a contract is a question of fact to be determined by the trier on the basis of all of the evidence ․ To form a valid and binding contract in Connecticut, there must be a mutual understanding of the terms that are definite and certain between the parties.”  (Internal quotation marks omitted.)  Biller Associates v. Peterken, 58 Conn.App. 8, 12, 751 A.2d 836 (2000), rev'd in part on other grounds, 269 Conn. 716, 849 A.2d 847 (2004).  “In order for an enforceable contract to exist, the court must find that the parties' minds had truly met ․ If there has been a misunderstanding between the parties, or a misapprehension by one or both so that their minds have never met, no contract has been entered into by them and the court will not make for them a contract which they themselves did not make.”  (Internal quotation marks omitted.)  Electrical Wholesalers Inc. v. M.J.B. Corp., 99 Conn.App. 294, 302, 912 A.2d 1117 (2007).

The Court is of the view that the Plaintiff and the Defendant in this case never entered into a binding oral contract because they never reached a meeting of the minds on its material terms.   As the Plaintiff understood his supposed agreement with the Defendant, it included, as a material term thereof, an offer of long-term employment with UMSP together with training in the field of automobile restoration.   As the Defendant understood his dealings with the Plaintiff, by contrast, there was never any tie-in between the so-called buy-in agreement, under which the Plaintiff agreed to purchase certain shares of his UMSP stock, and the employment agreement, whereby the Plaintiff was hired to come to work for UMSP. He did not understand the employment agreement, moreover, to include any offer of training for or long-term employment of the Plaintiff as an automobile restorer, for the Plaintiff's ability to perform under such an agreement was highly speculative at best.

Against this background, the Court concludes that the Plaintiff has failed to prove the first essential element of breach of contract—that the parties entered into a binding contractual agreement—by a fair preponderance of the evidence, and accordingly must reject that claim.   In consequence of this finding, however, the Court agrees with the Plaintiff's alternative argument that, without a meeting of the minds as to the material terms of the parties' putative agreement, each party is entitled to the rescission of the agreement, and thus to the return of all property exchanged by and between them as consideration therefor.   The Plaintiff, for his part, is entitled to the return of his investment of $349,774.43, which he paid the Defendant for 776.5 shares of UMSP stock, and the Defendant is entitled to the return of all certificates evidencing all of his rights to and interest in such stock.

B. Claim of Fraudulent Misrepresentation

The Plaintiff's claim of fraudulent misrepresentation, like his initial claim of breach of oral contract, is based upon the alleged existence of an oral contract between the parties, which he claims that he was induced to enter into by the Defendant's intentional misrepresentations of fact both as to the financial circumstances of the corporation, and thus the market value of its stock, and as to his intention to give the Plaintiff long-term employment with UMSP together with all training necessary to perform competently in that capacity.   The Defendant, to reiterate, denies the formation of any such indivisible stock purchase, long-term employment and training contract and asserts that he never made any misrepresentations to the Plaintiff either as to the value of UMSP or its stock or as to nature or duration of his prospective employment with the company.

The Court concludes that the Plaintiff has failed to prove his claim of fraudulent misrepresentation, by clear, precise and unequivocal evidence or otherwise, for three reasons.   First, as previously decided on the Plaintiff's claim of breach of oral contract, there never was a binding oral contract between the parties because there never was a meeting of the minds between them as to all the material elements thereof.   Accordingly, the Court has determined that the contract must be rescinded and the parties must be restored to status quo ante by requiring them to return to each other all items of value exchanged pursuant to the discussions that led them both to believe, albeit on different bases, that they had reached an agreement.

As for the Plaintiff's claim that the Defendant made intentional misrepresentations to him concerning the value of UMSP or its stock, the Court finds that the Plaintiff has failed to prove that claim by any standard because the evidence shows that all assets and liabilities of UMSP were fully disclosed to the Plaintiff in the schedule L's attached to the tax returns which were produced for the Plaintiff's review in the due diligence period before he made his initial stock purchase.   The Defendant's alleged misrepresentations concerning the rosy financial picture of the business—in particular, his description of its unlimited cash flow—were at most puffery of the sort that no half-way intelligent investor, including Mr. Nostin, could have taken to be the literal truth.   As for the rest of his representations—concerning the business's substantial work in progress, its hundreds of thousands of dollars of equipment, and its value of at least $1 million—they have not been shown, by expert testimony or otherwise, to be inaccurate in any respect.   Indeed, the Defendant credibly testified, without contradiction, to the business's $400,000.00 worth of work in progress and the hundreds of thousands of dollars' worth of equipment it owned at the time of the Plaintiff's initial stock purchase.   Moreover, the Plaintiff decided to purchase the business's stock at the price of $450.45 per share, with knowledge that there were a total of 2000 such shares with an aggregate value of $900,900.   He could, of course, have attempted to renegotiate that price based upon input from his accountant or his own mother, a businesswoman in her own right, but he did not.   Finally, as to the Defendant's alleged non-disclosure of corporate liabilities for unpaid payroll taxes and loan repayment obligations, the Plaintiff has failed to prove that the Defendant misled him in any way on that subject based upon the clear proof of record that such liabilities were disclosed as part of the business's tax and business records to which he was given access before he bought any of the Defendant's stock.

With respect to the Defendant's allegedly intentional misrepresentation to the Plaintiff as to his intent to give the Plaintiff a secure and well-paid long-term job with UMSP and to train him in all aspects of its automobile restoration business, the Court has already found that that was never the Defendant's intention, and thus that he never attempted to communicate such an intention to the Plaintiff, although the Plaintiff obviously understood otherwise.   Absent the intent to make such a misrepresentation at all, much less the intention to do so in order falsely to induce the Plaintiff to purchase overpriced UMSP stock in reliance thereon, there is no proven claim of fraudulent misrepresentation in this case.

C. Claim of Unjust Enrichment

The Plaintiff's next claim, which sounds in unjust enrichment, is also grounded upon his allegation that the parties entered into a binding oral contract for the purchase and sale of UMSP stock and for his own training and long-term employment in the automobile restoration business by the Defendant's company.   The Plaintiff claims that, if and to the extent that that contract is binding, the Defendant has been unjustly enriched both by his payment of too much money for the stock he purchased, allegedly far in excess of its true market value at the time of purchase, and by his furnishing of labor to the Defendant and his business under that contract for which he was never paid.   The Court must reject this claim as well for the following reasons.

First, as with the Plaintiff's claim of breach of contract and fraudulent misrepresentation, this claim is based centrally upon the unproven allegation that the parties entered into a binding oral contract, which they did not.   Second, with respect to Plaintiff's claim that the shares of UMSP stock he purchased did not have a market value equal to the price he paid for them, that fact is unproven on the record of this case.   When, to reiterate, the Plaintiff, after conducting his own due diligence with the aid of his wife, his mother and his accountant, decided to pay $450.45 per share for 776.5 shares of UMSP stock, he made a judgment as to their market value which he was fully entitled to make and act on, but now he must live with that judgment.   He has failed to prove at trial that what he paid for the stock was not its true value, despite evidence that at times the company's later cash flow was sometimes insufficient to pay his wages out of corporate funds.   In sum, this claim of misrepresented value has simply not been proved.

Secondly, as to the Plaintiff's claim that he was not paid for all the hours he worked for UMSP, that claim is unproved as well.   Although, to reiterate, the total sum paid out to the Plaintiff from corporate funds over his 68 weeks of work at UMSP adds up to far less than he would have received had he worked a full 40–hour week during that entire period, the evidence fails to show that he was not paid for any portion of his work since it clearly establishes that he was often paid from the Defendant's personal funds and, in any event, that he frequently worked far less than forty hours per week.   In short, the Plaintiff has failed to prove that the Defendant was unjustly enriched by any work he performed for the Defendant's company for which he was not paid.

D. Claims of Conversion, Civil Theft and Liability Under CUTPA

The Plaintiff's remaining claims, which sound in conversion, civil theft and alleged violation of CUTPA, are all based upon the common allegation that the Defendant received funds from the Plaintiff pursuant to their putative oral agreement which he held and used for his own benefit without honoring the commitments to the Plaintiff by which he caused or induced him to part with such funds.   The Court must reject all of these claims for reasons similar to those upon which it has already rejected the Plaintiff's claims of fraudulent misrepresentation and unjust enrichment.

As for the Plaintiff's claim of conversion, the Plaintiff must prove that the Defendant took possession of his property—here, the money he paid for the Defendant's UMSP stock—under false pretenses, and wrongfully withheld such property from him, in violation of his possessory interest in it, for a substantial period of time.   This Court concludes that, although the Defendant was paid $349,774.43 for 776.5 shares of UMSP stock due to the parties' misunderstanding with respect to the terms of their putative agreement, the Defendant did not take possession of the Plaintiff's money illegally, by false pretenses or otherwise.   The Plaintiff paid the Defendant for the stock in question in the good-faith belief that they had an agreement, although the elements of that agreement as he understood it differed from the elements of the agreement as the Defendant understood it when he accepted payment.   Since both parties' beliefs were entertained in good faith, the receipt of such payment by the Defendant was not unauthorized or unlawful, and its retention by him under a legitimate claim of right did not constitute conversion even after the Plaintiff's demand for rescission was made.

As for the Plaintiff's claim of civil theft, which requires proof of the additional element of intent to deprive the Plaintiff of his property, there was clearly no such intent here as the Defendant believed, albeit incorrectly, that he and the Plaintiff had reached a meeting of the minds with respect to the purchase and sale of stock, and the Court has already found that he made no misrepresentations, material or otherwise, concerning the value of that stock or of UMSP.

Finally, as to Plaintiff's claim that the Defendant, by his above-described conduct, violated CUTPA, the Court concludes that in the absence of misrepresentations of the kinds here alleged, the Defendant did not violate CUTPA because he engaged in no unfair or deceptive conduct of any sort by accepting the Plaintiff's money as payment for his stock and holding it thereafter under a claim of right.   No evidence was presented at trial which purports to describe a public policy established by statute, common law or an established concept of unfairness which was violated by any of the Defendant's alleged conduct.   The record is also devoid of any evidence of immorality, lack of ethics, oppressiveness or unscrupulousness on the part of the Defendant, who conducted himself honestly in his dealings with the Plaintiff throughout.   Finally, there is no proof of record that the Defendant's conduct was of the sort that causes substantial injury to consumers, competitors or other business persons, since the evidence fails to show that the Plaintiff was harmed in any way by his conduct in the sale of the stock.   Accordingly, the Court rejects the Plaintiff's claim under CUTPA.

III. Conclusion

In the end, the Plaintiff's sole entitlement in this case is to an order of rescission with respect to his oral contract with the Defendant for the purchase and sale of UMSP stock, which he duly demanded in his letter from counsel.   The Court hereby ORDERS that the Defendant repay the Plaintiff the sum of $349,774.43, representing the total sum he paid for all UMSP stock he purchased from the Defendant, and that the Plaintiff return to the Defendant all stock certificates evidencing and embodying his rights to and interest in such stocks.   In all other respects, judgment must enter for the Defendant on all of the Plaintiff's other claims.

IT IS SO ORDERED this 14th day of June 2011.

Michael R. Sheldon, J.

Sheldon, Michael R., J.