Opinion
No. CV04 041 21 99-S
December 21, 2007
MEMORANDUM OF DECISION
Procedural Posture
This case involves claims by two brothers (Bruce Barry Schwartz) against the third brother (Stephen Schwartz) for an accounting, the imposition of a constructive trust regarding all assets held or exclusively controlled by Stephen for the benefit and care of Mildred Schwartz (the elderly mother of all parties hereto) and for the benefit of the litigants as to the remainder of those assets upon the mother's death. The four-count complaint also seeks damages for, misappropriation, conversion or theft of said assets, punitive damages, interest and such other and further relief as the court deems just and proper.
The record discloses that on February 7, 2007 the court (Hiller, J.) entered summary judgment as to liability only against the defendant because of defendant's on the record concession of liability (See Memoranda of Decisions, Hiller, J.), which imposed a constructive trust over Mildred's assets. Thereafter, on March 28, 2007, the court (Owens, J.) imposed sanctions on the defendant pursuant to P.B. sec 13-14 for his failure to fully and completely answer plaintiffs' interrogatories and produce certain documents pertaining to defendant's activities as fiduciary. This sanction prohibited defendant from offering any evidence at any subsequent hearing in damages. (This hearing.) This hearing in damages followed on September 26, 2007 in which the defendant was represented pro se. While the defendant was precluded from offering any evidence, he was permitted to cross examine the plaintiffs' witnesses and contest plaintiffs' exhibits. Plaintiffs offered testimony from two witnesses and numerous documentary evidence to support their claims. Upon examination of the record post-trial, the court finds that the plaintiffs filed their complaint in this case on May 17, 2004 and thereafter filed an offer of judgment on Aug. 9, 2005 in the amount of $400,000 which the defendant has failed to accept prior to the rendering of this decision.
See items ##141 and 141.05 in the court's file.
Facts
The plaintiffs and the defendant are the three sons of Mildred Schwartz. As early as 1995 while the parties' father was still alive they all began planning for the long-term care of the parents. To this end all agreed that the defendant would manage all of the parents' assets. On or about May 9, 1997 the parties' father died. On or about November of 1997 Mrs. Schwartz (hereinafter referred to as Mildred) and her 3 sons jointly agreed that the defendant would continue to manage the family assets for the care and benefit of their mother until her death. Upon her death it was agreed that whatever assets remained were to be distributed by the defendant equally among the three sons. In consequence of that agreement Mildred transferred title to all of her assets which were comprised of the condominium in which she was then living, cash in a checking account and a safe deposit box and investment portfolios in two brokerage accounts to the defendant outright or placed them under his exclusive control in order to effectuate the purposes of the prior agreement. This arrangement remained in effect until on or about January 16, 2003 when the plaintiffs were appointed co-conservators of the estate and person of Mildred pursuant to a probate court order. All assets were transferred to them. In the intervening period, the condominium was sold by the defendant and Mildred moved to a nursing home. On or about October 2000, the instant dispute erupted between the brothers regarding the disposition and management of some of the mother's assets. The plaintiffs' herein demanded a full accounting of their mother's assets. The defendant sent them a letter dated October 2, 2000 which purported to be such an accounting. This was the precipitating factor in the subsequent on-going dispute between the parties hereto and which culminated in the appointment of the plaintiffs as co-conservators of Mildred's estate and person on or about January 2003 and this law suit.
The record is devoid of any change in the aforesaid purpose for which this agreement was formed or the authorization of any isolated deviation from that purpose.
This arrangement was motivated in part to enable Mildred to use governmental medical assistance should she need it without the necessity of first spending down her assets according to testimony of Bruce Schwartz.
The record is unclear as to the total value of Mildred's assets at the time of the turnover or the amount turned over. Furthermore, although plaintiffs have claimed in paragraph 18 of their pleadings that the total value of Mildred's estate on or about October 2000 was $660,746, the court was unable to substantiate this amount, or even an approximation thereof, in the evidence. It has therefore relied on the specific amounts claimed to have been misappropriated, converted or stolen in determining damages in this case.
See Exhibit 1.
In the October 2000 letter the defendant admitted borrowing $202,696 from Mildred's assets all for his personal use. Only one of these loans was evidenced by a promissory note. In addition to the loans referred to in the Oct 2nd letter the defendant admitted borrowing a total of $30,000 in two loans in January 2001. However there is no evidence that any of these loans were repaid.
See Exhibits 1 and 2 @ p. 5, Exhibits 3, 4, 15 and 16.
Ex. 4.
Ex. 15.
During his tenure as fiduciary the defendant managed Mildred's brokerage account at A.G. Edwards. Between October 10th and May 8, 2001 the defendant caused disbursements to be made via checks issued on the brokerage account to Mildred herself, to relatives of all litigants as gifts (for which no claim is being made) and to himself for his own use. It is significant however, that except for the disbursements directly to Mildred, all of these disbursements, totaling some $2,259.99, were unauthorized by the agreement. Similarly, in July 2001 the defendant authorized two transfers totaling $4,000 from Mildred's A.G. Edwards account to defendant's IRA account which he characterized as loans to himself for his own use for which there was no authorization nor has there been any repayment.
Exhibits 6 @ p. 3; Ex 7: via checks ##129, 130, 136 137 totaling $13,000.
Exhibits 6 @ p. 3; Ex 7 via checks ##123, 124, 127, 128 totaling $2,000 for which no claim is made.
Exhibits 5 @ p. 3; Ex. 7 via check #131 totaling $259.99.
Exhibits 6; A.G. Edwards statement dated 6/30-7/27/01 @ p. 2; Ex. 11 @ p. 3.
Exhibit 11 @ p. 3.
The defendant also had control over Mildred's Merrill Lynch brokerage account. Between November 25, 2000 and February 23, 2001 the defendant authorized the issuance of a total of $38,559.21 in disbursements to himself and others for his own benefit. These funds were never returned or expended for Mildred's benefit.
Ex. 10.
Also, during his tenure as fiduciary, he and his mother maintained a joint checking account at Fleet bank. Between February 2000 and September 2001 the defendant issued three checks payable to "cash" and endorsed by him totaling $14,500. These funds were neither returned nor used for the benefit of Mildred.
Exhibits 18, 19 20
On or before October 2000 Mildred owned and resided in a condominium located in Fairfield, Connecticut which was sold by the defendant on June 25, 2001 for $240,000. The net proceeds after closing expenses were $239,290.94 which were deposited to the defendant's personal checking and savings accounts. From these proceeds the defendant lent Creative Wholesales Inc., a company owned by the son of Barry Schwartz, $60,000. That loan was subsequently repaid with interest on July 30, 2003 at a time when the plaintiffs had taken over the management of Mildred's assets. Plaintiffs used the repaid funds for Mildred's care and benefit. No claim is made with respect to the $60,000 by the plaintiffs. In addition to this loan, the defendant loaned Barry Schwartz $20,000 from the proceeds of the condominium sale for his personal use. There is also no claim for these funds. Barry Schwartz never repaid this personal loan prior to the trial of this matter. He did however offer to credit the defendant with his 1/3 share of the loan, ($6,666.66) against any judgment rendered against him. There is also no evidence that the $159,250.94 remaining in the defendant's personal bank accounts was ever used for Mildred's care or benefit or returned.
Exhibits 2 @ p. 6; Ex. 17.
Ex. 13.
Testimony of Barry Schwartz.
Testimony of Barry Schwartz, Schedules 6 7 of plaintiffs' post-trial brief.
Then there is the matter of the distribution of cash from Mildred's safe deposit box over which the defendant maintained control as part of his fiduciary duties. Sometime before January 2003 while Mildred's assets were still under the control of the defendant, he emptied Mildred's safe deposit box at Fleet bank of all cash therein and put the funds into two bank envelopes — one containing $9,000 and the other containing $6,000 and change. He offered to give Barry either envelope. Barry eventually chose the one containing $6,187. The defendant kept the envelope containing the $9,000. Barry used these funds to reimburse himself for funds he personally advanced to pay for Mildred's care at a nursing home because of some mix-up in the turnover of funds in January 2003. However, the $9,000 in cash that the defendant retained was never used for Mildred's care or benefit or returned.
Testimony of Barry Schwartz; Exhibit 26.
With regard to credits which the plaintiffs have voluntarily offered to give the defendant against any judgment that should be rendered against him in this law suit, there is the matter of an automobile and paintings owned by Mildred at her death which plaintiffs took for themselves after her death. The automobile was sold by Bruce for $300 who retained the proceeds and has now for the first time voluntarily offered to credit the defendant with $100 as his 1/3 share. Similarly, Barry retained some paintings which he valued at $650. He too now voluntarily offers to credit the defendant with 1/3 of their value or $216.66. This and other acts hereinbefore referenced are indicative of how all three brothers have treated Mildred's assets as part of their own personal domain.
Testimony of Bruce and Barry Schwartz.
Finally, there is the matter of the diminution in the value of the investment portfolios owned by Mildred and managed by the defendant as part of his fiduciary functions. When the plaintiffs received the Oct. 2, 2000 letter they became alarmed by the disclosure of a substantial investment in what they perceived to be a risky investment practice by the defendant, to wit, excessive investments in EMC stock. As a result of this uneasiness, they immediately advised the defendant to liquidate all risky stocks. The defendant refused to do so. The plaintiffs now seek as additional damages the diminution in the value of such stock over the period of the defendant's management of Mildred's investment portfolios.
Testimony of Bruce and Barry Schwartz; Ex 1 @ p. 2.
It is noteworthy that neither plaintiff had any stock market investment experience sufficient to determine what was an imprudent investment nor did they consult with anyone who did prior to demanding that defendant divest the portfolios of these so called risky stocks.
There is evidence that over the period of defendant's administration of Mildred's investment portfolios the value of EMC and other stocks the plaintiffs now claim to be imprudent rose and fell but at no time did their values fall below the adjusted purchase price over the duration of the defendant's management. See brokerage statements from A.G. Edwards and Merrill Lynch in Exhibits 5 through 10.
In addition to compensatory money damages sought for the breach of defendant's fiduciary duty, the plaintiffs seek three types of punitive damages: common law punitive damages referable to intentional, reckless and wanton conduct of the defendant fiduciary, statutory damages for civil theft pursuant to section 52-564 and prejudgment interest damages under 37-3a for wrongful withholding of funds to the rightful owner.
Conclusions of Law
In a hearing in damages ordinarily the party seeking the damages has the burden of proving the nature and extent of the damages he is entitled to as a matter of law. Murray v. Taylor, 65 Conn.App 300, 335, (2001), cert denied, 258 Conn. 928 (2001); Ratner v. Willametz, 9 Conn.App. 565, 575-76 (1987), see also, Arshad v. Kahn, Superior Court, Judicial Dist. of Fairfield, No 4001286 (April 27, 2006, Beach, J.). However, in an action for breach of a fiduciary duty once the fiduciary relationship has been established by the plaintiff, the burden thereafter shifts to the defendant to prove by clear and convincing evidence that he did not violate his fiduciary duty. Dunham v. Dunham, 204 Conn. 303, 322-23 (1987), and Alaimo v. Royer, 188 Conn. 36, 41 (1982). This rule also extends to hearings in damages where the evidence of liability is inextricably intertwined with damages so that the evidence of liability also proves damages. Therefore in the unique situation where the evidence of liability automatically proves the magnitude of plaintiffs' damages, the burden of disproving the damages by clear and convincing evidence shifts to the defendant fiduciary. Oakhill Associates v. D'Amato, 228 Conn. 723, 726 (1944).
The court in Oakhill suggested two examples that clearly illustrate this principle:
"In an action by the beneficiary for breach of a fiduciary duty, the fiduciary would be required to prove by clear and convincing evidence that the disbursements were made in the best interest of the beneficiary and that he or she did not gain personally. Any difference between the amount initially entrusted to the fiduciary and the amount of disbursements the fiduciary could justify with clear and convincing proof would be damages. On the other hand, if the fiduciary were entrusted with a work of art and then lost it, his or her failure to prove freedom from liability would not establish damages. Under these circumstances, the beneficiary would have to establish damages separately by proving the value of the work of art by a preponderance of the evidence." (Emphasis added.) Oakhill Associates v. D'Amato, 228 Conn. 723, 729 (1944).
This is the situation in the present case. The plaintiffs have obtained a summary judgment establishing the defendant's fiduciary relationship to his mother and his brothers pursuant to an agreement to manage all of Mrs. Schwartz' assets for her care and benefit until her death and then distribute the remaining assets to the plaintiffs. The judgment also established his liability for the unauthorized disbursement of cash to himself for his own use and to others in violation of that agreement. Therefore, with two exceptions, proof of this misconduct necessarily involves the proof of the amount of damages since defendant would have to show that the various amounts in question were made to or for the benefit of his mother. Oakhill Associates v. D'Amato, supra.
The first exception is the proof of common-law punitive damages for the various wrongful distributions. It is well settled that one is only entitled to punitive damages if they were caused by the reckless indifference to the rights of others or an intentional wanton violation of those rights. Label Systems Corp v. Aghamohammadi, 270 Conn. 335 (2004); see also, Whitaker v. Taylor, 99 Conn.App. 719, 730 (2007).
The plaintiffs have alleged in the alternative both wanton and reckless conduct on the part of the defendant. Wanton is defined as the creation of an unreasonable risk of harm while utterly indifferent to the consequences. BLACK'S LAW DICTIONARY, 7th Ed. @ 1576. Reckless is defined as the creation of a substantial and unjustifiable risk of harm by a conscious disregard of those risks. Id. Therefore if the defendants conduct came within the purview of these requirements, the plaintiffs would be entitled to common law punitive damages. The court finds that in all instances where the court found punitive damages warranted, the plaintiffs have offered sufficient evidence that such conduct was reckless rather than wanton. Although the defendant appreciated the risks involved in his use of his mother's assets in violation of the terms of the agreement, the circumstances surrounding his transgressions including the familial relationship between the defendant, his mother and brothers and his general concern for his mother's welfare are more consistent with recklessness than wantonness.
Reckless differs from wanton both as to the actual state of mind of the wrongdoer and as to the degree of culpability. One who acts recklessly is fully aware of the unreasonable risk he is creating, but may be trying or hoping to avoid any harm. One acting wantonly may be creating no greater harm or risk, but he is not trying to avoid the risk but is indifferent as to whether harm will result or not and for this reason wanton conduct is more culpable. BLACK'S LAW DICTIONARY, 7th Ed. @ 1576.
Punitive damages are limited to costs of litigation including reasonable attorneys fees less taxable costs. Label Systems Corp v. Aghamohammadi, supra. If awarded, the amounts are within the sole discretion of the court. Id. Because these matters essentially involve the state of mind of the wrongdoer, they are not essential to the proof of one's liability for a breach of a fiduciary duty. Nor is the evidence of the wrongdoer's state of mind intertwined with the amount that flows from such a breach. Rather, punitive damages are additional, separate and apart from liability and must therefore be proven separately. Oakhill Associates v. D'Amato, supra. Consequently, there is no burden shifting or enhancement of the standards of proof under these circumstances. Accordingly, as to common-law punitive damages, this court concludes that the plaintiffs have the burden of proving them in this hearing in damages by a fair preponderance of the evidence. Oakhill Associates v. D'Amato, supra.
The other exception relates to the fourth count of the complaint which alleges a statutory theft of assets pursuant to section 52-564 C.G.S. This theory of recovery is akin to our larceny statute and requires proof of a specific intent on the part of the wrongdoer to steal the property of the owner. Lauder v. Peck, 11 Conn.App. 161, 165 (1987), Schaffer v. Lindy, 8 Conn.App. 104 (1986).
Sec 53-119 C.G.S provides that "A person commits larceny when, with intent to deprive another of property or appropriate the same to himself or a third person, he wrongfully takes, obtains or withholds such property from an owner." (Emphasis added.)
Multiple damage statutes as these statutes are commonly referred to are punitive inasmuch as their purpose is to punish the wrongdoer for his offense, not to compensate the plaintiff for his injury. In discussing the difference between common law punitive damages and statutory multiple damages our Supreme Court said in Harty v. Cantor Fitzgerald Co., 275 Conn. 72 (2005):
It is well settled that . . . statutory multiple damages . . . while serving a similar punitive purpose are . . . separate and distinct from common law punitive damages and are awarded in addition thereto in the appropriate case. Id. at 94. (Emphasis added; internal citations omitted.)
And the court went on to note:
"(common law punitive damages serve primarily to compensate [the plaintiff] for his injuries and, thus . . . are limited to the plaintiff's litigation expenses and costs less taxable costs)" ". . . under our law the purpose of awarding so called [common law] punitive damages is not to punish the defendant for his offense, but to compensate the plaintiff for his injuries (internal citations omitted). Id. at 97.
Since multiple damage statutes such as 52-564 are punitive, are separate and distinct from common law punitive damages and seek damages in addition to compensatory damages, the Oakhill rule does not apply to this type of punitive damages. Consequently, the plaintiffs in the present case must prove their entitlement to treble damages by a fair preponderance evidence.
In 1986 our appellate court concluded in Schaffer v. Lindy, 8 Conn.App. 96, (1986) that clear and convincing evidence was the appropriate standard of proof required in such cases. It later applied this rule in Freeman v. Alamo Management, 24 Conn.App. 124, 131 (1991), an unlawful entry and detainer case in holding double damages authorized under 47a-43 required the enhanced standard of proof. On appeal our Supreme Court appears to have overruled the Appellate Court in both Freeman and Schaffer on this point in saying:
"We disagree . . . with the Appellate Court's conclusion in this case and in its earlier case of Schaffer v. Lindy . . . that clear and convincing proof is an appropriate standard of proof whenever claims of tortuous conduct . . . require the proof of willful, wrongful and unlawful acts. Absent evidence of legislative intent to the contrary, we continue to presume that when a statutory private right of action includes multiple damages, the plaintiff's burden of proof is the same as that in other cases." Id., 682-83. (Emphasis added.) Although our Appellate Court has continued to apply the enhanced standard of proof in multiple statutory damage cases since Freeman v. Alamo Management, 221 Conn. 674, (1992), without reference to Freeman or its reversal of Schaffer, this court chooses to follow the Supreme Court's holding in Freeman since it has yet to be overruled or clarified on this point. It therefore appears to be the prevailing law as announced by the highest court in the state. Freeman v. Alamo Management, Id. at 682-83.
The plaintiffs claim that the defendant breached his fiduciary duty in three specific ways: by misappropriation, conversion or outright theft. The plaintiffs rely on essentially the same evidence in each count to establish their theory of breach, i.e. by misappropriation of assets (Second Count); by conversion of assets (Third Count) or by theft (Fourth Count). Obviously the plaintiffs have pleaded these theories of recovery in the alternative inasmuch as each is distinguishable from the other. As used in this case the term misappropriation means the act of applying another's property/money dishonestly or fraudulently to one's own use, BLACK'S LAW DICTIONARY, 8th Ed,; the term conversion means any unauthorized act which deprives an owner of his property permanently or for an indefinite time, Deming v. Nationwide Mutual Ins. Co., 279 Conn. 745, 770 (2006); see also, BLACK'S LAW DICTIONARY, 4th Ed; and, theft under section 52-564 C.G.S. is the act of the taking or receiving of property of another with the specific intent to steal it, Deming, supra at 771, see also, larceny, BLACK'S LAW DICTIONARY, 4th Ed. Thus, fraudulent application, the lack of authority, permanency of deprivation and felonious intent are the factors that distinguish these acts from one another and which must be proven to establish the nature and extent of the plaintiffs' damages. However, because the burden has shifted to the defendant with regard to compensatory damages, the defendant is required, with the two exceptions already discussed, to come forward in this hearing to disprove these claims by clear and convincing evidence. Because he has been precluded from offering any evidence in this hearing by prior court order, the court must conclude from only the plaintiffs' evidence the amount of damages to be recovered.
However, because the damages claimed are in differing amounts arising out of different conduct, it will be helpful to an understanding and framing of the resulting judgment if the court segregates the damages into logical categories and discusses them separately as follows:
Loans to the defendant prior to October 2, 2000
The Court finds that that $202,696 in loans were disbursed from Mildred's assets to the defendant at various times prior to October 2, 2000 for his own personal use and were never repaid. All the relevant evidence characterizes these disbursements as loans. There is no evidence to the contrary. One loan in particular was evidenced by a promissory note for $85,719. This document is significant because it sets the tone for all the non-documented loans at least in regard to repayment. The note provides that principal and interest is to be repaid "as able." These loan transactions clearly meet all of the aforementioned criteria of a misappropriation, supra. They were fraudulent because nowhere in the record is there any indication that any of them were contemplated by the agreement between the parties and their mother. The purpose of the agreement was unambiguous: to wit, for the care and benefit of Mildred Schwartz until her death. Furthermore, there is no evidence from the defendant that these purposes were in any way modified to permit the fiduciary to make loans to anyone, let alone himself. Their character as "loans" preclude the transactions from being a conversion because there is no permanency in the deprivation considering the terms of the written note and the relationship of the parties to the loans. Furthermore, any indefiniteness of detention must be negated by the expectation of repayment within an indeterminate time. Accordingly, the plaintiffs are entitled to compensatory damages of $202,696 plus interest on the promissory note in the amount of $16,274.71 flowing from the defendant's misappropriation.
Exhibit 1.
Exhibit 4.
Ibid.
Interest is computed from March 30, 1999, the date of the promissory note, to on or about January 16, 2003, when the defendant's fiduciary relationship terminated. Plaintiffs have brought this action as individuals, not as co-conservators or as the legal representatives of the estate of Mildred Schwartz. (See plaintiffs' pleadings.) Consequently, they have no standing in this case to recover accrued interest owed to Mildred Schwartz or her estate after January 16, 2003 to the present. However, they are entitled as beneficiaries of an impressed trust to recover damages arising out of defendant's breach of his fiduciary duty, including accrued interest during the period of his fiduciary relationship, i.e. 3 years 9 months and 17 days. At 5% simple interest that computes out to be $16,274.71.
In addition, the plaintiffs have presented creditable evidence that these disbursements were intentionally made in reckless disregard of the purposes of the trust agreement and solely for the benefit of the defendant. Under such circumstances the plaintiffs are also entitled to common law punitive damages. Label Systems Corp it Aghamohammadi, supra.
Disbursements from Mildred's brokerage accounts CT Page 21376
For the same reasons herein above expressed a similar treatment should be accorded the two $2,000 loans from the A.G. Edwards brokerage account to the defendant's IRA account in July of 2001. Accordingly, the plaintiffs are entitled to compensatory damages of $4,000. Similarly since there is evidence that both loans were made under circumstances giving a reckless disregard of the rights of the beneficiaries, plaintiffs are entitled to common care punitive damages as well. Label Systems, supra.Also, between October 10, 2000 and November 16, 2000 the defendant caused the issuance of $2,259.99 in checks from the A.G. Edwards brokerage. $2,000 were gifts to the children of the parties for which no claim is being made. A $259.99 check was issued to the defendant himself. Because both the gifting and the issuance of these checks were inconsistent with the purposes of agreement and the defendant has failed to produce any evidence that the finds were ever returned or used for Mildred's benefit, they must be considered conversions. As to the gifts, no claim is being made. As to the funds payable to the defendant, plaintiffs make claim for this sum. Accordingly, the plaintiffs are entitled to $259.99 in compensatory damages. Because the $259.99 check was intentionally made in reckless disregard of the rights of the beneficiaries as aforesaid, the plaintiffs are entitled to common law punitive damages on the converted funds as well. Label Systems Corp v. Aghamohammadi, supra. For the reasons already indicated, treble damages are unwarranted. Deming, supra. 771.
See Exhibit 7.
There were also four disbursements issued on the A.G. Edwards brokerage checking account totaling $13,000 between September 2000 and October 2000 directly to Mildred Schwartz. The brokerage statements relied on by the plaintiffs were prepared by the brokerage firm, not the defendants which affords the information contained therein prima facie reliability. However helpful this evidence is to the defendant, it is to no avail since as a fiduciary he has the burden to prove by clear and convincing evidence that she actually received the funds represented by the checks. Oakhill Associates v. D'Amato, supra. Therefore, in the absence of any offer of clear and convincing proof from the defendant that the disbursements in question actually benefited Mildred, the conclusion is inescapable that these funds were misappropriated. Accordingly, the plaintiffs are entitled to compensatory damages of $13,000.
See Exhibit 6 brokerage statements for periods 9/30-10/27/00 and 10/28-11/24/00.
The plaintiffs offered the statements in question for the truth of the matters contained in them without reservation. Consequently, such evidence is prima facie evidence that the payments were received by Mildred.
Had the defendant proffered the actual cancelled checks with Mildred's endorsement thereon, he would have offered sufficient proof of receipt. No such evidence was proffered.
However with regard to punitive damages, because these disbursements were payable to Mildred, it was the plaintiffs' burden to overcome the presumption that such disbursement was consistent with the purposes of the agreement with creditable evidence of its own that the disbursements in question were made in reckless disregard of the rights of the beneficiaries. The plaintiffs offered the testimony of Bruce Schwartz who speculated that his mother never received the checks payable to her as evidenced in the various brokerages documents because she had no need for the money. For obvious reasons the court found this testimony not to be credible. The plaintiffs offered no other evidence. Consequently, the court declines to award punitive damages with respect to this misappropriation. Oakhill Associates v. D'Amato, supra. The plaintiffs have also failed to offer sufficient evidence of a larcenous intent to steal these funds. Accordingly, the court declines to award treble damages. Deming, supra at 771.
The brokerage statements themselves are prima facie evidence that the disbursements to Mildred were consistent with the purposes of the agreement.
Between November 2000 and February 2001 defendant made numerous disbursements totaling $38,559.21 from Mildred's Merrill Lynch brokerage account to himself and, with one exception, to various strangers to this lawsuit. Of this amount it is undisputed that $30,000 was for loans to the defendant to pay for his personal legal expenses while $7,059.21 was disbursed directly to strangers. The exception referred to was a $1,500 disbursement to Mildred Schwartz which should be treated similar to the other direct disbursements to Mildred for the reasons already discussed above. However, because the $30,000 represented loans inconsistent with the purposes of the trust and for defendant's benefit, they must be considered misappropriations. On the other hand, the remaining disbursements totaling $7,059.21 made directly to various strangers which implies an element of permanency, in the absence of clear and convincing evidence of some beneficial effect on Mildred, must be considered conversions. Deming v. Nationwide Mutual Ins. Co., supra, 770.
See Exhibit 10.
See Exhibit 15, @ p. 1.
In summary, plaintiffs are entitled to recover compensatory damages of $31,500 in misappropriated funds and $7,059.21 in converted finds. Ordinarily, compensatory damages for conversion includes interest from the date of the conversion. Griffin v. Nationwide Moving Storage Co., Inc., 187 Conn. 405, 419 (1982). However, because plaintiffs failed to offer any evidence upon which the court could objectively compute the rate of interest on the converted funds, no interest has been awarded on the converted funds. Griffin v. Nationwide Moving Storage Co., Inc., supra at 420.
In addition to compensatory damages, because the circumstances under which these disbursements were made demonstrate a reckless disregard of the rights of the beneficiaries as aforesaid, the plaintiffs are also entitled to common law punitive damages. Label Systems Corp v. Aghamohammadi, supra. However, the $1,500 disbursement directly to Mildred for the reasons already discussed is not subject to punitive damages.
Disbursements from Mrs. Schwartz' checking account
Between February 2000 and September 2001 the defendant issued three checks in varying amounts from Mildred's checking account at Fleet bank on which the defendant was a signatory with his mother. The aggregate amount of these checks was $14,500. All checks were payable to "cash" and endorsed by the defendant. Since the endorsements themselves are prima facie evidence of defendant's receipt of these funds and the defendant has not offered any evidence to indicate that the funds were ever returned to the trust assets or used for Mildred's benefit, the conclusion is inescapable that these transactions amounted to a conversion. Deming v. Nationwide Mutual Ins. Co., supra, 770. Accordingly, the plaintiffs are entitled to compensatory damages of $14,500. No interest is awarded from the date of conversion. Griffin v. Nationwide Moving Storage Co., Inc., supra, 420.
See Exhibits 18, 19 20.
In addition thereto because there is evidence that these disbursements were made under circumstances evincing a reckless disregard of the rights of the beneficiaries as aforesaid, the plaintiffs are also entitled to common-law punitive damages. Label Systems Comp v. Aghamohammadi, supra. With respect to a violation of 52-564, the disbursements in question were documented by checks which prima facie negates intent to conceal the transaction. Therefore, in the absence of any evidence from the plaintiffs of a larcenous intent to steal these finds, there is insufficient evidence to support a civil theft. Label Systems Corp v. Aghamohammadi, supra. Accordingly, treble damages are not awarded on the $14,500 conversion. Deming, supra. 771.
Condominium Sale Proceeds
On or about June 25, 2001 Mildred's condominium was sold by the defendant. The net proceeds from the sale after closing expenses was $239,290.94. The defendant admitted depositing these proceeds to his personal bank accounts. From these proceeds the defendant made two loans totaling $80,000. One loan was made to Creative Wholesale Meats, Inc. owned by the son of plaintiff Barry Schwartz in the amount of $60,000. The other loan was made to the plaintiff Barry Schwartz himself in the amount of $20,000 which was never repaid.
See Exhibit 17.
See Exhibit 13.
This loan was later repaid with interest after the plaintiffs took charge of Mildred's estate.
See Ex 21. Barry Schwartz at trial voluntarily offered to credit $6,666.66 to the defendant representing defendant's 1/3 interest in the remaining assets conditioned on any judgment that might be rendered against him in this law suit.
After the disbursements of the aforementioned loans, there remained $159,290 of the net proceeds in the defendant's personal bank accounts. The defendant has offered no evidence accounting for the final disposition of these funds either to the trust or for the benefit of Mildred. Furthermore, none of the foregoing dispositions was generally contemplated by the constructive trust agreement nor did the defendant offer any evidence of any special agreements to authorize same. Therefore the conclusion is inescapable that with respect to the $159,290 a conversion occurred. Deming v. Nationwide Mutual Ins. Co., supra, 770.
With respect to the $80,000 in unauthorized loans, although the plaintiffs make no claim for these funds, these transactions nevertheless impact on their right to recover punitive damages on the $159,290 in converted funds . . . Inasmuch as the $80,000 in loans were made prior to the death of Mildred, while the funds in question were under the exclusive control of the defendant, they must be considered as fraudulent misappropriations because of their undisputed character as loans. Barry participated in this fraudulent scheme either directly by accepting the $20,000 loan proceeds and indirectly by not objecting to or acquiescing in the $60,000 loan for the benefit of his son's business. See, Stevenson Lumber Co. v. Chase Associates, Inc. Superior Court, Judicial Dist. of Hartford, Docket No. CV 0815008 (September 2, 2005, Booth, J.). Bruce Schwartz also had knowledge of these improper loans but registered no objection to them.
Since the award of punitive damages is discretionary, Label Systems Corp, supra, a court having both legal and equitable jurisdiction may apply equitable considerations under a general prayer for relief even though such relief is not specifically requested by the plaintiffs so long as the relief is not prejudicial to the defendant and not inconsistent with the allegations and proofs. Pamela B. v. Ment, 244 Conn. 296, 308-09 (1968); Balzano v. Balzano, 135 Conn. 584, 590 (1949). In applying such equitable considerations to this transaction, this court finds that it would be unjust and inequitable for the plaintiff Barry Schwartz to benefit from his own wrong-doing in the recovery of punitive damages under the equitable doctrine of unclean bands. Collens v. New Canaan Water Co., 155 Conn. 477, 491-92 (1967). Similarly, it would be unjust to allow Bruce Schwartz to recover common-law punitive damages when he failed to object to such loans while he knew or should have known they were not authorized by the agreement. Accordingly, the court declines to award either plaintiff any common-law punitive damages with regard to all condominium sale proceeds converted by the defendant. Furthermore, since neither plaintiff has offered sufficient evidence of a larcenous intent with regard to the $159,290 retained by the defendant, an award of treble damages is unwarranted. Label Systems Corp v. Aghamohammadi, supra, However, both plaintiffs are entitled to compensatory damages for the conversion of the $159,290.94 without interest. Deming, supra, 770; Griffin v. Nationwide Moving Storage Co., Inc., supra 420.
See the language used in paragraph 8 of plaintiffs' prayer for relief. The language "such relief as the court deems appropriate" or similar language as the plaintiffs used is considered a general prayer for relief. Balzano v. Balzano, 135 Conn. 584, 590 (1949).
Safe Deposit Funds
Between the summer and fall of 2002 while Mildred's assets were still under the defendant's exclusive control, he emptied Mildred's safe deposit box at Fleet bank of all its cash totaling some $15,000. He shared these proceeds with Barry Schwartz who chose to take $6,187 while the defendant kept the remaining $9,000. Plaintiffs make no claim for the $6,187, but do claim that the defendant misappropriated the $9,000 to his own use.
There is evidence from which the court found that at some later date Barry reimbursed himself with these funds for advances he made for the benefit of Mildred. Barry's reimbursement for advances he made for Mildred's care was not contemporaneous with his acceptance of the cash from the defendant. The fact that the funds were ultimately used for Mildred's benefit does not change the character of the initial wrongful disposition, i.e., for Barry's personal use. However, because its ultimate use was for Mildred's benefit that fact negates a permanent deprivation which would be inconsistent with a conversion. He was nevertheless complicit in the misappropriation of funds.
See Schedule 4 attached to plaintiffs' post-trial brief.
With respect to the $9,000, this transaction has all of the earmarks of a conversion. It was unauthorized by the agreement and the asset in question was never returned to the constructive trust. Furthermore, the defendant has failed to show by clear and convincing evidence that he did not violate his fiduciary duty with regard to the disposition of those funds. Inasmuch as the transaction in question was transparent in all respects in that all parties were aware of it at the time it took place tends to negate any concealment. Therefore, in the absence of any evidence from the plaintiffs of defendant's larcenous intent in taking the funds, no award of treble damages is warranted.
In summary, the plaintiffs are entitled to compensatory damages in the amount of $9,000 without interest. Inasmuch as both plaintiffs were complicit in both unauthorized dispositions of cash from the safe deposit box, the court on the equitable grounds hereinbefore discussed declines to award common-law punitive damages for this conversion. Pamela B., supra.
There is no evidence as to the date when the conversion took place or the rate of interest to be computed. See. Griffin v. Nationwide Moving Storage Co., Inc. 177 Conn. 405, 420 (1982).
The court deduced this complicity from the fact that Bruce joined with Barry in waiving any claim to the $6,187 in cash retained by Barry from Mildred's safe deposit box.
Diminution of Stock Values/Investment Portfolios
The plaintiffs seek damages from the defendant for the loss in value of certain stocks in which the defendant invested the beneficiaries' assets. Plaintiffs cite Jackson v. Conland, 178 Conn. 52, 55 (1979), and the Restatement (3rd) of Trusts sec, 227 for the proposition that:
A trustee is under a duty to the beneficiaries to invest and manage the funds of the trust as a prudent investor would, in the light of the purposes, terms, distribution requirements, and other circumstances of the trust. (Emphasis added.)
Clearly, the defendant's activities regarding Mildred's investment portfolios were to buy, sell and manage these portfolio investments consistent with his duties as a fiduciary. The plaintiffs have alleged that he misappropriated, converted or stole assets relating to questionable stock transactions. What the plaintiffs are apparently complaining about is defendant's mismanagement of investments which resulted in periodic losses to the portfolios. However, the plaintiffs have neither alleged nor proven that the defendant mismanaged the investments in question. Although the plaintiffs in paragraph 7 of each count of their complaint recited the agreement of the parties which included that the defendant was to manage the assets of the parties' parents ". . . including . . . various investment . . . account[s] . . ." the court finds this language is clearly insufficient to charge mismanagement or a violation of the fiduciary's duty to prudently invest funds under his stewardship. It is well settled that a complaint must fairly put the defendant on notice of the claims against him. Lyons v. Nichols, 63 Conn.App. 761, 764 (2001); cert denied, 258 Conn. 906 (2001). By their failure to allege such facts, the plaintiffs' pleadings failed to put the defendant on fair notice of this specific misconduct for which they are now seeking damages, i.e., imprudently investing the assets in Mildred's portfolios. Furthermore, the plaintiffs never offered any credible evidence during the hearing to prove that defendant's investments were imprudent, risky or speculative. In view of his lack of first hand knowledge, expertise or experience in stock market affairs, his opinion and testimony on this subject is unreliable. The court has therefore discounted it in its entirety on this subject.
The only evidence relied upon in this regard was Bruce Schwartz' testimony that he thought the investment portfolios were not diverse enough and the investment in the EMC stock was speculative. However, he admitted on cross examination he was not an expert on investments and didn't follow the stock market but because of some general antidotal information felt that stocks in general were going down in value. Ironically, the plaintiff also admitted that on two occasions during this same period he had relied on defendant's expertise to invest his money in the very stock that he now claims was speculative. Obviously the court gave no credit to this testimony.
More importantly, since summary judgments only apply to those matters well pleaded, plaintiffs cannot recover damages for matters not fairly contained in the pleadings. Mamudovski v. Bic Corp., 78 Conn.App. 715, 732 (2003). Accordingly, no damages are awarded for any periodic losses in stock values.
The plaintiffs are, however, entitled to recover any net funds remaining in the A.G. Edwards and Merrill Lynch portfolios which were not already recoverable by way of wrongful distributions pursuant to this decision. In the absence of any accounting furnished by the defendant, the best evidence of this amount would be measured by the value of the portfolios in question on the date on which plaintiffs became co-conservators of the estate and person of Mildred Schwartz. That was on or about mid-January 16, 2003. The amounts that the defendant had a duty to turn over to the plaintiffs is therefore derived from the last portfolio statements furnished by the plaintiffs indicating the value of the A.G. Edwards portfolio to be $376.61 and the Merrill Lynch portfolio to be $2,003.37. Accordingly, the plaintiffs are entitled to recover a total of $2,379.98 in compensatory damages. These damages are based upon the defendant's breach of his fiduciary duty to make a complete accounting. Inasmuch as the plaintiffs have not offered any evidence of recklessness or larcenous intent on the part of the defendant with respect to these portfolio funds, there is no basis for an award of punitive or treble damages on these funds. Furthermore, based on the equitable considerations previously discussed herein, no prejudgment interest is awarded on this amount.
As to the A.G. Edwards portfolio, see Exhibit 6, statement for period 1/21/03 to 3/28/03; as to the Merrill Lynch portfolio, see Exhibit 9, statement for period 12/31/03.
See First Count of plaintiffs' pleadings and paragraph 2 of their prayers for relief.
Interest Damages
The plaintiffs claim they are entitled to prejudgment interest on all monies misappropriated or converted by the defendant under section 37-3a C.G.S. This rule is not automatic. Rather, the determination of whether such interest is to be awarded is to be made in view of the demands of justice and equitable considerations. Suffield Development Associates Ltd. Partnership v. National Loan Investors, L.P. 97 Conn.App. 541, 568 (2006), Maloney v. PCRE, LLC, 68 Conn.App 727, 754-55 (2002).
The court earlier observed that the record is replete with instances where all parties hereto at one time or another acted recklessly in disregard of the real purposes of the agreement, to wit: to maintain Mildred's assets for her care and her benefit. Only after her death were the parties hereto authorized to benefit themselves. The defendant, in addition to helping himself to some of those assets while Mildred was alive and together with Barry retaining monies in Mildred's safe deposit box, also made unauthorized loans to one plaintiff and to a business owned by that plaintiff's son and unauthorized gifts to members of both plaintiffs' families. All parties hereto knew or should have known at the time that these acts took place that they were unauthorized and improper. Nevertheless, both plaintiffs directly or indirectly accepted or acquiesced in the spoils of the defendant's misconduct. That makes them complicit in the fraudulent disposition of those assets.
As to gifts see Plf.'s Exhibit 6 A.G. Edwards brokerage statement for period 9/30-10/27/00 @ P.3 and 10/28-11/24/00 @ p. 2 and testimony of Barry and Bruce Schwartz.
Stevenson Lumber Co. v. Chase Associates, Inc., supra. It would therefore be patently unjust and inequitable for these plaintiffs to now benefit from their complicity in such misbehavior by receiving prejudgment interest damages. Id. Accordingly, the court declines to award any prejudgment interest in this matter. Pamela B., supra.
Calculation of Common-Law Punitive Damages
The plaintiffs seek recovery of reasonable attorneys fees and costs of litigation from the defendant for all misdeeds proven. The plaintiffs have offered as exhibits statements of the time and effort their attorneys engaged in on their behalf. In addition, the court is mindful that the plaintiffs' submission is incomplete as it does not include charges for services during and after the hearing. In some instances this court has found that one or more plaintiffs are not entitled to either compensatory or punitive damages on portions of their claim. In addition, the court is mindful that the plaintiffs could not anticipate the court's rulings on their claims. Consequently they have not distinguished those charges and costs referable to their successful claims from those associated with claims disallowed. For this reason the court is not presently in a position to accurately assess common-law punitive damages without the plaintiffs segregating the recoverable ones from those not recoverable in this lawsuit. In this connection, no litigation expenses will be awarded for claims that the court has disallowed in this decision.
In a related matter, the plaintiffs have during the course of this hearing conceded credits to the defendant against any judgment which this court might render representing his 1/3 interest in assets remaining after the death of Mildred. Since those matters do not relate to the subject matter of the claims against the defendant, i.e. the breach of his fiduciary duties, the court refrains from adjudicating those matters but instead leaves the parties to pursue whatever rights they may have with respect to the remaining assets after her death in another forum. However, as an accommodation to the parties, the court will honor in its assessment of damages any specific voluntary evidentiary concession made by either plaintiff at this hearing as it may affect the amount of damages assessed on the relevant category of claim.
The court has reviewed Exhibits 22 23 and schedules 5 6 of the plaintiffs' post-trial brief and finds that the hourly rates charged by the plaintiffs' attorneys are within the parameters of prevailing rates charged in this area by law firms of comparable size based on the court's own knowledge. Therefore the court finds the rates as charged in Exhibits 23 and 24 to be reasonable. The only matters remaining for the court to decide is the amount of the allowable litigation costs pertaining to the exhibits already submitted plus the amount of allowable common-law punitive damages on plaintiffs' supplemental claim. To that end the court requests that the plaintiffs' attorneys forthwith submit affidavits segregating the allowable litigation expenses claimed from the non-allowable damages consistent with this decision.
For the form, time limits and methods of calculation to be used, see the court's order accompanying this decision.
Interest on the Offer of Judgment
Pursuant to sec 52-192a C.G.S. the plaintiffs are entitled to interest at 8% on an offer of judgment in excess of $400,000 from its filing on 5/19/04 to the date of this bifurcated decision. Since the assessment of punitive damages is incomplete as hereinbefore discussed, an assessment of interest, if any, on the offer of judgment must await the determination of the amount of allowable punitive damages.
The court assumes the $400,000 is an aggregate equally divided between them. Therefore, in order for the each plaintiff to be entitled to interest, his damages must be equal to or in excess of $200,000.
Summary of Monetary Damages Awarded.
Total compensatory damages awarded to plaintiff Bruce Schwartz $229,980.40 Less specifically conceded credits to defendant 100.00 Total compensatory damages $229,880.40 Total compensatory damages awarded to plaintiff Barry Schwartz $229,980.40 Less specifically conceded credits to defendant (6,683.32) Total compensatory damages $223,297.08 Prejudgment interest and treble damages are not awarded.Costs are taxed in favor of the plaintiffs.
The award of common-law punitive damages and interest on plaintiffs' offer of judgment must await the submission of supplemental affidavits/hearings segregating allowable litigation costs from non-allowable litigation costs consistent with this decision. Consequently, complete damages will appear in a supplement to this decision following the aforementioned submissions and/or hearings.
ADDENDA TO MEMORANDUM OF DECISION DATED DECEMBER 7, 2007
This addenda was necessitated because the Court could not compute the complete amount of damages to be awarded at the time of its Memorandum of Decision nor could the parties determine litigation costs until the court rendered its decision on compensation C/L punitive damages.
After reviewing all affidavits regarding litigation costs, the Court hereby finds damages as follows:
In favor of plaintiff, Bruce Schwartz $ 324,116.66 plus treble costs; In favor of plaintiff, Barry Schwartz $ 317,333.34 plus taxable costs This award is itemized as follows:Bruce Schwartz Barry Schwartz 53,591.00 53,591.00 Total Compensatory Damages $ 221,843.06 $ 221,843.06 Interest on promissory note 8,137.35 8,137.35 C/L Punitive Damages Sub Total All Damages $ 283,571.41 $ 283,571.41Offer of Judgment interest at 8% from 5/19/04 to 12/20/07 (3 years, 7 months)40,645.25 $ 40,645.25 (100.00) (6,883.32)
TOTAL= $81,290.50 $ Total All Damages 324,216.66 324,216.66 Less Conceded Credits Net Judgment in favor of plaintiffs $ 324,116.66 $ 317,333.34