Wayne Zabel et al. v. LLC (2013)

MEMORANDUM OF DECISION

A hearing in damages was held in the above-captioned matter on November 5–7, 2013, at which time both parties appeared and were heard.   Earlier the plaintiffs, Mr. Wayne Zabel and Mr. Gary Bornstein, had moved for default to enter against both defendants, Thomas Abbotts General Contracting, LLC and Mr. Thomas Abbotts personally, for failure to comply with discovery in accordance with Practice Book § 13–14.   The plaintiffs' Motion for Default, No. 159.00, was granted by this court on October 28, 2013 and the parties proceeded to a hearing on damages on the scheduled trial date of November 5, 2013.   Prior to said hearing, however, the defendants filed a Motion to Reconsider the court's ruling on the Motion for Default and a timely Notice of Specific Defenses dated November 4, 2013 as permitted by Practice Book § 17–34.

On November 5, 2013 the court also heard defendants' Motion to Reconsider.   After hearing argument from plaintiffs and defendants, the court denied defendants' Motion to Reconsider.   The parties then proceeded to the hearing in damages.

Entry of a default against a party does not lead directly to a judgment in favor of the other party.  “In an action at law, the rule is that the entry of a default operates as a confession by the defaulted defendant of the truth of the material facts alleged in the complaint which are essential to entitle the plaintiff to some of the relief prayed.   It is not the equivalent of an admission of all of the facts pleaded.   The limit of its effect is to preclude the defaulted defendant from making any further defense and to permit entry of a judgment against him on the theory that he has admitted such of the facts alleged in the complaint as are essential to such a judgment.   It does not follow that the plaintiff is entitled to a judgment for the full amount of the relief claimed.   The plaintiff must still prove how much of the judgment prayed for in the complaint he is entitled to receive.”  Bank of New York v. National Funding, 97 Conn.App. 133, 139, 902 A.2d 1073, cert. denied, 280 Conn. 925, 908 A.2d 1087 (2006).

The court found that most of the Specific Defenses pleaded by the defendants did not comply with Practice Book § 17–37, in that they were in large measure general denials and did not state with specificity the grounds upon which the defendants sought to avoid liability on the plaintiffs' claims.   The foregoing deficiencies notwithstanding, and over multiple objections by plaintiff's counsel, the court permitted the defendants to introduce significant evidence in avoidance of plaintiffs' claims because:  (1) even after entry of a default, the defendants are still permitted under Practice Book § 17–34, subsection (a) to offer evidence as to the amount of damages;  and (2) the court found in many instances that the question of liability and amount of damages was mixed and adequately raised by the defendants' Notice of Specific Defenses.

Having heard the evidence presented by the plaintiffs and the defendants, and taking as admitted certain allegations in the plaintiffs' Second Amended Complaint, No. 121.00, the court makes the following findings:

(1) At all relevant times, Mr. Wayne Zabel and Mr. Gary Bornstein (hereinafter collectively referred to as the “plaintiffs”) were the owners of the real estate located at 453–455 Newtown Turnpike, Wilton, Connecticut (hereinafter, the “Premises”).   The Premises consisted of a single-family home which was the plaintiffs' private residence as defined by General Statutes § 20–419, subsection (8).

(2) At all times relevant hereto, Thomas Abbotts General Contracting, LLC and Mr. Thomas Abbotts, individually (hereinafter referred to collectively as the “defendant” where not specifically named) were contractors engaged in the business of performing home improvements as defined by General Statutes § 20–419, subsections (3) and (4).

(3) On or about September 2, 2010 the plaintiffs and defendant entered into a contract (the “Contract,” Plaintiffs' Ex. 1) pursuant to which defendant Thomas Abbotts General Contracting, LLC would perform substantial renovations, remodeling and new construction to the plaintiff's residence in return for total payment of $220,000.00.   The renovations, remodeling and new construction to be performed by said defendant were “home improvements” as defined by General Statutes § 20–419, subsection (4) (said renovations, remodeling and new construction are sometimes hereinafter referred to collectively as the “Project”).

(4) The plaintiffs made the first two payments pursuant to the Contract in the amounts of $22,000.00 and $88,000.00, respectively, to defendant Thomas Abbotts individually, rather than to defendant Thomas Abbotts General Contracting, LLC (Plaintiffs' Ex. 3).   The payments were made to defendant Thomas Abbotts individually at his request (even though the Contract was in the name of Thomas Abbotts General Contracting, LLC only) and deposited into defendant Thomas Abbotts' personal checking account.

(5) At the time of entering into the Contract and accepting the first deposit payment from the plaintiffs, neither Thomas Abbotts General Contractor, LLC nor Thomas Abbotts individually was registered as a Home improvement Contractor in violation of General Statutes § 20–420 and 20–429, subsection (a)(8) (Plaintiffs' Ex. 31).

(6) The Contract did not contain a complete notice of the plaintiffs' cancellation rights in violation of General Statutes § 20–429, subsection (a)(6), nor did it contain a completion date for the Project in violation of General Statutes § 20–429, subsection (a)(7).

(7) Before work could begin in earnest on the Project, regulatory approval from the Town of Wilton Inland Wetlands Commission was required for the proposed new septic installations.   The defendant was responsible for obtaining all permits for the Project (Plaintiffs' Ex. 1).   The Contract provision notwithstanding, the defendant made the application for said permits (Defendant's Ex. I and J), but charged the plaintiff with responsibility for the cost of said permits and approvals.

(8) Shortly after receiving approval for the septic installation, the defendant stopped work on the Project for a hunting vacation, delaying the Project by approximately two weeks.

(9) Shortly after commencing work on the Project, while excavating the ground underneath the proposed new patio, the defendant encountered unforeseen subsurface water issues that caused unexpected and additional costs and delays to the Project.   No change orders relating to this subsurface water issue were prepared and forwarded to the plaintiffs at this time.

(10) During the months of December 2010 and January and February 2011, a period of intermittently heavy snowfall and other inclement winter weather, the defendant further delayed work on the Project by engaging in his snow plowing business, rather than advancing work on the Project with indoor work that would not have been affected by seasonal conditions.

(11) In January of 2011, the defendant requested the next Contract progress payment of $88,970.00.   Said progress payment was to be “due on completion of All Trades Mech. Inspection by Building Dept. for Items # I, II and III.” The plaintiffs made this payment on January 25, 2011, also directly to defendant Thomas Abbotts individually (Plaintiffs' Ex. 3).¹  The defendant testified at the hearing that he was legally entitled to this progress payment because all of the mechanical inspections were done by this time by local building department officials, and in support offered Defendant's Ex. M and N. The plaintiffs testified that he was not entitled to the payment because substantial portions of the first three Phases of the Project were still incomplete.   The court makes no express finding on whether the defendant was entitled to this payment by a strict reading of the Contract, because this question is superseded by other actions by the defendants.

(12) On February 3, 2011, defendant Thomas Abbott wrote a check from the account into which he had deposited the plaintiffs' January 25, 2011 $88,970.00 installment payment to place a $1,000.00 deposit toward a real estate purchase in Vermont (Plaintiffs' Ex. 28 and 29).

(13) On or about February 7, 2011, defendant Thomas Abbotts wrote another check for $5,000.00 from the same account to be applied toward his purchase of the Vermont real estate (Plaintiffs' Ex. 29).

(14) On or about March 10, 2011 defendant Thomas Abbotts wrote a final check for the balance of the purchase price for said Vermont real estate from the same account in the amount of $57,160.52 (Plaintiffs' Ex. 30), leaving a balance of $15,474.49 in this account.   Prior to depositing the plaintiffs' $88,970.00 check, the defendant had a balance of $2,480.73 in his account;  there were two intervening deposits of $9,540.00 and $5,767.50, leaving the defendant with $15,474.49 after the payments for the Vermont real estate.   Defendant Thomas Abbotts testified at the hearing that this use of the plaintiffs' progress payment left him with insufficient funds to complete the Project.   The defendant testified that he had other sources of funds and other sources of income at this time that he could use to complete the Project, but the court does not find the defendant credible on this point.   Nor does the court find in any way credible the defendant's testimony that a substantial portion of the purchase price for the Vermont property was provided by his wife or nephew.²  The court finds that the defendant willfully and wrongfully converted $63,160.52 of the plaintiffs' January 2011 $88,000.00 progress payment to his own uses by diverting said funds to the purchase of the Vermont real estate.

(15) Almost immediately after commencement of plaintiff's action against him, defendant Thomas Abbotts transferred title to the Vermont real estate to his daughter for no consideration and for no legitimate business purpose.   The court finds as to this transfer that the transfer was to an insider, that the defendant retained control of the asset after the transfer (as evidenced by the fact that the asset was transferred back to the defendant a short time thereafter), the transfer included substantially all of the defendant's assets and that the transaction rendered the defendant insolvent.   The court further finds as to this transfer that it occurred while the defendant was indebted to the plaintiffs.   This transfer by defendant Thomas Abbotts was fraudulent as to the plaintiffs within the meaning of General Statutes § 52–552f.

(16) Defendant Thomas Abbotts individually took active steps to remove this asset from the plaintiffs' reach by filing a homestead declaration in Vermont (Plaintiffs' Ex. 32), obtaining a Vermont driver's license and registering to vote in Vermont, all actions undertaken after the defendant was served with notice of the commencement of plaintiffs' action.

(17) After receiving the January 2011 progress payment, work on the Project proceeded, but proceeded slowly, until it came to a complete stop on or about April 22, 2011.   Thereafter, the defendant refused to return to the Project, claiming that additional funds were owed to him.   Shortly after that the defendant submitted six “Bills,” to the plaintiffs (Defendants' Ex. Q through V), which the defendant claims substantiate his demands for payment in excess of the Contract amounts through the end of April 2011.   The court finds these unsigned “Bills” to be legally equivalent to change orders and therefore in violation of General Statutes § 20–429, subsection (a), requiring that “[e]ach change in the terms and conditions of a contract shall be in writing and signed by the owner and contractor, ․” The Home Improvement Contractor Act embodies the public policy of the State of Connecticut to place the burden of documenting properly the entire transaction on the contractor, including change orders.   The defendant's failure to do so in the present case led directly to the plaintiffs' damages.

(18) The court accepts the testimony of the plaintiffs that at this point in the Project the plaintiffs made the hard decision to continue with the defendant, rather starting fresh with a new contractor.   Although the plaintiffs did not believe that they owed the additional amounts claimed by the defendant in the Bills, they ran the risk of increased costs (and losing part of their investment to date with the defendant) if they discharged them and engaged someone new.   Thus, the plaintiffs entered into a modification of the Contract whereby they agreed to pay the defendant an additional $30,000.00 (Plaintiffs' Ex. 4), payable in two instalments, one $6,000.00 payment and one $24,000.00 payment.   In return the defendant agreed to return to the Project and “complete Phase One within one month of the $24,000 payment” (Plaintiffs' Ex. 4).   The plaintiffs made both payments, the latter on May 31, 2011.

(19) The court finds the plaintiffs' testimony credible that the defendant failed to return to the Premises after receiving the $6,000.00 payment at the end of June 2011.   The court finds credible the plaintiffs' testimony that after receiving the final combined payment of $30,000.00, the defendant effectively abandoned the Project and breached his responsibilities under the Contract for the final time.

(20) The defendant admitted at the hearing in damages that he breached his obligation to complete his responsibilities under the Contract.

(21) The court finds that the plaintiffs acted reasonably to mitigate their losses after the defendant's abandonment of the Contract by soliciting several competing bids from at least two new contractors to complete the Project as originally conceived.

(22) The court finds that in order to complete the Project as originally conceived, the plaintiffs entered into an Agreement with Sterling Associates, Revised and executed March 8, 2012 (Plaintiffs' Ex. 10, 11 and 12).

(23) The courts finds that the reasonable cost of completion, as adjusted for items not required to be completed by defendant under the original Contract, and allowing for additional items performed by the new contractor, is $93,605.94 (Plaintiffs' Ex. 6).   The court finds the plaintiffs' testimony credible and accurate as to these costs.

(24) The court finds that defendant Thomas Abbotts:  (a) commingled funds for this Project ostensibly of defendant Thomas Abbotts General Contracting, LLC with his personal funds;  (b) failed to observe other corporate formalities in his dealings with the plaintiffs;  (c) converted the plaintiffs' funds to his own use;  and (d) took active steps to place the plaintiffs' asset beyond their reach as stated above.   As a result defendant Thomas Abbotts is not entitled to the limited liability that use of his company in this transaction might have afforded him.   Defendant Thomas Abbotts is therefore personally liable to the plaintiffs for compensatory and punitive damages as hereinafter stated.

(25) The court finds Plaintiffs' Ex. 6 to be an accurate statement of plaintiffs' damages, appropriately adjusted upward for credits due for work not performed by defendant that was included in the Contract and therefore the defendant's responsibility, and reduced for additional items that were not included, and therefore not properly chargeable to the defendants.   The court therefore finds that both defendants are jointly and severally liable to the plaintiffs on Counts One, Two and Five of plaintiffs' Second Amended Complaint for compensatory damages in the amount of Ninety–Three Thousand Six Hundred Five and 94/100 Dollars ($93,605.94).

(26) The court finds that both defendants are jointly and severally liable to plaintiffs for violations of the Connecticut Unfair Trade Practices Act, Count Four of the Second Amended Complaint.   Said violations include:  (a) violations of the Connecticut Home Improvement Contractors Act by, inter alia, failing to deliver a written contract to the plaintiffs that contained a completion date and by failing to obtain signed written change orders before making changes to the Contract;  and (b) unethical, unfair, unscrupulous and deceptive actions in claiming additional compensation for work which was part of the original Contract and wrongfully converting funds that should have been used to complete the Project to his own personal use.

General Statutes § 42–110b provides:  “No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”   To determine whether a practice is “unfair” under CUTPA, the courts look to the factors of the “cigarette rule” test of FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 92 S.Ct. 898, 31 L.Ed.2d 170 (1972):  “(1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise—whether, in other words, it is within at least the penumbra of some common-law, statutory or other established concept of unfairness;  (2) whether it is immoral, unethical, oppressive or unscrupulous;  (3) whether it causes substantial injury to consumers (or competitors or other businessmen).”  FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 92 S.Ct. 898, 31 L.Ed.2d 170 (1972).   Thus, in order to determine whether the defendant's actions support a claim under CUTPA, the court considers each element of the cigarette rule test as they apply to the facts of this case.   This court notes that “[t]he Connecticut Supreme Court has stated repeatedly that all three criteria of the Sperry or ‘cigarette rule’ test do not need to be satisfied to establish unfairness under CUTPA.   A court or jury may find a practice to be unfair based upon its meeting one of the criteria to a high degree or meeting two or three criteria to a correspondingly lesser degree.” ³  This court also recognizes the legislative intent that the Act should be applied in view of its remedial purposes, General Statutes, § 42–110b, Subsection (d).

The court finds the defendant's violations of General Statutes § 20–429 of failing to include a completion date, failing to incorporate the entire agreement of the parties in the Contract and failing to execute and deliver signed change orders before additional work was done or billed led directly to plaintiffs' damages.   Therefore, defendant's violations of Ch. 400 of the General Statutes are a violation of CUTPA.

The court also finds that the CUTPA violations satisfy the first element of the cigarette rule test, as do the defendant's actions in converting the plaintiff's progress payment to his own personal use.   The court finds the defendant's actions satisfy the second and third elements of the test as well, in that they are inherently unethical, immoral, unscrupulous and deceptive, and recklessly indifferent to the plaintiff's rights, Gargano v. Heyman, 203 Conn. 616, 622, 525 A.2d 1343 (1987).   The court further finds that the defendant's actions led directly to their ascertainable losses.

(27) The court awards as punitive damages in accordance with General Statutes § 42–110g, subsections (a) and (d) against both defendants the total amount of plaintiffs' attorneys fees and costs to date in the total amount of Seventy–Seven Thousand Eight Hundred Forty–Three and 75/100 Dollars ($77,843.75).

(28) The court finds by clear and convincing evidence that defendant Thomas Abbotts intentionally and wrongfully converted to his own use funds that belonged to the plaintiffs.  “The clear and convincing standard is met if the evidence induces in the mind of the trier a reasonable belief that the facts asserted as highly probably true, [and] that the probability that they are true or exist is substantially greater than the probability that they are false and do not exist.  Fenn v. Yale University, 2005 WL 327138 (Feb. 8, 2005, Droney, J.), quoting State v. Bonello, 210 Conn. 51, 66, 554 A.2d 277, cert. denied, 492 U.S. 927, 109 S.Ct. 3268, 106 L.Ed.2d 612 (1989) (internal quotation marks omitted).”  “[S]tatutory theft under General Statutes § 52–564 is synonymous with larceny as provided in General Statutes § 53a–119 ․ Pursuant to § 53a–119, a person commits larceny when, with intent to deprive another of property or to appropriate the same to himself or a third person, he wrongfully, takes, obtains or [withholds] such property from the owner.”   Hi–Ho Tower, Inc. v. Com–Tronics, Inc., 255 Conn. 20, 44, 761 A.2d 1268 (2000).

“Larceny includes, but is not limited to:  (1) Embezzlement.   A person commits embezzlement when he wrongfully appropriates to himself or to another property of another in his care or custody,” and (3) Obtaining property by false promise.   A person obtains property by false promise when, pursuant to a scheme to defraud, he obtains property of another by means of a representation, either express or implied, that he or a third person will in the future engage in particular conduct, and when he does not intend to engage in such conduct ․” General Statutes § 53a–119.

The court acknowledges the defendant's argument that he was entitled to the $88,970.00 progress payment, and therefore cannot be found to have committed larceny by asking for it.   The court also allows that a person is entitled to do whatever he wishes with money he has rightfully earned.   But that is not the case here.

In the present case there is clear and convincing evidence that defendant Thomas Abbotts obtained the second progress payment by falsely representing to them that he needed the funds to advance work on the Project and implying that he would use the funds to do so.   But instead of using the $88,970.00 to buy materials and pay his subcontractors for the Project, the evidence is undeniable that he immediately converted seventy percent of the $88,970.00 to his own use.⁴  The defendant then demonstrated his intention permanently to deprive the plaintiffs of these funds by transferring the Vermont property to his daughter for no consideration and then taking extraordinary steps to place the property out of the plaintiffs' reach after it was transferred back to his name.   The court finds by clear and convincing evidence that defendant Thomas Abbotts wrongfully and intentionally deprived the plaintiffs of the money he held for their benefit by a false promise.

The court awards treble damages to the plaintiffs against defendant Thomas Abbotts personally in accordance with General Statutes § 52–564 and Count Eleven in the total amount of One Hundred Eighty–Nine Thousand Four Hundred Eighty–One and 56/100 Dollars ($189,481.56) ($63,160.52 x 3).

Judgment shall enter in favor of the plaintiffs, Wayne Zabel and Gary Bornstein, against defendants Thomas Abbotts General Contracting, LLC and Thomas Abbotts personally, in the amount of Three Hundred Sixty Thousand Nine Hundred Thirty–One and 25/100 Dollars ($360,931.25).

So Ordered,

Anthony D. Truglia, Jr. J.

FOOTNOTES

FN1. All payments pursuant to the Contract and amendments thereto were made payable to defendant Thomas Abbotts personally and deposited into a checking account in his name only.   No evidence was presented that a separate account was ever established in the name of or for the benefit of defendant Thomas Abbotts General Contracting, LLC..  FN1. All payments pursuant to the Contract and amendments thereto were made payable to defendant Thomas Abbotts personally and deposited into a checking account in his name only.   No evidence was presented that a separate account was ever established in the name of or for the benefit of defendant Thomas Abbotts General Contracting, LLC.

FN2. No evidence of the existence of any of these other funds was offered by the defendant, other than Mr. Abbott's testimony at the hearing which the court did not find credible..  FN2. No evidence of the existence of any of these other funds was offered by the defendant, other than Mr. Abbott's testimony at the hearing which the court did not find credible.

FN3. R. Langer, et al., 12 Connecticut Practice Series, Connecticut Unfair Trade Practices, Business Torts and Antitrust (2013–20 14 Ed.), § 2.2, p. 36..  FN3. R. Langer, et al., 12 Connecticut Practice Series, Connecticut Unfair Trade Practices, Business Torts and Antitrust (2013–20 14 Ed.), § 2.2, p. 36.

FN4. The court finds credible the plaintiffs' testimony on this point that shortly after making the $88,970.00 progress payment, they received notice of an intent to file a mechanics lien by one of the defendant's subcontractors..  FN4. The court finds credible the plaintiffs' testimony on this point that shortly after making the $88,970.00 progress payment, they received notice of an intent to file a mechanics lien by one of the defendant's subcontractors.

Truglia, Anthony D., J.