Arthur DiCesare v. Stephen Burke (2012)

MEMORANDUM OF DECISION RE APPLICATION FOR PREJUDGMENT REMEDY (109.00)

I. Procedural Background

In this case the plaintiff DiCesare, suing on behalf of himself and B & D Properties, LLC (B & D) claims that the defendant Burke is not a member of B & D, and in the first count of the complaint the plaintiffs seek a declaratory judgment that Burke has no membership interest in B & D. In their second count the plaintiffs seek to quiet title pursuant to General Statutes § 47–31 claiming that Burke did not have authority to execute a mortgage note and deed on behalf of B & D in favor of himself.

The defendant Burke, has served and filed an answer, special defenses and counterclaims.   The five counterclaims are styled as individual claims on behalf of Burke and derivative claims on behalf of B & D.¹ The counterclaims allege generally that DiCesare has failed to share equally in paying the expenses of B & D, has improperly taken loan advances from B & D and failed to take necessary steps to allow B & D to take advantage of an alleged by favorable modification of the terms of a mortgage on B & D's property held by Patriot Bank.

Having withstood a motion to dismiss the counterclaims for lack of standing and a motion to strike (Dkt Entry 131.00) the defendant has pursued his application for a prejudgment remedy (PJR) which was heard on February 7, 16 and March 2, 2012.

II. Standard of Review

As this court has stated before, General Statutes § 52–278(a)(1) authorizes the grant of a PJR when “there is probable cause that a judgment in the amount of the prejudgment remedy sought, or in an amount greater than the amount prejudgment remedy sought taking into account any defenses, counterclaims or set-offs, will be rendered in the matter in favor of the plaintiff ․” “Probable cause” has been regularly defined by Connecticut courts as “a bona fide belief in the existence of the facts essential under the law for the action, and as such as would warrant a man of ordinary caution, prudence and judgment, under the circumstances in entertaining it.”   See e.g. TES Franchising, LLC v. Feldman, 286 Conn. 577, 584 (1977);  Ledgebrook Condominium Association, Inc. v. Lusk Corporation, 172 Conn. 577, 584 (1977);  Wall v. Toomey, 52 Conn. 35, 36 (1884).   This rather distended definition has been held to mean that the burden of proof required for a PJR is less than proof by a preponderance of the evidence.  TES Franchising, supra, 286 Conn. 137;  CC Cromwell Ltd. Partnership v. Adames, 124 Conn.App. 191, 194 (2010).   Probable cause must be established both as to the merits of the case and the amount of the PJR. CC Cromwell, supra, 124 Conn.App. 196 (quoting TES Franchising, emphasis in the original).

III. Discussion

A. Factual Background.   According to Burke and not disputed B & D was formed in 1999 by Burke and DiCesare to purchase and manage an office building located at 468 Post Road East in Westport, Connecticut.   Eventually all four condominium units of the building were purchased, and Burke and DiCesare each had a fifty percent ownership in B & D. In 2002 Burke sold his capital interest in B & D to DiCesare at an agreed price of $65,000, and DiCesare paid Burke that amount part of which came from a $30,000 loan from B & D to DiCesare funded by an advance payment of rent by Burke Construction Co., and entity owned by Burke.   In 2004 DiCesare transferred the 50% capital interest back to Burke at an agreed price of $67,000.

Both members of B & D maintained offices for their other businesses at the B & D building.   At the end of 2008 each member was paying $2,500 per month to B & D for office space.   There was testimony from Burke that until the beginning of 2009 he and DiCesare managed the company affairs and shared company expenses equally.   In late 2008 Burke became aware that DiCesare would move his office out of the B & D building and that move took place in January 2009.   Burke testified that since the beginning of 2009 he has done all the work and paid all the expenses associated with B & D, with the exception of one payment of some expenses made by DiCesare in February 2009.

B. Burke's Claims.   It was stated several times during the PJR hearing by Burke's counsel that the claims being pursued by Burke are pursued derivatively on behalf of B & D. These claims are essentially:  (1) that DiCesare improperly, or otherwise, was loaned money by B & D and that B & D has demanded but not received repayment;  (2) DiCesare obstructed and failed to assist B & D's efforts, led by Burke, to restructure its mortgage with Patriot Bank to a lower interest rate, and (3) DiCesare has not paid his share of operating expenses of B & D.

The loans issue involves B & D's loan, to DiCesare of $30,000 to assist DiCesare's purchase of Burke's capital interest in B & D in 2002 and loans made by B & D to DiCesare in July 2003 and March 2004 of $14,000 and $10,000 respectively.   B & D is not claiming any interest on these loans, and there was unrebutted evidence that DiCesare paid back the $10,000 loan in February 2012.   DiCesare has admitted he did not pay back the $30,000 loan made by B & D in 2002.   Exhibit 4 (Plaintiff's Response to Requests for Admissions) ¶ 55.   He has also admitted, and there is no contrary evidence, that he has not paid back the $14,000 loan.  Id., ¶¶ 56–58.

DiCesare contends, that if these unpaid loans amount to any liability for him, they are torts (e.g.conversion) and the statutes of limitations for enforcing liability have long since expired.   In addition, DiCesare testified he never received any portion of the $67,000 Burke paid to reclaim his capital interest in B & D in 2004.   This is consistent with Burke's earlier testimony that he paid the $67,500 to B & D's capital account.   Finally DiCesare testified that the $14,000 loan to his company was made at the time Burke had no capital interest in B & D, having sold his interest to DiCesare, and therefore he was free to allocate B & D resources as he saw fit.

The court finds there is probable cause to sustain B & D's claim on the $14,000 “loan.”   It is unlikely that DiCesare's defense that he was free to allocate the $14,000 as he wished will be successful because (1) Judge Jennings has found that while Burke had assigned his capital interest to DiCesare, Burke was still a member of B & D, and (2) it was DiCesare who entered the $14,000 payment to “A. DiCesare & Associates” on the B & D books and characterized it as a “short term loan.”   This characterization is sufficient to establish probable cause that transaction was a loan of a B & D asset.   While there may be some merit to DiCesare's statute of limitations defense there have not been sufficient facts or law presented to prevent B & D from meeting the probable cause standard on the $14,000 claim.

B & D's claim for the $30,000 loan amount made to DiCesare to allow his purchase of Burke's capital interest is more problematical.   The transaction is clearly shown on B & D's ledger for September 2002.   Exhibit 2. A summary of DiCesare's and Burke's capital accounts at B & D over the years was prepared by Brian McGeady, a CPA, who has acted as B & D's tax preparer.   Exhibit 5. That summary appears to show that B & D's $30,000 loan to DiCesare was debited to his capital account (along with the aforementioned $14,000) but not until the end of 2004.   In 2006 DiCesare's account is credited with $67,500 noted as a “50% capital transfer to Art DiCesare” and Burke's capital account debited the same amount.  Id. According to the testimony DiCesare bought Burke's account with a $30,000 loan from B & D and $35,000 of personal funds.   Therefore it seems logical that $35,000 should have been returned to DiCesare individually but was not, instead it went into B & D's capital.   While DiCesare apparently did not protest the allocation of all of Burke's capital contribution, the court does not find probable cause that B & D is owed $30,000 based on the 2002 loan.

On behalf of B & D, Burke asserts a claim against DiCesare based on the latter's alleged failure to provide information to Patriot Bank as part of Burke's effort to modify the Patriot mortgages on B & D' s office building.   Burke testified he had conversations with two Patriot Bank officials who “indicated that we would be able to refinance or modify the existing mortgage and bring it down, at least, two points” (from 7.375%).   While the court overruled a hearsay objection to this testimony, the testimony is not admissible to prove that the bank was willing to modify or lower the interest rate.   There was no direct testimony from any representative of Patriot Bank and no document supportive of the fact that it was willing to modify the loan, or to what rate.   Burke testified the purported savings to B & D if the mortgage was modified was $20,000 per year and that while he supplied personal and B & D information requested by the bank, DiCesare did not.   DiCesare testified he supplied requested information to the bank but offered no documentary evidence to that effect.   The mortgage was not modified and eventually Burke paid the mortgage arrearage and the original mortgage was reinstated.   Based on the above evidence, the court finds no probable cause to sustain the claim that DiCesare foiled B & D's chances at a mortgage modification, and no probable cause that B & D suffered $20,000.00 damages annually, a claim that is purely speculative on this record.

Since the beginning of 2009 DiCesare has paid practically nothing toward the ongoing operating costs of B & D. Most of these expenses have been paid by Burke who has attempted to secure himself by taking a (presumably second) mortgage on B & D's real estate.   Exhibit H. It is clear from the evidence that B & D has suffered cash flow woes at least partly attributable to DiCesare's failure to provide either financial assistance, management assistance, or assistance in upkeep of the building and promoting the best interests of B & D. While there is little evidence putting a precise value on these shortcomings, and apparently there is no operating agreement apportioning responsibilities between the members, Burke and DiCesare, the court concludes there is probable cause to find that DiCesare's failures have directly damaged B & D in the amount of at least $10,000.00.

IV. Conclusion and Order

The PJR application and proposed order of attachment is drafted to be in favor of Burke, notwithstanding the several declarations by counsel that the claim is made on behalf of B & D. Since B & D is not named as a counterclaim plaintiff, counsel for all parties are ordered to confer and attempt to agree on the proper form for an order of attachment reflecting this court's determination, as set forth above, that B & D is entitled to an order of attachment against DiCesare in the amount of $24,000.00.

TAGGART D. ADAMS

JUDGE TRIAL REFEREE

FOOTNOTES

FN1. As aptly noted by Judge Tobin in an earlier decision in this case, “B & D is both a plaintiff and counterclaim plaintiff in the same action, yet represented by one counsel in the ․ complaint and other counsel in the counterclaim, with these attorneys representing the opposing individual parties in the dispute.   Dkt Entry 131.00..  FN1. As aptly noted by Judge Tobin in an earlier decision in this case, “B & D is both a plaintiff and counterclaim plaintiff in the same action, yet represented by one counsel in the ․ complaint and other counsel in the counterclaim, with these attorneys representing the opposing individual parties in the dispute.   Dkt Entry 131.00.

Adams, Taggart D., J.T.R.