Opinion
No. CV01-0485270-S
January 25, 2006
MEMORANDUM OF DECISION
This case has been tried in two phases. The court heard numerous witnesses lay and expert over the course of many trial days. The court will repeat the factual background to the case given in its first decision which has the same heading and is designated as 2003 Ct.Sup. 9100. The court will elaborate more on the following facts as it becomes necessary in this decision.
The plaintiff Benvenuti Oil Company sells oil to customers in an area of Eastern Connecticut. Its customers lie in a radius of approximately thirty miles. Mr. Mazzella who runs the company had a real interest in expanding the operations of his company. He had to repay a loan to his relative from whom the business was purchased and family members worked in the business who had to be supported by its operations. One option was to buy another similar company which would have cost three or four hundred thousand dollars in the 1995 time frame involved in this case. At the end of 1995, another option presented itself. Mr. Mazzella was contacted by Marc Trichon, a sales representative of Foss Consultants, Inc. run by John Spinogatti. Leonard Levenberg worked in the Foss office and did various clerical jobs. That company had developed a successful marketing scheme geared to helping oil companies attract new customers. It was Mr. Mazzella's understanding of what was represented to him that if he paid the program fee of $25,500, his company would be guaranteed 250 new customers and he would be given a 25-mile exclusive radius, that is, Foss would not sell the program to other companies in that radius. There was an option to renew the program after the first year. With a down payment, Mr. Mazzella received an invoice which used the term "25 mile exclusive radius." Dates for training were set up for January 12 and 13, 1996. Felicia Spinogatti did the training in the Foss program. The parties dispute when the training actually occurred, Benvenuti claims it occurred January 26 and 27, 1996. At the conclusion of the training, a payment of $6,500 had to be made to Foss. A check to Foss for $6,500 plus Felicia Spinogatti's expenses dated January 27 was offered into evidence. It should also be noted that after the initial contact with the sales representative, Marc Trichon, Mr. Mazzella indicated to Trichon that he wanted a more formal agreement than the invoice. This request was allegedly made soon after the initial contact with the sales representative.
In any event, it came to pass that in the fall of 1996, Mr. Mazzella learned that the Deep River Oil Company was using the Foss program and it was located within the 25-mile radius of Benvenuti. Mr. Mazzella felt this violated his agreement and he contacted Foss to complain speaking to Leonard Levenberg who worked for Foss. Mazzella did not speak to John Spinogatti himself until January 1997. Attempts to work out the dispute were unsuccessful and eventually Benvenuti Oil Company filed suit against Foss. In September 1996, Mr. Spinogatti faxed to his lawyer what purported to be a signed copy of an agreement between Foss and Benvenuti which made no reference to the 25-mile exclusive radius. The faxed copy was dated January 13, 1996 and that date appeared under the signatures of Felicia Spinogatti and Charles Mazzella. The plaintiff claims, and it does not appear to be disputed, that based on this faxed agreement, a trial court granted summary judgment in favor of Foss. The Appellate Court sustained the action of the trial court. While the matter was before the trial court, Levenberg, who had been sued and allegedly threatened by John Spinogatti, told Charles Mazzella that the purported agreement was a forgery. He alleged Jon Spinogatti, the son of John Spinogatti, forged Charles Mazzella's signature and Felicia Spinogatti signed the document when it was otherwise blank, that is, not containing Mazzella's signature.
None of this information was brought to the trial or Appellate Court by the plaintiff. In any event this suit was filed August 22, 2001, fifteen days after the Appellate Court upheld the trial court's granting of the defendant's motion for summary judgment in the first suit.
An expert could not determine if Mazzella's signature was forged from the fax copy of the agreement Spinogatti gave to his lawyer. But in the fall of 2002, the alleged original suddenly appeared and was delivered to Mazzella by Levenberg. Levenberg claims that he had gotten this document from discarded files of Foss, sent it to Trichon who had also been sued by Spinogatti for illegally using the Foss program and was reminded by Trichon of the document before he called Mazzella. An expert testified at trial that the signature of Mazzella was a trace forgery — someone traced his signature from a document apparently superimposed on the forged document. Levenberg, as noted, testified that he was present when John Spinogatti concocted a scheme to forge this document. Before receiving the forged document back, Spinogatti allegedly bet Trichon lunch that Mazzella would sign the agreement. Trichon could not understand why he would do so but later Spinogatti told Trichon that he owed him lunch.
This court tried the suit on the second complaint of August 2001 and that trial was bifurcated. The complaint in this second suit contains several counts (1) fraud (2) forgery (3) breach of contract and (4) an alleged violation of Connecticut's Unfair Trade Practices Act, CUTPA.
In its earlier decision the court concluded that the matters which the court and parties agreed should be tried in the first phase of this litigation were the forgery and fraud counts only. If liability were to be found on these claims the issue of damages was to be tried at a later hearing. At that hearing the court was also to hear the breach of contract and CUTPA claims.
For the reasons set forth in the earlier opinion the court concluded that the January 13, 1996 document was forged. The trial court rested its decision dismissing the case on the assumed validity of that document as did the Appellate Court in 64 Conn.App. 723 (2001). This court concluded further that John Spinogatti was responsible for the forgery but the plaintiffs had not proven its case against Jon and Felicia Spinogatti.
In this opinion the court will first discuss the viability of the breach of contract claim and the CUTPA claim as set forth in the August 2001 Benvenuti complaint and then will further comment on the forgery/fraud count.
Then the court will discuss the claim for damages.
BREACH OF CONTRACT
In the first suit brought by Bevenuti in June 1997 one of the counts was for breach of contract. The plaintiff claimed Foss breached its agreement to give it a 25-mile exclusive radius meaning that Foss would not sell its marketing program to any other company within 25 miles of Benvenuti's Waterford office. In that litigation the trial court granted a motion for summary judgment on the breach of contract count and the Appellate Court upheld this action at 64 Conn.App. 723 (2001). That court said that "the parties agree that they generated three documents relating to the contract. Those documents are (1) a December 8, 1995 invoice provided by the defendant (2) a December 9, 1995 letter of confirmation signed by the defendant's president John Spinogatti . . . and (3) a January 13, 1996 document drafted by the defendant and titled `Agreement between Foss Consultants, Inc. (and) Benvenuti Oil Company . . .'" The Appellate Court rendered its decision on August 7, 2001. Both the trial court and the Appellate Court based their decision dismissing the breach of contract count on their view that the January 13, 1996 agreement was a complete integration of the agreement between the parties. These courts relied on the fourth paragraph which was defined as a "merger clause" thus making it an integrated written document barring the use of parol evidence to vary its terms. That paragraph read "This agreement contains a complete and final understanding between both buyer and seller. All promises made by Foss Consultants Inc. the seller, are in the agreement: there are no others." The agreement only contained a guarantee by Foss that new customers "will be within a 25 mile radius of Benvenuti Oil Company." (See Tallmadge Bros. Inc. v. Iroquois Gas Transmission, 252 Conn. 479, 495, 504 et seq. for our rule on merger clauses).
The January document allegedly signed by the presidents of both companies contained no reference to Benvenuti's exclusive radius claim and the merger clause in that document dictated the result arrived at by the trial court and the Appellate Court in dismissing the breach of contract claim.
In its first decision this court found the January 1996 document containing what purported to be Mazella's signature to be a forgery. Two issues, at least, are now presented: (1) the ruling of the Appellate Court ( 64 Conn.App. 723 (2001)) has never been reopened — nothing in this regard was filed in the trial court or the Appellate Court. The question becomes can this trial court in effect reopen the final judgment of the Appellate Court by entertaining a breach of contract claim which is factually the same as the claim in the first litigation? There too the plaintiff claimed Foss violated its agreement to grant Benvenuti a 25-mile exclusive radius; (2) the second question is, even if this court had the power to entertain the breach of contract claim, can it conclude Benvenuti should prevail on that claim absent consideration of the January 13th document?
(a)
It would seem to be self-evident that litigation of a particular cause of action cannot go forward in one suit if the same cause of action was previously litigated in an earlier suit and was dismissed by the former trial judge whose dismissal was upheld on appeal.
There are two statutory mechanisms to allow the cause of action to be re-litigated — § 52-212a of the general statutes (P.B. § 17-4) and § 52-270. P.B. § 17-4 is entitled "Setting Aside or Opening Judgments and is filed in the action where the judgment has been entered. Section 52-270 appears to be implemented by § 52-882 which is a "Petition for a New Trial." When a judgment is opened pursuant to P.B. § 17-4 causes of action precluded by the judgment can go forward to trial. Such motions are filed as part of and within the original litigation. Petitions for new trial under §§ 52-570, 52-882 are separate actions ancillary to the original suit whose judgment the petitioner seeks to avoid so that a new trial can go forward. The court could only find one appellate case in which the statutes, § 52-212a and § 52-270, are discussed together, Breen v. Breen, 18 Conn.App. 166, 172-73 (1989), but not analytically distinguished except perhaps in a temporal sense — a petition for new trial for newly discovered evidence, for example, talks in terms of whether such evidence could have been discovered and produced at the "former trial." Suffield Development Associates Ltd. Partnership v. National Loan Investors L.P. 260 Conn. 766, 779 (2002) says that the "statutory remedy for fraud on the court is that the Superior Court may grant a new trial for `reasonable cause;' General Statutes § 52-270(a); which includes `every' cause for which a court of equity could grant a new trial, such as, for example, `fraud, accident and mistake' . . ."
The general rule is that trial courts by virtue of their inherent powers may "set aside a verdict and grant a new trial on its own motion," 58 Am.Jur.2d "New Trial" §§ 23-26, pp. 101-03. Our state does not appear to say that trial courts have no subject matter jurisdiction over this matter but rather holds a petition for new trial must be filed in accordance with statutory procedure or the court has "no authority to act," cf. State v. Rogelstad, 73 Conn.App. 17, 33 et seq. (2002), In re Clifton B., 15 Conn.App. 367, 369-70 (1988).
Interestingly Horton Knox in their commentary to P.B. § 17-4 observe that "a trial court has inherent power to open a judgment mistakenly entered as a result of clerical error." Cusano v. Burgundy Chevrolet, 55 Conn.App. 655 (1999) cert. denied . . . (but) "a court otherwise does not have authority to open and vacate a judgment in the absence of a motion to open filed by a party, East Haven Building Supply v. Fanton, 80 Conn.App. 734 (2004) . . ."
The law is somewhat confusing in this area; in an older case speaking of the right to a new trial the court said the power to grant one is not dependent on statute but is an incidental power of common-law courts, Zaleski v. Clark, 45 Conn. 397 (1877). Basically what the courts seem to be saying is that they have inherent powers in this area but it is accepted that statutes can regulate the exercise of that power.
It would seem then that a petition for a new trial on the breach of contract claim should have been filed in this case. The question becomes then is the failure to file such a petition fatal to the assertion of such a claim in this suit, filed shortly after the Appellate Court upheld the original trial court's dismissal of that claim.
It is necessary to briefly review the characteristics of a § 52-270 procedure and the predicates for granting such a petition
(1) "A petition for a new trial is properly instituted by a writ and complaint served on the adverse party; although it is collateral to the action in which the new trial is sought, it is by its nature a distinct and separate proceeding." In re Clifton B., 15 Conn.App. 367, 370 (1988), see State v. Asherman, 180 Conn. 141, 144 (1980).
(2) The burden is on the petitioner to prove facts entitling it to a new trial. Fitzpatrick v. Hall-Brook Foundation, 72 Conn.App. 692 (2002); there must be strong reason to grant the petition City of Meriden v. Rogers, 111 Conn. 115 (1930) and it will not be granted unless injustice was, or might have been done, at the earlier trial; Brown v. Keach, 24 Conn. 73 (1855).
(3) The petition is to be decided on the issues it raises without regard to any issues raised on appeal, Terracino v. Fairway Asset Management, 75 Conn.App. 63 (2003). But the procedure is not meant to reach errors that the petitioner should have been aware at the time of appeal, LaBow v. LaBow, 69 Conn.App. 760 (2002).
(4) Due diligence thus is a requirement for granting such a petition and if the basis for the request is a claim of newly discovered evidence such evidence must be of such a nature that it could not have been discovered earlier; Crook v. Clarke, 124 Conn. 317 (1938); Daniels v. State, 88 Conn.App. 572 (2005).
(5) In deciding such a petition the court must keep in mind that there has to be an end to litigation. Fitzpatrick v. Hall-Brooke Foundation, Inc., supra.
(6) Such a petition should not be granted unless the court can conclude that the result, on the ascertainable facts including any newly discovered evidence, would lead to a different result, Gilbert v. Walker, 64 Conn. 390 (1894); Williams v. Commissioner, 41 Conn.App. 515 (1996).
(7) If fraud has prevented a party from pursuing a right it has by way appeal, a new trial may be granted. Murphy v. Zoning Bd. of Appeals, 86 Conn.App. 147 (2004).
As noted no petition for a new trial has been filed in this case but a trial was held on liability and damages over numerous days. The court refers to its earlier opinion at 2003 Ct.Sup. 9100. It would appear that every one of the foregoing criteria has been met. The action the court has been hearing on the suit filed soon after the Appellate Court result adverse to the plaintiff is collateral to the earlier action but it is certainly a distinct and separate proceeding.
The plaintiff had a heavy burden to convince this court that a purported contract document dated January 13, 1996 was a forgery attributable to Mr. Spinogatti. Both the first trial court and the Appellate Court which upheld that court's dismissal of the breach of contract claim explicitly and exclusively relied on that document to reach their decision. An obvious injustice was committed and any action this court might be persuaded to take due to the forgery have nothing to do with the reasoning or result of the first trial judge or the Appellate Court.
As discussed in its earlier opinion the plaintiffs cannot be faulted for lack of due diligence or failure to procure viable evidence of forgery during the prior litigation. Whether as part of a plan or not Spinogatti submitted a faxed copy of the January 1996 agreement to the trial court which could not be studied by the plaintiff's expert to determine if a forgery of Mazzella's signature had been committed. The original was only delivered to the plaintiffs months after the decision by the Appellate Court.
In effect this court held in its earlier decision and by this decision, based on actual facts and evidence produced before it, that forgery which is a subcategory of fraud, prevented the plaintiffs from pursuing their right to litigate their position on the breach of contract claim in the trial court and at the appellate level.
The remaining issue under at least the criteria for determining whether a petition for a new trial should be granted is whether, given the finding of forgery and fraud, would the result be different on the question of whether Foss breached its contract with Benvenuti as both the earlier suit and this action claim.
If the January 1996 document is excluded from consideration, as it must be in this court's view, the contract documents remaining are the 12/8/95 invoice given to Mazzella by Trichon and "Accepted by Mazzella" who so signs the invoice and a letter written by Spinogatti to Mazzella and dated 12/9/95 which contains only Spinogatti's signature.
In the first decision this court decided that the term "exclusive radius" used in the invoice means what Benvenuti Oil Company claims it does — it had exclusive right under the agreement with Foss to use the Foss program within a 25-mile radius. The court refers to its previously stated reasons for reaching this conclusion. And it particularly notes the written language on the bottom left of the invoice wherein "Foss guarantees 250 new customers" but then says "option to extend exclusive radius at $300 per month after 1st year." As to the option there is no reference to 250 new customers; unless "exclusive radius" is totally meaningless — not to be recommended under traditional rules of contract interpretation, cf. § 203. Restatement (2d) Contracts — the phrase has to be given the interpretation advanced by the plaintiff.
The December 9th letter contains no mention of an "exclusive radius" and far from using the exclusivity language of a "merger clause" is introduced by the following: "As per our recent meeting with you the following will confirm and summarize our agreement." But any confirmation must have reference to promises made in the invoice unless the court is to condone a bait and switch operation as noted in its first decision.
A problem with the defendant's position, at least to the court, is its inability to give a satisfactory explanation of "exclusive radius" — if Spinogatti's explanation that it merely meant 250 customers within 30 miles of the Benvenuti office the work exclusive is superfluous. If the parties had Spinogatti's understanding of their agreement as to exclusivity and whether the agreement contemplated it as opposed to Benvenuti's why did Spinogatti feel compelled to create a forged January 1996 document with a bona fide "merger clause"? And why would Spinogatti tell Mazzella when the latter complained about what he felt was a violation of the agreement with regards to selling the Foss program to Deep River that Deep River was just seeking to expand its service contract base rather than its home oil delivery as brought out in the first phase of this litigation?
Spinogatti certainly knew how to create the language of a valid merger clause; the court concludes he did not put such language in the December 9th letter for fear of losing the deal Trichon had worked out as reflected in the invoice as regards an exclusive radius and which Trichon said he often put in the mix to "clinch a deal." The defendant makes much of the fact that Trichon and Levenberg had a falling out with him and this explains away much of their negative testimony. But at the time of the Benvenuti deal and the creation of the invoice all of them were on apparently good terms, anxious to make money — Trichon and Levenberg on their commissions and Foss on its $25,500 contract price. It strains credulity to say that Spinogatti under these circumstances would not have been informed of the terms of the invoice before he wrote the December 9th letter, leaving aside the purely innocuous meaning he gives to "exclusive radius" in any event. Also it is argued why would Foss be foolish enough to lock itself out of selling its program to others indefinitely for a mere $300 per month which is the price for extending exclusivity set forth in the invoice. The point is that this invoice language is at worst a gimmick to induce a sale or simply reflects a part of the agreement everyone thought they had. Under these circumstances the court cannot accept the defendant's invitation to regard to the December 9th letter, unsigned by Mazzella as the sole "contract" document thereby per the parol evidence rule excluding consideration of the invoice which was in fact signed by him and prepared by Foss's agent. The court regards both these documents as contract documents and also relies on the circumstances surrounding contract formation mentioned here and in its earlier decision. If the invoice and the December 9th letter are in fact accepted as contract documents, under rules of ordinary contract interpretation "The contract must be viewed in its entirety, with each provision read in light of the other provision . . . and every provision must be given effect if it is possible to do so . . . In addition, `when there are multiple writings regarding the same transaction, the writings should be considered together.'" United Illuminating Co. v. Wisvest-Conn. LLC, 259 Conn. 665, 671 (2002); Restatement 2d Contracts, § 202(2); 17A Am.Jur.2d "Contracts," § 379, pp. 367-68. Also "all of the writing that form a part of the same transaction should be interpreted together, and, if possible, harmonized," Contracts Calamari Perillo, 5th ed. § 3.13, page 159, Wonderland Shopping Center v. CDC Mortgage, 274 F.3d 1085, 1092 (CA6, 2001); Century Financial Services v. Bates, 934 S.W.2d 619, 621 (MO.App., (1996); cf. Sidney v. DeVries, 215 Conn. 350, 353 (1990).
The December 9th letter does not contain the language associated with merger clauses — there is no explicit statement that the letter "is a final, complete, and exclusive statement of all the terms agreed upon," Calamari Perillo at § 3.6, page 142. Thus inclusion of the invoice exclusive radius language as part of the agreement does not contradict anything in the Spinogatti letter which was prepared only a day after the December 8th invoice containing the language. From the foregoing and for reasons set forth in its first decision the court concludes that if the January 1996 agreement is found to be a forgery, which this court had concluded it was, the result on the breach of contract claim would have been different.
The court then believes that all of the criteria for the granting of a petition for a new trial have been met but through the mechanism of a full trial on the breach of contract claim in this post-appeal independent law suit. The court does not believe the plaintiff should have been barred from litigating this matter or perhaps more exactly that this court should be barred from considering the claim because a petition for a new trial as such was not filed. In effect the petition and hearing on the merits through trial were litigated all together. The defendant can hardly claim prejudice by being barred from presenting evidence or argument which would have precluded the granting a new trial or in litigating whether or not a breach of contract should be found once that hurdle was passed. There must have been at least twenty days of trial testimony with all told over 2000 pages of transcript testimony. The court has in fact concluded that civil forgery and fraud have been proven by clear and convincing evidence (see first decision). This is a higher standard than would perhaps be required to sustain the burden of establishing the separate right to a new trial.
In any event the court concludes that it would exalt form over substance and completely ignore the equitable role of the court in acting on these matters where new trial issues and allegations of fraud are involved to preclude the plaintiff from litigating its breach of contract action in this present suit under the unusual circumstances presented.
FORGERY/FRAUD
One of the allegations in the August 2001 complaint is for common-law fraud and there is also an allegation of forgery. There is much to be said for the position that the forgery and fraud claims are duplications, forgery being a subcategory of the types of fraud that can be perpetrated, cf. Cook v. Bieluch, 32 Conn.App. 537, 549 (1993), cf. Maturo v. Gerardi, 196 Conn. 584, 587 (1985), 37 Am.Jur.2d "Fraud Deceit," § 1, pp. 30-33.
The case of Harold Cohn Co. v. Harco International, 72 Conn.App. 43, 51 (2003) sets forth the four requirements for establishing common-law fraud. All of the elements must be found to exist. In its prior opinion the court found that the first three elements had been established by "clear and satisfactory evidence." The court in its first opinion quoted the fourth element in Cohn which requires that a plaintiff prove that it acted on a false representation (here forgery) to its injury — the court characterized this element as setting forth a requirement that a party claiming to be injured was injured because it relied on a misrepresentation.
In Suffield Development Association v. National Loan Investors, 260 Conn. 766 (2002) the reliance factor could not be found because the false representation in that case was made to the court and it was the court that relied on the misrepresentation to the plaintiff's harm. The court in Suffield Development was not prepared to recognize a new tort for "fraud on the court" under these circumstances; an action in damages would not lie, the remedy was a statutory one for a new trial, id. page 779.
In its prior opinion this court discussed the reliance factor and despite expressed reservations concluded it was established.
In Suffield Development the court explicitly said that the defendant "made a fraudulent misrepresentation not to the plaintiff but to the trial court, which induced the trial court to act to the plaintiff's detriment," id. page 780. Here the misrepresentation was made to both the plaintiff in legal proceedings and to the trial and Appellate Courts. As a result the claims originally made in the first litigation could not be advanced. The court has previously discussed and will rely on its conclusion that under the circumstances of this case a petition for a new trial was not necessary to advance the breach of contract claim. In any event if Suffield Development is strictly read all the elements of a common-law fraud/forgery action appear to have been met. The elements for this claim meet the first three Cohn requirements and the reliance factor appears to have been satisfied especially in light of the fact, for example, as previously discussed in the breach of contract claim, the court has concluded the result in the first litigation dismissal of that suit and affirmance on appeal — would have been different if the January 13, 1996 had been shown to be a forgery. In this situation why should this litigation be voided because a new trial petition was not filed per statute when as previously discussed all the same issues can be addressed in this litigation without duplicative effort. This result necessarily follows from the court's conclusion that the elements of common-law fraud have been met here.
The plaintiff cannot be accused of laches or unnecessary in advancing the claim of fraud. As discussed in its first decision in the earlier litigation a faxed copy of the January 1996 "agreement" was submitted to the trial court. The plaintiff retained an expert but he could not determine if a forgery had been perpetrated from a fax. An original was not obtained until November 2, 2002, over one year after this suit was filed. Under these circumstances it is difficult to see how a motion or petition for a new trial could have been filed, cf. Varley v. Varley, 180 Conn. 1 (1980) (family case), criteria for reopening a new trial therein apply to civil cases, see Beacon Falls v. Posick, 17 Conn.App. 13, 17 (1988) — the third requirement — "clear proof of the perjury or fraud" could not have been established. Although the foregoing is somewhat repetitive of the discussion in the breach of contract section, it would seem to be an odd result to say this second suit is invalidated. In other words by filing this suit in August 2001 the defendant had months of forewarning and access to discovery mechanisms which would not have been available if a petition for a new trial had been filed in November 2001 when the original was produced for the plaintiff's inspection and examination.
CUTPA
A claim under the Connecticut Unfair Trade Practices Act, § 42-110(a) et seq. (CUTPA) has been made against John Spinogatti and Foss Consultants, Inc. During the first part of this trial the court decided it would only permit a CUTPA claim under paragraphs 41(c) and (d) of the complaint. In that paragraph the plaintiff alleges "the defendant's conduct" violated the act "in the conduct of a trade or business."
(c) by forging the signature of Charles Mazzella in violation of General Statutes § 52-565.
(d) by perpetrating a fraud upon the plaintiff and the trial court by presenting the forged document described in this document as genuine.
CUTPA says that (§ 42-110b(a))
No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.
The plaintiff argues that the acts of fraud and/or forgery are unfair acts or practices under CUTPA. Subsection (b) of § 42-110b directs our courts to be guided by the interpretation given the Federal Trade Commission Act (§ 15 U.S.C. 45) by the FTC and the federal courts. The FTC has adopted the so-called "cigarette rule" to define "unfair practices" and it is set forth in Hartford Electric Supply Co. v. Allen-Bradley Co., 250 Conn. 334, 367-68 (1999). It is argued forgery is a class D felony, it is immoral, unethical, unscrupulous and oppressive, it has caused substantial injury and offers no countervailing benefits to society — all of which satisfy the cigarette rule criteria and paraphrase it.
The plaintiff also argues that the forgery here was "deceptive" under CUTPA citing the test set forth in Caldor, Inc. v. Heslin, 215 Conn. 590, 597 (1990) (1) there must be a representation likely to mislead consumers (2) the consumer must interpret the representation reasonably under the circumstances (3) the misleading misrepresentation must be material — the plaintiff argues that all of this is true of the forgery in this case.
A cigarette rule analysis is apparently not required when a deceptive act is established. As noted in Vol. 12 of the Connecticut Practice series Lanquer, Morgan, and Belt in their excellent commentary on CUTPA say "All deceptive acts and practices are unfair, but not all unfair acts and practices are deceptive. As a special subclass deception has more particularized elements that are easier to apply than the unfairness criteria," § 2.3, page 25. FTC blessing for this observation is underlined by their quotation from Figgie Int'l. Inc. 107 FTC 313, 373 n. 5 (1980) "Put another way, unfair practices are not always deceptive but deceptive practices are always unfair" (§ 2.1, fn. page 14).
The difficulty with finding a CUTPA violation here, however, lies not in trying to ascertain whether forgery or fraud, all other things being equal, can constitute a deceptive and therefore unfair practice under the statute — of course they can. But a predicate to any analysis of whether acts or practices are unfair and/or deceptive is the requirement of subsection (a) of § 42-110b that such acts occur "in the conduct of any trade or commerce."
Section 42-110a(4) defines trade or commerce to mean "the advertising, the sale or rent or lease, the offering for sale or rent or lease, or the distribution of any services and any property, tangible or intangible, real, personal, or mixed, and any other article, commodity, or other thing of value in this state."
It is true that our cases have referred to the broad reach of CUTPA and its remedial purpose. As noted in McLaughlin Ford Inc. v. Ford Motor Company, 192 Conn. 558, 566, 567 (1994) it is also true that CUTPA is not limited (for example) to conduct involving consumer injury "and that" a competitor or other business person can maintain a CUTPA cause of action without showing consumer injury.
Associated Investment Co. Ltd. Partnership v. Williams Associates IV, 230 Conn. 148, 159 (1994) talks of "the unique breadth and flexibility of the cause of action created by CUTPA." But "because CUTPA applies only to acts in the conduct of any trade or commerce, there is a significant limitation on the reach of the act," Languer, Morgan, Belt at § 3.1, page 57. The Federal Trade Commission Act contains no definition of "trade or commerce" but arguably it is more far reaching than our act (perhaps because of interstate application). The federal statute applies not only, like our statute, to proscribed acts "in the conduct of trade or commerce" but to "unfair or deceptive acts or practices in or affecting commerce" (emphasis by this court,) see 15 U.S.C. § 45(a).
In any event the forgery and resulting fraud in this case took place years after the plaintiff was induced to enter into a business relationship with Foss Consultants. The forged document was concocted to entice the plaintiff corporation into establishing a business relationship; it was an attempt to lead a trial court to accept the defendant's characterization of a business relationship that had already been entered into and was in fact terminated. Thus the courts and the plaintiff were misled in court proceedings not by an act involving the initiation or carrying on of an ongoing business relationship and directly involved with such matters.
Massachusetts has a consumer protection act with wording similar to out own (Mass. Consumer Protection Act, M.G.L. C93A, § 1 et seq.) and our court has said that . . . "because `the governing statutes in Massachusetts are virtually identical to our own' . . . we have, therefore, repeatedly looked to the reasoning and decisions of the Supreme Judicial Court of Massachusetts with regard to the scope of CUTPA, Normand Joseph Enterprises Inc. v. Conn. National Bank, 230 Conn. 486, 521 (1994).
The case of Begelfer v. Najarian, 409 N.E.2d 167 (Mass. 1984) dealt with a claim made under that state's consumer protection act. The issue before the court was whether "the defendants are persons engaged in trade or commerce," id. p. 175. Referring to an earlier case, Lantner v. Carson, 373 N.E.2d 973 (1978), the court said that there "we concluded that when `the Legislature employed the terms' persons engaged in the conduct of any trade or commerce `it intended to refer specifically to individuals acting in a business context,'" id. p. 176. "That determination, it was held, must turn on the circumstances of each case, with emphasis on the following factors: `the nature of the transaction, the character of the parties involved . . . the activities engaged in by the parties . . . whether similar transactions have been undertaken in the past, whether the transaction is motivated by business or personal reasons (as in the sale of a home) and whether the participant played an active part in the transaction,'" Lynn v. Nashawaty, 423 N.E.2d 1052, 1054 (1981), cf. Rex Lumber Co. v. Acton Block Co. Inc., 562 N.E.2d 845, 850 (1990).
Clearly this isolated act of forgery did not take place in a "business context" but in a "litigation context" arising out of a dispute between two businesses that was brought to court. The warring parties were businesses and business people but the character they adopted when the forgery occurred was in their capacity as litigants. It is certainly true that Mr. Spinogatti took an active part in creating the forged document but the "transaction," i.e., the creation of that document was not motivated by "business reasons" but solely to enhance the chances of prevailing in litigation arising out of a business dispute but carrying the risk of depleting the personal assets of the responsible party and his apparently closely held corporation.
If a case such as this, where the gravamen of the CUTPA complaint is the filing of a forged document during and to influence pending litigation between two businesses, what will be the limits on CUTPA litigation? Will every business dispute in the courts involving contract claims generate CUTPA litigation by way of amendment to pending litigation where there is some allegation, for example, that discovery requests were not fully or promptly complied with?
Commenting on the Federal Trade Commission Act and CUTPA the District Court in Bailey Employment System v. Haun, 545 F.Sup. 62, 72 (D.Conn. 1982) said that "the Connecticut statute, like the federal act, was enacted in an attempt to foster honesty and full disclosure in the conduct of business." The transgression here, forgery, had nothing to do with the conduct of business at the time and under the circumstances in which it occurred. Therefore it did not take place in a "business context" and could not be said to be an act done in trade or commerce.
The CUTPA count is therefore dismissed.
DAMAGES (1) LOST PROFIT CLAIM
The court has concluded the plaintiff may advance a breach of contract and a forgery/fraud claim and the central damage claim in this case is one for lost profits. As a result of the defendant's breach of the agreement to give Benvenuti Oil Company a 25-mile exclusive radius, Benvenuti claims it lost profits for several years. The court will have to discuss the facts in more detail but basically the allegation is that when Benvenuti learned Deep River was using the Foss program within what was thought to be its exclusive radius, Benvenuti made a business decision not to market its product in the so called "western towns." Using projections arrived at from other areas where Benvenuti used the program and applying them to these western towns, Benvenuti made an estimate of how many customers it lost, and relied on two experts to establish the monetary value of the loss which was projected out for several years.
First the court will make some general comments about the nature of this type of lost profit claim and how the courts treat such a claim.
(a) CT Page 1524
As noted the plaintiff's primary damage claim — apart from issues of punitive damages, double damages, attorneys fees, etc. — is one for lost profits. The court's analysis of the substantive claims earlier in this opinion define the damage claim as one for contract damages. In this case the lost profit claim falls within the definition of "contract damages." In comment a to § 347 of the Restatement (2d) Contracts it says that
Contract damages are ordinarily based on the injured party's expectation interest and are intended to give (it) the benefit of (its) bargain, by awarding (the injured party) a sum of money, that will, to the extent possible, put (it) in as good a position as (it) would have been had the contract been performed.
It has been said specifically with regards to lost profit claims that such claims are permitted "only if the profits were reasonably within the contemplation of the defaulting party at the time the contract was made," 22 Am.Jur.2d "Damages," § 448, page 400; Schonfeld v. Hilliard, 218 F.3d 164, 175 (CA2, 2000). On the other hand "nearly all commercial contracts are entered into in contemplation of future profits," Trikorian v. Dailey, 197 S.E. 442, 448 (Va, 1938). In the above section of Am. Jur. just referred to it says
Thus, if profit is an inducement to making a contract, a loss of profits as a result of the breach of that contract is generally considered to be within the contemplation of the parties and recovery of lost profits will be allowed as damages if causation is proved with reasonable certainty.
See Camino Real Mob. Home Park Partnership v. Wolfe, 891 P.2d 1190, 1200 (N.M. 1995) for excellent discussion).
In this case it is clear that profit was an inducement to making the contract. The whole point of the excellent Foss program was to increase profits, that was the inducement offered to companies for entering into a contract for the program which would cost them $25,500 plus expenses. Not a small sum for relatively small companies. Foss even guaranteed 250 new customers if the program was purchased. The plaintiff then has a right to make a claim for lost profits.
It is the measuring of lost profits that presents the real difficulty. There are first of all various categories of lost profit situations. One type of claim involves lost profits for a new business, Beverly Hills Concepts Inc. v. Schatz Schatz, Ribicoff Kotkin, 247 Conn. 48, 631 (1998), long standing businesses can also make a lost profit claim, Granoto v. Bercettieri, 5 Conn. Cir. 150, 154 (1968), Cheryl Terry Enterprises Ltd. v. Hartford, 270 Conn. 619, 641 (2004).
All authorities and cases seem to agree that "measuring unrealized profits entails extensive problems of proof," Granoto at 5 Conn. Cir. p. 154, and is "one of the most difficult subject with which courts have to deal," id. p. 156. The governing principle is set forth in Restatement (2d) Contracts where at § 352 it says
§ 352. Uncertainty as a Limitation on Damages
Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.
The ensuing commentary at page 145 of volume 1 of the Restatement says: "The main impact of the requirement of certainty comes in connection with recovery for lost profits." But then the commentary goes on to add that in calculating damages.
Doubts are generally resolved against the party in breach. A party who has by (its) breach, forced the in third party to seek compensation in damages should not be allowed to profit from (its) breach where it is established that a significant loss has occurred. A court may take into account all the circumstances of the breach, including willfulness, in deciding whether to require a lesser degree of certainty giving greater discretion to the trier of fact. Damages need not be calculable with mathematical accuracy and are often at best approximate.
The problem with the foregoing is that it is premised on the predicate establishment of a "significant loss." How does one decide that? And certainly the broad discretion given to the trial court would not sanction guessing. But generally similarly broad statements are made in the commentaries and case law. At § 457 22 Am.Jur.2d "Damages" says at page 408.
if the wrongful act of the defendant prevents determination of the exact amount of damages, the defendant is not allowed to insist on absolute certainty but only that the evidence show the lost profits by reasonable inference.
Message Center Management v. Shell Oil Products, 85 Conn.App. 401, 421 (2004) cf. Gilmore v. Cohen, 386 P.2d 81, 82 (Ariz. 1963), Contemporary Mission Inc. v. Famous Music Corp., 557, F.2d 918, 926 (CA 2, 1977).
But interestingly the section goes on to say: "In such cases, the damages may be estimated according to facts that give the trier of fact a reasonable basis for determination of probable lost profits."
Indeed there are qualifications on this just quoted broad language. The Granoto case said that in these lost profit cases absolute certainty cannot be required nor could it be obtained but the court went on to say a court cannot resort to a mere guess but (quoting from a commentator), "should be guided by some rational standard"; if the litigant furnishes the best available proof of the amount of loss — the most satisfactory date the situation allows — this would suffice, 5 Conn. Cir. at pp. 156-57; also see Gilmore Cohen, 386 P.2d at page 82. "The requirement of `reasonable certainty' in establishing the amount of damages applies with added force where a loss of future profits is alleged . . . This is so because such loss is capable of proof more closely approximating `mathematical precision.' In other words the plaintiff in every case should apply some reasonable basis for computing the amount of damage and must do so with such precision as, from the nature of his (her) claim and the available evidence, is possible." Gilmore is a case where the court said doubts as to the extent of injury should be resolved in favor of the innocent party and against the wrong doer. But using the just mentioned reasoning upheld the trial court's denial of a lost profit claim for failure to meet the reasonable certainty test. Thus lost profits need not be established with certainty but . . . "evidence of lost profits must be based upon objective data from which the loss can be determined with a reasonable degree of exactness" Maxvill-Glasco v. Royal Oil, 800 S.W.2d 384, 386 (Tex.App. 1990), Southwest Battery v. Owen, 115 S.W.2d 1097, 1099 (Tex. 1938).
Although Beverly Hill Concepts, supra, involved a new business scenario and a tort claim was made the court did say that: "In order to recover lost profits, therefore, the plaintiff must present sufficiently accurate and complete evidence for the trier of fact to be able to estimate those profits with reasonable certainty," 247 Conn. at page 47 cf. W.W. Gay Mechanical Contractor v. Wharfside Two Ltd., 545 So.2d 1348, 1351 (Fla, 1989); cf. 22 Am.Jur.2d "Damages," § 444: "The law does not require that lost profits be proven with absolute certainty but only with such reasonable certainty that damages are not based wholly upon speculation and conjecture." P. 395.
The court will conclude this preliminary discussion of the standards it will apply to the facts of this case by mentioning two other observations made in these lost profit cases.
When the courts speak of lost profit calculations they of course talk in terms of net profits, Cheryl Terry Enterprises Ltd. v. Hartford, supra, Ellwest Stereo Theaters Inc. v. Davilla, 436 So.2d 1285, 1288 (La, 1983) (cited in Beverly Hill Concepts); Lindevig v. Dairy Equipment Co., 442 N.W.2d 504 (Wis.Ct.App. 1989); The Drews Co. v. Ledwith-Wolfe Assoc., 371 S.E.2d 532 (S.C., 1988); Maxvill-Glasco v. Royal Oil, 800 S.W.2d 384, 386-87 (Tex.App. 1990).
In Cheryl Terry Enterprises Ltd. the court upheld the lost profit claim after noting the meticulous way in which the plaintiff calculated her costs in the busing contracts she had previously bid on in the past. The jury could rely on this testimony to determine future costs which could then be subtracted from the contract price to determine net profits. In Ellwest the plaintiff was deprived of the opportunity to run a retail store, an accountant calculated net profit figures from other stores run by the plaintiff after taking out all operating expenses, bonuses and other compensation to officers. In Lindevig the court stated that to establish lost profits a claimant must show business revenue as well as expenses. The court held that "because the plaintiffs produced no evidence of expenses, the evidence showing gross profits had no evidentiary value" id. page 508. In Drews Co. the court quoted from Rest of Contracts § 331, comment B (1932) "Profits" have been defined as "the net pecuniary gain from a transaction, the gross pecuniary gains diminished by the cost of obtaining them." Simply put "net profits are what remains after a business deducts expenses," Maxvill-Glasco v. Royal Oil, 800 S.W.2d at page 836.
Another observation that should be made is that in trying to calculate lost profits our court has "permitted lost profits to be calculated by extrapolating from past profits see e.g., Westport Taxi Service Inc. v. Westport Transport District, supra, 235 Conn. 32-33; Humphreys v. Beach, ( 149 Conn. 14, 21) ("in the absence of evidence to the contrary, the court was entitled to draw the inference that the plaintiff's business would continue to be as profitable as it had been in the year and a half before the fire"), quote from Beverly Hill Concepts Ltd., 247 Conn. at pp. 69-70. One would imagine that the corollary of this is also true — failure to show profit must have some bearing on the ability to earn future profits. In Metropolitan Express Services Inc. v. City of Kansas, 71 F.3d 273, 275 (CA 8, 1995) the court noted that the plaintiff "must demonstrate those lost net profits by offering `proof of the income and expenses of the business for a reasonable time anterior to its interruption with a consequent establishing of the net profits during the previous period . . . Put simply, "to show that it lost profits (the plaintiff) must first show that it was previously earning profits." Interestingly perhaps for this case the court noted that although the plaintiff "argue(d) that the loss figures (for previous two years) are deceptive because they represent the company's overall loss for tax purposes and ignore individual gains within segments of the company, (the plaintiff) offered no documentary evidence to explain the contradiction" ( id.)
(1)
The court will now try to apply these general observations to the facts of this case. The court has been frustrated by this case. It is convinced that a forgery was perpetrated here which was designed to and in fact mislead the plaintiff in the first litigation and the trial court which dismissed the plaintiff's case based on that forged document. The Appellate Court upheld the trial court resting its analysis on the very same document.
The court is also of the opinion that the plaintiff may very well have suffered a loss, even a loss of profit due to the breach of the agreement the defendant Foss had with the plaintiff oil company. Clearly a lost profit claim would be viable if it could be adequately proven; garnering a profit was the essence of the Foss program, see 22 Am.Jur.2d "Damages," § 448; Schonfield v. Hillard, supra, Trikorian v. Dailey, supra; Camino Real Mobile Home Park Partnership v. Wolfe, supra.
As just discussed the Restatement (2d) Contracts makes clear that proof of lost profits only requires "reasonable certainty" and "doubts are generally resolved against the party in breach (of contract)," § 352, cf. also Message Center Management v. Shell Oil Products, supra and "absolute certainty" in these situations is not required, § 457 of previously mentioned Am.Jur. article.
But having said all that mere guessing is not permissible, there must be a rational standard on which to base a damage award, a "reasonable basis" must be provided for the court to reach an estimate of damages, these estimates have to be based on "objective data" and "complete evidence," Granoto v. Bercettieri, supra, Gilmore v. Cohen, supra, Maxville-Glasco v. Royal Oil, supra, Beverly Hill Concepts Inc. v. Schatz, Schatz Ribicoff Kotkin, supra.
The court has read and reread the testimony of the various experts presented by both sides and believes it can fairly come to certain basic conclusions.
Simply put the profit that would have been derived from a sale is determined by first estimating the gross profit that would be expected from the sale and then deducting the expenses that would be expected to be incurred to achieve the sale. An estimate of net profits is then arrived at which if loss of profit from the sale is the recognized claim, translates into the award for lost profits.
If the basis of the lost profit claim is loss of customers or sales, fixed costs cannot be deducted from the gross profit figure. That requires a definition of fixed costs in this context. In other words if we posit a point in time the instant before the sale, fixed costs would be those costs that have already been incurred to operate the business and which would not be increased or affected by the fact that a sale is about to occur and has in fact taken place.
Examined from this perspective lost profits for a seller of goods or services should not be that difficult. Benvenuti Oil sells oil to residential customers. Its business decision to not market the so-called western towns when it learned another company was using the Foss program resulted in a loss of sales. The defendant's breach here is similar then to a breach by a buyer of a contract to purchase — in such circumstances as the Restatement notes, § 352, comment b "proof of lost profit will not be difficult."
But the just mentioned Restatement comment represents only the beginning of the problems that this court, at least, has with the lost profit analysis presented by the plaintiff's accountant. Here we are not dealing, for example, with a single new car sale with the car on the dealer's lot shipped and prepared for sale besides being completely fungible in the sense that if it is not sold to customer A, customer B will certainly come along to buy it.
In this case the decision not to continue with the Foss program in the western towns meant Benvenuti could not telemarket over 19,000 residences in those towns. Mr. Levy, the plaintiff's other expert, testified the demographics and fuel usage of those towns was similar to that of the central and eastern towns where Benvenuti successfully used the Foss program. Using the percentage rate of success in the central and eastern towns as about 1 percent and applying it to the western towns Benvenuti came up with a figure of 199 lost customers and assumes and projects that loss for a five-year period for a total of almost 1000 lost customers. Even if we accept Levy's 842 gallons per residential customer figure which translates to 1084 customers in 1996 (arrived at by dividing 842 into 913,000, representing gallons of residential oil) this would translate into a doubling of the customer base.
The direct and cross examination of all the experts in the case and common sense would seem to indicate that an increase of that order and even the substantial increase that would result if the 1 percent ratio for new customers was not used but the more accurate lesser percentage of .58 percent leading to over several hundred new customers over 5 years would have to result in increased fuel costs, maintenance and repair on trucks, possible replacement and acquisition of new trucks, and more office staff. Even before the Foss program was purchased the business had to make these calculations in order to ensure it adequately served its customer base. There is nothing in the record to indicate that these same costs could not have been estimated for the prospective addition of Foss customers from the western towns. Would it have been an exact projection of costs associated with having added these customers? — of course not. But exactness cannot be required by a wrongdoer when there is an attempt to calculate lost profits. However, such a cost projection could have been based on an actual historic record of costs incurred in servicing past customers projected on to costs of servicing new customers.
But oddly the plaintiff's accountant, who struck the court as a very candid witness, in response to a question from the court agreed that under his method of determining lost profits the actual costs for new customers was not important. His analysis was dependent on a comparison of sales increases which were up 40 percent for the five-year period in which there is a claim for loss profits compared to only a 10 percent increase in the marginal costs (as calculated by him) for volume increase. For the five-year period from 1996 to 2001 there was an approximate ratio in which sales increased at a rate of about 25 percent more than marginal costs. From that point determination of lost profits for each year from 1996 to 2001 was quite simple for Filingeri. The .2549 percent percentage was applied to the marginal cost figure. For 1996 this turned out to be $39,025. This sum was subtracted from the gross profit figure of $313,863 which resulted in a marginal income figure of $274,838. In 1996 according to one Exhibit (8) 913,000 gallons of residential oil were sold. If we divide this figure into the marginal income figure, Benvenuti made .301 cents per gallon. If that number is multiplied by the 842 gallons each customer used then we have a profit of $253.46 on each customer. That would be multiplied by the 199 customers lost and we have a loss of $50,439.46. Projected over five years there is a loss of $252,197.32. Mazella's experience and Levy who had long experience in the oil industry estimated this was a conservative period for which a customer would stay with an oil company once the customer was acquired. The court accepts this estimate. In any event the same equation calculations were used for the ensuing four years resulting in a very substantial lost profit claim.
In Exhibit 10 the same equation analysis was used but there was an adjustment for 1996, a slight recalculation of oil actually sold, a deduction of $50 per customer which represented the sales commission for signing up a customer under the Foss program. This slightly increased the lost profit claim in 1996 and in the ensuing years.
In effect the plaintiff's accountant said he was trying to come up with an equation that would signify lost profit based on a potential client that had not been obtained. He verified his analysis by determining that the ratio of increased sales to marginal costs was fairly constant for five years. And in fairness to his position it should be noted that if the accountant's marginal cost estimation is accepted this ratio remained constant during a time period when new customers were being added. But how can the ratio be assumed to be a correct projection if 1000 or even several hundred new customers are added without an examination of the actual historic costs of servicing customers given their location, the numbers involved, staff needed to service a particular number of customers, delivery costs, average service life of trucks with attendant repair costs?
The problem with the equation and method used by the plaintiff's accountant is that the first projected lost sale for cost estimate purposes is treated the same as the 50th, 70th and, if otherwise established, the 199th lost customer if the 1 percent ratio is used. This cannot be right and in the last analysis the court agrees with the defendant's expert that the equation and method used by the plaintiff's expert makes no practical sense.
Past costs and expenses are all well and good but are only useful in a lost profit calculation for future lost profits if they are used as a basis to estimate future cost projections that can then be deducted from projected revenue. In this regard the case of Rivenbark v. Finis P. Ernest Inc., 346 N.E.2d 494 (Ill.App. 3d 356, 1976) is perhaps of some interest. There, the plaintiff, a dry wall contractor, agreed to furnish labor and materials for the construction of certain buildings in a housing project. The plaintiff claimed that the defendant wrongfully refused to permit him to complete the contract. The plaintiff's wife made the lost profit calculation and the court said:
To determine lost net profits, (the plaintiff's wife calculated the percentage of profit on the work completed ($48,330.09 + $144,461.37 × 100 = 33 + %) and projected that plaintiff's profit on the uncompleted portion of tie contract would have been of an identical percentage if the work had been completed. Taking 33 + percent of the difference between the total contract price ($218,632.29) and the contract price of the work completed ($144,461.37), which equals $74,170.92, plaintiff's wife thus arrived at the figure of $22,385.17 for lost profits.
4 We find this figure erroneous because plaintiff's witness employed an incorrect method of calculation of lost profits. Plaintiff presented no evidence of the projected cost of completion of the work. There was no testimony regarding anticipated direct costs (labor and material), indirect costs (overhead and other expenses) or how long it would have taken to complete the contract. Without such testimony the proper amount of lost net profit cannot be ascertained. It may be that plaintiff's cost of completion would have been greater than the contract price for the work remaining. In this instance, plaintiff would not be entitled to any lost profits. On the other hand, plaintiff's estimate may well approximate a fair amount of anticipated profits lost as a result of defendant's breach. Under these circumstances we conclude that the court erred in awarding lost profits in the manner calculated. id.
Interestingly at several points during his testimony the plaintiff's accountant, Mr. Filingeri, sought to justify his method and the equation he used by saying he was trying to project into the future the financial effect on Benvenuti of losing a customer and apparently that was why he did not do an actual cost analysis. But as noted the actual cost analysis could have been used to predict future costs of adding customers and in fact his method freezes costs in the year it is applied to the hypothetical lost customer number and then projects the lost profits for five years. The court therefore, cannot award lost profits on the basis of Filingeri's analysis and it does not have enough information available to it to project future costs as noted employees would have to be interviewed concerning the office staff needed to service certain amounts of customers, truck repair and maintenance records would have to be reviewed to determine added costs that would be incurred in this area to service hundreds of new customers, the need for added trucks and labor to make deliveries would have to be explored, the need for new building space and facilities would at least have to be explored based on current utilized space given the existing customer base.
There is another consideration which does not necessarily, standing alone, invalidate Mr. Filingeri's analysis but which raises questions about it that have never really been answered in the record by him or anyone else. During the five-year period in which the lost profit analysis was made, 1996-2001, despite the fact that Benvenuti drew back from marketing the western towns, there was a fairly steady increase in the number of new customers. Yet the profit picture for the plaintiff company was decidedly mixed with losses in some years and the ordinary income figures did not even match the hoped for profit from the lost western town customers. As Mr. Koliani, the defendant's expert said, how can one observe such a profit picture (based on real customers) and say, well if we add 199, 100, 75, etc., new customers to those years there would have been a profit? See previous general discussion concerning relevance of profit history and case of Metropolitan Express Services Inc. v. City of Kansas, 71 F.3d 273, 275 (CA 8, 1995).
It is true that for some of the years officer's salaries increased — maybe the profits went there — but then questions arise as to why such costs were fixed costs not marginal costs such a transfer to marginal costs would skewer the whole application of the Filingeri formula in determining marginal income and marginal income per gallon.
(b)
But assuming the court is incorrect in rejecting the Filingeri analysis and his use of an equation and average profit and cost increases, the court would still have difficulty in arriving at a lost profit figure based on any such analysis in this case. To arrive at a gross profit figure, in determining "marginal expenses" and thus marginal income, marginal income per gallon and yearly lost profit from the putative lost customers brought about by the breach, even to determine the number of lost customers, incorrect and unexplained assumptions were made.
For one thing the lost profit projection after 1996 assumed that if Benvenuti continued to telemarket the so-called western towns it would continue to garner 199 customers per year. The Foss program itself only guaranteed 250 new customers for the first year of the program and that was for the whole area within a 25-mile radius from Benvenuti's Waterford office and thus would cover the western, central, and eastern towns. Mr. Levy, the plaintiff's oil industry expert with many years in the industry and experience with telemarketing explicitly said he was rendering no opinion as to whether Benvenuti was entitled to lost customer damages beyond the first 1996 ten-month customer calling cycle. The court could not ascertain where in the record a basis for the continued garnering of 199 customers, or even two thirds, half, or a quarter of that number could be found. Benvenuti did apparently continue to use the Foss program in the central and eastern towns and gained new customers, one could speculate, from the use of that program; but a post-1996 percentage signup rate per total population as a result of this telemarketing was not presented which in turn could be applied to the western towns. People with experience in telemarketing testified and there was no testimony presented that the percentage of signups for a particular area would stay the same in cycles subsequent to the ten-month calling cycle under the Foss program. Does the size of a town's customer base make a difference? the length of the cycle? the extent of competition even by companies not using the Foss program? The court cannot just pick a number of putative lost customers in years subsequent to 1996 even if it were to reject the 1 percent central and eastern town 1996 signup rate which was applied to the western towns to arrive at the 199 lost customer estimate for the latter. For post-1996 years the court can find no basis for even applying the lesser percentage figure even relied on by Levy to determine lost customers in 1996. The rubric repeated in the cases about not requiring mathematical precision in these lost profit cases and not permitting the wrongdoer to take advantage of the fact that exact estimates cannot be provided does not at least to this court involve guessing and speculation which would allow substituting one number for lost customers over another and could lead to massive windfalls based on some whim of a trial court. This is especially true where evidence would have been available to give more exact estimates but was not presented to the court.
Furthermore if we just concentrate on the lost profit projection for 1996 or if we look to the lost profit projections for the subsequent years there seems to be a continuing flaw in the Filingeri analysis which skewers his ultimate conclusions as to marginal income per gallon and thus lost profit for customer in several respects. For example in 1996 the entire sales of the company, $1,188,992, not just sales of oil to residential customers, was used as what the court will call a base figure for the Filingeri analysis. Various costs of goods sold were subtracted from that figure to arrive at the gross profit. For example in 1996 the gross profit figure was $313,863. The increase in marginal expenses for that year was calculated at .2549 which was multiplied against those marginal expenses to produce a figure of $39,025. This was deducted from gross profits and represented marginal income. Marginal income per gallon was determined by dividing residential oil sold into marginal income which in 1996 was $274,838 in Exhibit 8 which produce a figure that was then used as a multiplier times the number of gallons purportedly used by each residential customer — 842 gallons. This is how the lost income per customer was determined which then had to be multiplied by the number of lost customers and projected out over five years for 1996.
The base number represents company's sales. Insofar as that number includes sales not only of residential oil — the only thing the Foss program was concerned with — but of commercial oil sales or other company business, use of that base number skewers the formula and equation used to determine marginal income which is key to in turn determining marginal income per residential oil gallon. At one point the company president said he sold very little commercial oil in 1996 but in that year he sold diesel, hot water heaters, and home humidifiers. In fact a person working for the company had a plumber's license. Benvenuti started installing air conditioners in fact in 1999. The company also converted propane and natural gas heating systems to home heating oil. A profit was made on the furnace installations — Mazzella said he "could" add 10 to 15 percent to the price of the furnace or boiler. At another point Mr. Mazzella testified "My mix is primarily residential accounts. My commercial account business is probably maybe one percent, two, you know." This will not do for a lost profit analysis. No exact figures are given for residential and commercial — what does 1 percent or 2 percent mean? Percentage of customers, percentage of oil sold? and what of the other aspects of the Benvenuti business briefly referred to above. All of this information is crucial if the court is to test the validity of the Filingeri conclusions as to marginal income for gallon of residential oil that is sold. In 1996 a reduction of indeterminate thousands of dollars could be involved which only is magnified if the projection is thrown out for five years and this is true for every year.
Also labor costs were an item directly deducted from the gross sales figure on the way to determining gross profit in 1996 of $313,863. Mr. Filingeri having arrived at this figure then turned to those costs which he determined would be sensitive to volume increases in sales of apparently residential oil. But by deducting labor costs from gross sales he in effect is spreading labor costs that might be otherwise associated with new Foss customers over the whole customer base.
For some reason repair and maintenance were listed not as a "marginal cost" but as a "fixed cost" not responsive to increased sales volume. Certainly it would seem that increased volume would mean increased delivery time and mileage.
For the court at least there are other difficulties with the fixed cost — marginal cost designations used in the Filingeri formula which directly offers his lost profit calculations.
And what is the category of "Depreciation" listed in 1996 as a fixed cost and the other years — why is it a fixed cost? Is it concerned with equipment or truck replacement?
Also although there is a category of "office salary" listed as a marginal cost group insurance of over $29,000 in 1996 is listed as a fixed cost yet this sum represents 15 percent of all fixed costs and would have added 20 percent to marginal cost if transferred to that column. It is understandable why "office salary" would be a marginal cost since increased volume fostered by the Foss program would have effect on staffing decisions — yet how then is group insurance placed in the fixed cost column.
In the 1996 financial report, Exhibit 10, "group insurance" is listed as a fixed cost, thus not subject to changes in sale volume but one would think this cost would depend on staffing levels which can certainly relate to business activity. If added to marginal cost it would represent almost 20 percent of the figure Filingeri relied upon but what portion of it ought to be placed in that column — does it apply to officers?
Interestingly although "office salary" was listed as a marginal cost "officers salary" was said to be a fixed cost for 1996 and ensuing years, although Charles Mazzella is a hardworking hands on manager who apparently worked in several aspects of this business — not unusual for a small family run business.
The point of all this is that the more costs put in "fixed cost" rather than "marginal cost" the higher the percentage of marginal increase for new sales. This would substantially affect the lost profit calculations.
The net result of the foregoing is that the court on its own cannot parse out various matters critical to a national estimate for lost profits in 1996 or any subsequent years — what portion of gross sales were in fact attributable to residential oil sales, what portion of labor should be attributed to the Foss program, should all of it be listed as a marginal cost — doesn't it have to be but then we are back to the problem of spreading out Foss program costs over the entire customer base.
Last but not least of the court's concerns is the issue of what profit could be in fact expected by Benvenuti from having missed the opportunity to telemarket the western towns. The signup sheets in Exhibit 4 for the program indicate that in many cases extra services and price discounts were offered, contrary to that program's policy — such matters would affect expected profits from the new customers and also costs which somehow would have to be added to the "marginal cost" column affecting marginal income per gallon calculations. The sheets indicate several were so called "will call" customers not "automatic delivery customers" and several people cancelled after being signed up. Many sheets were lost.
Another observation that can be made about the application of the Filingeri formula is Levy's estimate that the average customer used 842 gallons per year. Mr. Levy is certainly a very qualified expert and the manual he used is accepted in the industry but the court can make the observation that this figure is a statewide calculation. The temperature in the northern sector of our state fluctuates greatly from that along the cost where a great part of Benvenuti's customers are located. Interestingly in another phase of this litigation Benvenuti calculated its residential customers used 717 gallons per year. Again there is no apparent explanation why these calculations could not have been redone or the reason for the discrepancy.
In any event for all of the foregoing reasons the court does not accept the Filingeri analysis and cannot use it to make an estimate of lost profits. Neither can it otherwise arrive at a fair estimate of lost profit that is based on speculation or surmise. The defendant is a wrongdoer who perpetrated a fraud and he cannot demand mathematical precision in the determination of lost profits. But he is not devoid of rights and this court cannot be asked to impose damages not based on what it considers a reasonable basis.
(c)
The plaintiff makes another claim for damages which it entitles "Sale of Accounts Damages."
This claim may be designated the value of lost customers. The basis of the claim is an assumption that Benvenuti lost customers in the western towns. Given that assumption the question was posed to the expert Levy in his May 3, 2004 testimony — assume Mr. Mazzella wanted "to sell those customers" — "Is there a way to determine the value of those customers?" In one and a half pages of its brief the plaintiff summarizes what it takes to be Levy's position and claims the value of what it characterizes as the loss of the opportunity to sell those lost customers accounts is $374,682.00 using a 6-year cycle of lost customers. Only eight transcript pages dealt with this concept and in the defendant's opposition brief this claim was not explicitly addressed. The interplay between a claim such as this and a lost profit claim was not discussed by the plaintiff. It would seem at least to the court that a lost profit claim and value of account claim cannot be advanced together since any damage award would then be duplicative.
True, a claim for the value of lost customers which must assume a market willing to purchase them is not exactly analogous to a claim for loss in value of a business due to breach. But in the latter circumstances it has been recognized these two types of recovery will be allowed in the same case but not for the same time period N.E. Telephone Co. v. Am. Tel. Tel. Co., 651 N.E.2d 76, 90 (fn. 30), cited in Westport Taxi v. Westport Transit District, 1991 Ct.Sup. 4955 (Katz, J.), Protectors Ins. Service v. USFG, 132 F.3d 612, 616 (CA 10, 1998). It has been held that for double recovery in such a situation "such a loss must exist independently of lost profits," 22 Am.Jur.2d "Damages," § 456, page 407, cf. Protectors Ins. Services v. USFG, supra, Albrecht v. The Herald Co., 452 F.2d 124, 131 (CA 8, 1971). Here Mr. Levy clearly relied on operating profit margins to determine customer value. (5/3/04 A.M. transcript pp. 89-90.) It seems to the court that if it had been inclined to award lost profit damages an award for what the lost sale value of customers would have been duplicative.
But the court has rejected the plaintiff's lost profit claim and the question then becomes whether a separate lost value of customer claim can be advanced. Assuming that this is at least a theoretical possibility the court has several difficulties with it in this case. There is no indication that Mr. Mazzella would have entertained the notion of ever selling the customers he would have acquired in the western towns. Mr. Levy simply said at page 97 of the May 3d, A.M. transcript.
Q. Okay. And in the field of residential oil sales the value per customer is a valid concept.
A. (Levy) Yes it is.
Q. And people do sell customers.
A. Yes.
But real world claims for loss have to be made in real world markets. Mr. Levy's extensive oil industry background lies in Long Island; more than one witness testified that that is a residential oil market of hundreds of thousands of customers with many companies competing for business in any one area. No market analysis was done by Levy as to the market for such customers from this discreet area of Connecticut — the so-called western towns. Deep River was closest to this pool of customers but the owner was not asked for example of that company's ability and willingness to have offered the price per customer Mr. Levy suggested.
A more basic problem the court has with this claim is the purported explanation of it by the expert Levy. At least to this court to refer to some generic industry formula without any explanation as to how it really operates or why it makes sense in relation to a particular case will not do. The court will quote from Levy's testimony to indicate why to it at least this claim was inexplicable.
Q. Is there a way to determine the value of those customers?
A. Yes. What you do is you take the margin, again, the selling price less the purchase price. Normally the way you start is you multiply that times one and a half for a full-service company that has service, and automatic deliveries, and budget plans, and everything he has and come up with a number. If I'm working on 40 cents, then that business is worth 60 cents a gallon. If I'm working on a dollar, that margin is worth a dollar and a half a gallon.
Q. Were you able to determine a margin from Benvenuti Oil from the financial statements?
A. We took the reported margin and took the financial statement for 2002, took his purchases, subtracted his gross profit and we added back the labor costs and the subcontract costs and came up with a number that was higher than he reported.
Q. I want you to explain to His Honor how you go about determining the value of a customer. In other words — and I assume the value — if someone were to sell that customer —
A. Correct.
Q. — he would have a certain value on that customer.
A. What we do is we take — it was an individual customer. We would take the margin on that account. Again, the selling price less the purchase price, multiply it times the number of gallons they use in a 12-month period and multiply that times one and a half times the margin. So if I've got a customer who burns — again, let's use easy math. If you have a thousand gallons a year and you have a 50-cent margin, that customer would be worth $750, one and a half times the margin.
THE COURT: Why do you divide it into half, because they are providing service?
THE WITNESS: No. The industry average right now, most companies are looking for somewhere between five, four and a half to six, in that range payback. So if I can add incremental gallons without adding a whole bunch of overhead, the number becomes the earning before interest times the fact of 45 But when I have an individual customer to sell, that value is actually higher, because I've got none of the overhead coming in.
Later on at page 92 the following occurs where, speaking of 1996, Attorney Bartinik asks the following:
Q. I want you to determine — from those numbers you determine the number of lost customers, lost opportunities. I just want to have you make a determination as to value of those lost customers.
A. If we used 79 accounts times 842 gallons times 90 cents is $59,866.20. Ninety-four accounts. Again it would be 94 times 842 times 90 cents. The number would be $71,233.20.
Where does the 90 cents come from? For reasons previously discussed the 842 gallon per customer figure is not even supportable. Also in his damage claim set forth in the brief the plaintiff applies Levy's calculations to a multiple year cycle of repeated lost customers. As noted previously Levy himself said he was not asked to and could offer no opinion as to any lost customer projections after the year 1996 and as indicated the court itself has similar doubts about such projections.
Perhaps even more fundamentally Levy's abstract accepted in the industry formula or method of loss evaluation does not take account of the actual facts of this case. The customer signup sheets in Exhibit 4 indicated there were many will call customers not the automatic delivery customers the Foss program understandably demanded. Discounts were given, services offered at the salesperson's discretion which involved extra costs. Given Benvenuti's track record can we postulate the lost customers in the western towns would be pure Foss program "lost opportunities" or less profitable possibilities for a company considering a purchase of such accounts? This of course would have an effect on customer value.
Finally to return to a factor briefly alluded to previously — Mr. Levy appears to have developed his experience in a highly competitive New York market. Felicia Spinogatti testified to this intense competition in the Long Island residential oil market for example. How can an abstract industry formula be used to evaluate sale value of lost customers without some kind of real world market analysis of possible competitive bidders for any such customers? The location of companies willing to purchase such customers would directly affect labor and other delivery costs which would also necessarily affect the value of any prospective customer accounts to such companies.
Mr. Mazzella himself said at one point the desirability of marketing in certain towns in part depended on his access to Route 9 and I-95. An evaluation of the available market for purchase of such accounts has to be made. Again this is not Long Island with numerous competing residential oil companies all presumably relatively equidistant to customers. At the very least this should have been explored before a court had been asked to award hundreds of thousands of dollars in damages.
The court does not award damages on this aspect of the damage claim.
DAMAGE AWARD
In light of the foregoing the court will award duly nominal damages of $1 each for the Breach of Contract claim and the Forgery/Fraud claim. In light of the court's finding of fraud the court will award punitive damages. Markey v. Santangelo, CT Page 1543 195 Conn. 76, 77 (1985), Plikus v. Plikus, 26 Conn.App. 174, 180 (1991) in the form of attorneys fees, compare Triangle Sheet Metal Works Inc. v. Silver, 154 Conn. 116, 127 et seq. (1966) because of the "malicious or wanton misconduct" involved in the forgery. In its brief the plaintiff submits a claim for attorneys fees of $145,514.05 for post-August 2, 2001 litigation (i.e., prosecuting this second suit). Further fees are claimed from April 29, 2004 to the present date. It will be necessary to have a post-trial hearing on this issue. The court will order a prejudgment remedy of $200,000 on the attorney fee claims subject to plaintiff's further evidence and challenge by the defendant who really did not address specific claimed amounts but only generally opposed attorneys fees on the grounds that the requisite causes of action had not been established and the proper remedy for the plaintiff was to bring an action for a new trial rather than a second suit alleging breach of contract, CUTPA violations and fraud.
The issue of whether punitive damages can be awarded when only nominal damages have been awarded is not entirely clear. In 22 Am.Jur.2d, § 554, pages 495-97 the following is said:
Under the view of some courts, a plaintiff is generally entitled to recover punitive damages by showing that he or she suffered at least or at a minimum, nominal damages. Other courts state similarly that nominal damages may support a punitive award, observing that the foundational requirement for punitive damages is merely that some legally protected interest be invaded.
Some courts follow the view that punitive damages may not be recovered if only nominal damages are found or awarded. The rationale for this rule is that if an individual cannot show actual harm, he or she has but nominal interest, and society has little interest in having unlawful, but otherwise harmless, conduct deterred.
Even in jurisdictions taking the view that nominal damages will not support an award for punitive damages on the basis that "society has little interest in having unlawful but otherwise harmless conduct deterred," the facts of this case would seem to call for allowance of such damages. Fraud was committed on a trial court and an Appellate Court and the plaintiff was left with the difficult task of proving future loss profits.
In Faran v. Hobby, 503 U.S. 103, 114-15 (1992) the court held the prevailing party in a 42 U.S.C. § 1983 action who recovers only nominal damages and thus is a "prevailing party" can recover punitive damages when the lawsuit serves a significant public purpose. Cf. McGrath v. Toys R Us, 821 N.E.2d 519 (NY Ct. of App., 2004). Here the plaintiff could be said to have a right to recover punitive damages even if the state's taking a more restrictive view.
Our state seems to accept the more liberal position. In a CUTPA case Associated Investment Co. Ltd. Partnership v. Williams Associates, 230 Conn. 148 (1994) the court at page 161 fn.16 said:
Although punitive damages are recoverable at common law, they ordinarily may be awarded only if the complainant, unlike the defendants here, pleads and proves a right to recover compensatory or nominal damages (emphasis by this court).
The court cited among other authority 4 Restatement (2d) Torts § 908, p. 465 (1979). Also see Lyons v. Nichols, 63 Conn.App. 761, 768 (2001) (defamation case, nominal and punitive damages awarded where Appellate Court noted the court "refrained from awarding compensatory damages because the plaintiff could not provide the court with a reasonable means of calculating the extent of the harm his reputation had suffered from the libelous statement," id. page 76); also see DiNapoli v. Cooke, 43 Conn.App. 419 (1996).
Finally in light of the court's decision the court has no occasion to rule on the request for prejudgment interest and a double damage claim for forgery. Section 52-565 provides for double damages for a person injured by the forgery. The injury caused by the forgery here would be the expenses associated perhaps with the first litigation. It would be an odd stretch of words to say that this would translate into doubling of attorneys fees.
Also in light of the court's present order as to the prejudgment remedy the defendant should disclose assets to that amount. Further orders will await postjudgment hearings.
ENDNOTE
1. The court should also mention that the defendant raised several issues that are somewhat interrelated but in light of the court's decision on damages need not have been directly dealt with. Under the doctrine of Mitigation of Damages or Avoidance of Consequences it has been said in 22 Am.Jur.2d, "Damages" that under the doctrine of avoidable consequences "a party cannot recover damages flowing from a consequence that the party could reasonably have avoided," § 340. In § 341 it is stated that this is an extension of the principle of proximate cause. The Restatement (2d) Contracts at § 350 says "damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation," also see 22 Am.Jur.2d "Damages," sections 351 et seq. Similar principles apply in tort actions, see Restatement (2d) Torts, Section 918. Our state follows this law, Eastern Sportswear Co. v. S. Augustein Co., 141 Conn. 420 (1954); Richard v. A. Waldman Sons Inc., 155 Conn. 343 (1967); Eaton Factors Co. v. Bartlett, 24 Conn.Sup. 40 (1962); Preston v. Keith, 217 Conn. 12 (1991); Lange v. Hoyt, 114 Conn. 590 (1932).
The court accepts Mr. Mazzella's testimony that he did not market the western towns based on a rational business decision after he learned Deep River was using the Foss program in his exclusive area. The defendant's testimony from Felicia Spinogatti, for example, that in the case of competition her company would continue to do the Foss program in the Long Island market. That market has thousands upon thousands of prospective residential oil customers not the roughly 19,000 in the western towns. It certainly seems to have been a rational decision to abandon telemarketing there and concentrate on areas closer to Benvenuti's home base in Waterford where the costs would be lower — not an idle consideration since this small company had spent over $25,000 buying into a program that did not deliver, in terms of exclusive radius, what was promised. The defendant also made much of the fact that Benvenuti's business was concentrated in areas where telemarketers would not incur toll charges whereas the western towns would have involved toll calls — not an unimportant consideration when telemarketing is the method to procure customers. So the suggestion would seem to be that Mazzella would have decided not to market the western towns in any event. But Mazzella said he planned to increase his telemarketers and only decided not to when he learned he did not have an exclusive radius to the west — if he did there is nothing to indicate the monetary advantage of marketing the west would not have outweighed telephone cost considerations.
It was also suggested that two of the western towns were successfully telemarketed by Benvenuti — so why not market the rest of the western towns? But Mr. Mazzella offered an explanation for this; his salesperson lived in those towns and he had contacts there. In his otherwise thorough presentation the defendant did not attempt to refute this.
Finally there was some suggestion that having withdrawn from the west Mazzella could have his telemarketers concentrate on the eastern towns so what business was actually lost. Not only was this claim not factually established but it ignores the previously mentioned fact that Mr. Mazzella had planned to increase the number of telemarketers so he could use the Foss program in the west and east to the extent it was productive. The court accepts Mr. Mazzella's representations and the Foss program is a very successful one in this industry.
Suffice to say that if the plaintiff had been able to prove his damage claims beyond a nominal amount, the court would not have reduced that claim for any of the foregoing reasons advanced by the defendant.