Opinion
No. X05 CV 08 5008383S
February 1, 2011
MEMORANDUM OF DECISION ON PLAINTIFF'S APPLICATIONS FOR A PREJUDGMENT REMEDY AND TEMPORARY INJUNCTION (#144) DEFENDANTS' MOTION TO REOPEN (#199)
Introduction
This commercial litigation essentially involves a dispute between two former colleagues and business partners over a group of hedge funds. The plaintiff is Gary Katcher (Katcher) and the defendant is Scott Stagg (Stagg), both of whom are professionals in the securities industry. Katcher and Stagg worked at different times both together and separately, and under various names and certain related business entities which were/are structured as hedge funds headquartered in the town of Greenwich, Connecticut.
In general terms, a hedge fund is an aggressively managed portfolio of investments that uses advanced investment strategies in both domestic and international markets, with the goal of generating high returns to its investors. A hedge fund is similar to a mutual fund in that investments in both types of funds are pooled and professionally managed, but they differ in that a mutual fund is subject to far more government regulation and oversight, and a hedge fund has far more flexibility in its investment strategies as it seeks to maximize return on investment. Unlike mutual funds, which generally welcome investors of even modest means, hedge fund investors are invariably a sophisticated group of high net worth individuals like both Katcher and Stagg. Legally, hedge funds are most often set up as private investment partnerships that are only open to a select group of investors, which investors may be individuals or entities which are themselves structured as limited partnerships or some other form of business organization. Hedge funds require a large initial minimum investment of capital, and these investments are subject to other terms and conditions by fund management.
Katcher and Stagg are embroiled in a dispute over the distribution to Katcher of over $4 million from a limited partnership. That is the subject of the PJR application was filed, as well as the primary focus of this decision. There are other allegations back and forth, both here and elsewhere in other courts, some of which involve other entities and claims several times larger than the amount at stake here. What is at issue here is Katcher's share as a limited partner of the assets of a now essentially liquidated partnership, the defendant hedge fund known as 3V Capital Partners LP (3V Partners). Before the court is the plaintiff Katcher's application for a prejudgment remedy (PR) of attachment or garnishment of the assets of Stagg, and the defendants affiliated with Stagg, to secure a claim by Katcher in the amount of $4,124,543. The named defendants include Stagg and several of his related business entities: Stagg Capital Group LLC, (Stagg Group), Stagg Capital Partners, LP (Stagg Partners), Stagg Capital Partners LLC (Stagg Capital; these four parties collectively, the "Stagg Defendants").
Another defendant is an individual named Mark Focht (Focht), who worked for entities affiliated with both Katcher and Stagg. This civil case as to Focht is presently stayed because of a bankruptcy filing, and a PJR is not sought as to his assets, if any. Moreover, this case pales in significance to other difficulties Focht has created for himself since his days running the back office operation of these funds. Those difficulties include a New York state prison term for Focht for grand larceny. Other defendants are 3V Partners itself, along with the following entities: 3V Capital Advisors LLC (3V Advisors); SV Special Situations Master Fund Ltd. (SV Master Fund); SV Special Situations Fund LP (Special Situations Fund); and SV Special Situations EURO Fund Ltd (SV Euro Fund). These various parties and funds played different roles at different times in the hedge fund businesses once collaboratively run by both Katcher and Stagg, or in a later group of funds set up by Stagg, who moved on in the hedge fund world to a newly created family of funds to the exclusion of Katcher and his broker-dealer firm.
The number of similarly-named investment vehicles in this case prompted the creation of a flow chart, the better to allow the court to track — and the witness Stagg to explain — the interrelationships between the various funds and the general partner and the investment advisor. That flow chart was the subject of Stagg's testimony which was considered at the hearing the court held on this application, and it was duly received into evidence as a demonstrative exhibit. The chart provides a general outline of what is known as a "master-feeder" hedge fund structure. It may be consulted along with the transcripts by those who wish to further explore the particulars. But neither that chart, nor the sheer number of named defendants or funds involved should obscure the central issue — indeed, the only issue — before this court. This is a PJR application, not a trial on the merits, and the PR test is a simple one. As has been noted by our Supreme and Appellate Courts, a PJR is a relatively low hurdle to clear in terms of the weighing of probabilities. It is not complex. It is whether probable cause exists to believe that the plaintiff may prevail on one or more of his causes of action against the defendants. In other words, is there probable cause that the plaintiff is owed the amount sought to be attached? If so, a PJR may issue. If such probable cause does not exist, the PJR should be denied, and the cases await further adjudication without such a remedy.
Barring settlement, that further adjudication will come either in the form of an eventual trial on the merits of the plaintiff's case and the defendants' counterclaims here, or via a future dispositive motion by one side or the other, based upon the fruits of full discovery. It may also come from the results of related litigation between the parties in the U.S. District Court here in Connecticut, as other controversies between Katcher and Stagg and their respective investment and business vehicles (termed a "business divorce" by one counsel) are also being adjudicated in different forums. Katcher has been named as a defendant in that matter. Those allegations go beyond those currently before this court and include additional parties not named in this case. Because of that, it is important to note that for purposes of this PJR, it is not whether any of those other allegations are in fact true, it is that they are essentially irrelevant for these purposes and findings. The granting or denial of this PJR here in Superior Court is but one chapter, and an intermediate one at that.
A separate action was also filed in aid of arbitration under Connecticut's pendente lite statute, entitled Katcher v. Stagg, Superior Court, complex litigation docket at Stamford, Docket No. X05 CV 08 5008570. This decision does not encompass those allegations and defenses due to the current status of that case.
It is a chapter this trial court will write, having had the opportunity at the PJR hearing to assess credibility by observing and listening to the witness Stagg. The court has assigned weight to such testimony commensurate with the credibility it attaches to it. It has further read and evaluated the documentary evidence of partnership intent and proposed distributions between the plaintiff and defendants. The court has also considered some evidence of certain financial transactions and other events, either consistent with or at odds with that intent. Apart from the PJR claim, and the evidence that falls into the category of "beyond the scope" of that application, there is also a dash of largely irrelevant (as least as to this PJR) criminality injected by Focht. He is a convicted felon and now apparently a bankrupted civil co-defendant here, and a former hedge fund colleague at one time of both Katcher and Stagg — a chief operating officer, no less. His actions do not defeat probable cause for a PJR here against these defendants. There may have been more than one cook in this broth of hedge funds, but it does not prevent a finding of probable cause here as to this claim arising out of the limited partnership. This is so even if Focht was not averse to cooking some of the books in pursuit of his own separate larcenous scheme in the back office. In light of what has transpired here, it is somewhat ironic that one of the defendant Stagg's former positions in the industry and areas of expertise (before his hedge fund days began) was on the trading desk at Lehman Brothers for distressed securities.
The court understands the factual issues in light of the legal framework (both substantive and procedural) it must apply in granting or denying a PJR in this case, including a consideration of any defenses. Finally, the court has, as it must, decided the contested issues of fact presented by the parties within the confines of the probable cause standard. Those findings, and the necessary orders that flow therefrom, are the subject of this memorandum of decision.
The Court, Adams, J., previously granted an ex parte temporary restraining order (TRO) to preserve the status quo, pending the Court's ruling on this PJR application. Under this TRO, the defendants are required to hold $4 million. Among other things, the defendants are also enjoined from diminishing or transferring (a) the sums owed to Katcher under the various agreements discussed herein; and (b) any other assets except those used for expenses incurred in the ordinary course. The Court further found good cause to issue the TRO without bond. As a companion to the requested PJR, Katcher seeks to ripen this TRO into injunctive relief to enforce a PJR if granted, and also preserve the status quo until the amount of any prejudgment PJR is satisfied. The court heard nothing that would justify vacating that TRO. As is more fully set forth herein, probable cause having been established, the prejudgment remedy is issued, and a temporary injunction is ordered. It is relief that will last until a trial on the merits is heard.
Due to the number of issues raised by this case, this decision is organized into several parts. Part I of this decision sets forth many of the court's findings of fact based upon the evidentiary PJR hearing it conducted, and also the defendants' motion to reopen that hearing. Part II discusses the PJR statute itself, and Part III addresses some of the various allegations. Part IV reviews the standards for granting injunctive relief. The court's conclusions and orders are found in Part V.
I. Discussion
For the purposes of this PJR application and also the injunctive relief sought, the court makes certain findings from the following facts and circumstances. These findings are based on the evidence and testimony it finds credible. In 2003, Katcher hired Stagg to work at a securities brokerage firm known as Libertas Holdings LLC (Libertas). This was a. broker-dealer previously formed by Katcher, who is several years older than Stagg. A college graduate in the mid-1980s, Stagg received his MBA from the University of Chicago in 1993. Before being hired by Katcher to join his Libertas staff in 2003, Stagg had already held several different management and trading positions in the securities industry. Stagg's job was to supervise Libertas' research department, but as time went on Stagg was given positions of increasingly more responsibility and financial oversight with a new and highly profitable hedge fund venture in the form of a limited partnership.
Katcher and Stagg formed a hedge fund business which was the beginning of the 3V partnerships, a family of funds that was intended to work cooperatively with Libertas. 3V was made up of several different entities, each of which performed different functions in synergy with the others. 3V Partners operated as a domestic feeder fund, while an entity known as 3V Capital Fund, Ltd. operated as an offshore feeder fund. An entity known as 3V Capital Master Fund operated as the master fund, which co-invested the capital from the domestic and offshore funds through a model commonly termed in the securities industry as a master-feeder structure. Stagg's role in all this was pivotal. The general partner of 3V Partners was the defendant 3V Advisors, and Stagg himself acted as the managing member of 3V Advisors. Stagg was also a director of 3V Capital Master Fund.
Katcher and Stagg both became investors in 3V Partners pursuant to a Limited Partnership Agreement dated July 1, 2003 (Limited Partnership Agreement). The Limited Partnership Agreement was signed by Katcher as limited partner and by Stagg, managing member of the general partner 3V Advisors. The Limited Partnership Agreement defines the partners' investment in 3V Partners as their "Capital Accounts." Katcher's original limited partner investment was $1 million, while Stagg contributed $600,000. The investment adviser to 3V Partners was an entity known as 3V Capital Management LLC. Katcher and Stagg each owned a 50% membership interest in both 3V Advisors and 3V Capital Management. Pursuant to the terms of the operating agreements of both of these companies also signed by Stagg (collectively, Operating Agreements), the profits earned by each entity were required to be distributed equally to Katcher and Stagg. These profit streams were generated by the operation and management of 3V Partners (the domestic fund), and for foreign investors, a Caribbean entity in the British Virgin Islands known as 3V Capital Fund, Ltd. (the offshore fund).
The chief operating officer of both Libertas and the 3V entities was the defendant Focht. As an operations person, Focht's duties included back office responsibilities and accounting transactions connected with closing or settling trades for both Libertas and 3V. With the 20-20 benefit of hindsight, Focht's hiring as Chief Operating Officer was a big mistake. Coupled with other events both within and beyond the control of the parties, it worked to the financial detriment of both the plaintiff and defendants and the 3V entities, not to mention a new group of similarly named hedge funds set up by Stagg (the "SV" entities). Focht also inflicted reputational harm upon his former colleagues.
Stagg was the managing member of 3V Advisors, which itself acted as the general partner of 3V Partners. Therefore, Stagg himself had the most active role in managing the 3V entities. Besides being head of research, Stagg's role included the actual execution of 3V trades and the interactions of the 3V entities with Libertas. Initially, the 3V entities worked cooperatively and beneficially with Libertas. Stagg asserts that he himself ran the 3V business, with Katcher enjoying the profits from the hedge fund, but not sufficiently sharing in the workload. Both 3V Partners and Libertas started out in shared office space in Greenwich already occupied by Libertas. In those heady days, the hedge fund business was booming in general worldwide, and found perhaps its fullest flowering in Greenwich in particular, as headquarters for so many other funds. In short order, the 3V entities shared in that prosperity and rode the wave. 3V started with less than $3 million in 2004. Thanks to an influx of new investor money, domestic and offshore capital flowing into the partnership funds, profits from shrewd trades and appreciation in asset values, and the overall bull market mentality that defined this time frame, the assets under management by the 3V entities had grown to approximately $500 million by the end of 2006. Given such astronomical sums, these were salad days, but there was apparently trouble brewing. Libertas handled the vast majority of trades for 3V Capital Master Fund. Stagg stated that certain hedge fund investors had expressed concerns to him as time went on over potential conflicts of interest, due to the closeness and proximity of the broker-dealer Libertas, and its dealings with the 3V entities.
While substantial gains were realized initially, this time frame seemed to represent a peak for the partnership fund, which steadily declined in value by millions of dollars as time went on, due to redemptions and the events described here.
While he was an employee of Katcher and Libertas, Stagg did not have an ownership interest in Libertas, the registered broker-dealer largely owned at the time by Katcher. However, it seemed (correctly) that the real action, the truly serious money and financial flexibility was to be found in running these growing and unregulated hedge funds like 3-V, not in a smaller and regulated "boutique" broker-dealer business like Libertas. Sometime during the fall of 2006, Stagg approached Katcher about the possibility of reducing Katcher's interest in the 3V entities, but Katcher refused Stagg's proposal. This was perhaps unsurprising, as the court heard testimony about the staggering amount of money, the hundreds of millions of dollars once held just by this single family of hedge funds in 2006. Those were the days before the great market correction of a year or two later, and the huge losses that characterized that global financial crisis, losses to which these parties were not immune.
Around 2006, Stagg set in motion a chain of events unbeknownst to Katcher that culminated in the business divorce between Katcher and Stagg, and ultimately, also the claims now before this court. Stagg established a separate hedge fund enterprise to the exclusion of Katcher, using the identifying initials "SV" instead of 3V. Stagg created these new funds with a similar structure and investment strategy to the earlier 3V entities. This included a domestic feeder fund (the defendant Stagg Partners); an offshore feeder fund (the defendant Special Situations Fund); a master fund (the defendant SV Master Fund); and an investment advisor (the defendant Stagg Group). The general partner of Stagg Partners is the defendant Stagg Capital. There was one significant difference and advantage afforded by Stagg's new SV funds and investment structure, versus the old 3V partnership. Stagg was still managing the business, but the new SV brand eliminated any perceptions or concerns over these hedge funds possibly being perceived in the marketplace as captives of the broker-dealer Libertas. However, such admittedly legitimate business objectives by the defendants in a new venture called "SV" cannot be used to justify the potentially illegitimate treatment of a limited partner in an old venture called "3V."
By December 2006, desiring to find new offices for his SV entities physically separate and apart from Libertas and Katcher, Stagg had begun to quietly plan the move of the offices of the 3V entities as well. This culminated in Stagg's overnight move in March 2007 out of the space shared with Libertas and into a nearby office building next door in Greenwich, leasing the new space in the name of the Stagg Capital Group. Stagg took the property of 3V Capital Management with him, as well as its computer server and files. Stagg also induced Focht and approximately a dozen other 3V Capital Management employees to join Stagg in his new offices with promises of equity interests. Stagg admitted that unlike Focht, Katcher was given no advance notice, and he only learned of Stagg's night moves and the personnel defections after the fact as a fait accompli, despite Katcher's status as a 50% owner of 3V Capital Management. If intent is a state of mind proven by conduct and circumstantial evidence, these circumstances simply do not pass the "smell test" when viewed from the perspective of a limited partner, especially when that 3V partnership interest itself apparently went out the door that night along with the 3V office furniture and employees.
By June 2007, Stagg had closed the 3V funds to new investors. The 3V funds had hundreds of millions of dollars in assets under management at that time. Sometime in 2007, Stagg also began soliciting existing 3V investors to move their investments from 3V to his SV, his new hedge fund entities. Again kept in the dark initially, Katcher was alerted to this development and to the existence of the SV entities themselves when one 3V investor forwarded an email to Katcher. This was a promotional email that the investor had received from Stagg and the SV entities. The email sought investors for SV, and represented that the senior management of the SV entities was the same team that ran 3V Capital Management. Katcher then confronted his partner Stagg about the existence of the SV entities, and discussed the future of the 3V entities, and the shifting of 3V clients to the new SV. Given the amounts of money at issue, some of these exchanges were undoubtedly and understandably heated.
The meetings between them to resolve their differences eventually resulted in arbitration proceedings initiated by Stagg against Katcher, which then culminated in a pair of agreements dated September 26, 2007 (Settlement Agreements). The Settlement Agreements were signed by Stagg individually and on behalf of the 3V entities. The Settlement Agreements amended the Operating Agreements of both 3V Advisors and 3V Capital Management, and were designed to resolve the outstanding claims between the two men and their various entities.
Pursuant to the terms which are relevant to the court's analysis, the Settlement Agreements provide as follows:
The thrust of the Settlement Agreements is accurately recited in substance herein, but the court is not quoting these contracts verbatim. Katcher also asks the court to include additional sums he asserts have not been paid to him pursuant to this schedule set forth in the Settlement Agreements, an invitation the court declines, as it is confining this PJR to the 3V Partners claim only, and not claims relating to 3V Capital Management or 3V Advisors.
1. 3V Partners shall be liquidated, which triggered a return to Katcher in full of his personal investment in 3V Partners as a limited partner. As of September 2007, the value of Katcher's limited partner investment in 3V Partners was approximately $4.1 million.
2. Katcher's ownership interest in 3V Capital Management and 3V Advisors is terminated. Stagg shall buy out Katcher's 50% ownership interest in each of 3V Advisors and 3V Capital Management, for a total payment of $12 million. This $12 million is to be paid over a specified period, with the first payment of $3 million to be made at the time of the signing of the Settlement Agreements. The final payment of $3 million to Katcher was to be made on or before July 15, 2009, with two intervening payments of $3 million each to be made on January 1, 2008 and July 15, 2008. Except for these payments, Katcher shall not be allocated any income or distributed any property by 3V Advisors or 3V Capital Management.
4. Katcher consents to a prompt and orderly liquidation of 3V Partners, which liquidation Stagg agrees to cause to occur.
5. The Settlement Agreements contain full general releases between, on the one hand, Stagg, 3V Advisors, 3V Capital Management, 3V Partners, 3V Capital Master Fund, Stagg Group, and Stagg Partners, and on the other hand, Katcher and Libertas. Therefore, all claims and counterclaims between and among the parties, other than the obligations created by the Settlement Agreements, are released.
Shortly after the execution of the Settlement Agreements, Stagg began operating the business of the SV entities by funding their respective funds. A number of hedge fund investors in the 3V entities redeemed their investments and rolled them into the SV entities. On October 17, 2007, a few weeks after the signing of the Settlement Agreements, Katcher received an email from Focht, the chief operating officer of the investment advisor 3V Capital Management. Focht advised Katcher that "[w]e have liquidated the [3V Partners] fund as of 9/30 . . . We expect the September valuation to be completed in approximately 7-10 business days. Once that is done we will be distributing securities shortly thereafter." Stagg himself was copied on this email to Katcher at the time it was sent on October 17, 2007, but now claims that he probably never read it, due to the volume of email he receives. In light of all the circumstances, such a statement diminishes Stagg's credibility.
Despite the representations in this email, the court finds that after the announced liquidation of 3V Partners, instead of returning Katcher's $4.1 million 3V Partners investment to him, Focht transferred Katcher's money into the SV Master Fund. As of the date of the PJR hearing, the SV Master Fund had assets of approximately $60 million. This transfer to the SV Master Fund was done without Katcher's knowledge or consent, and was contrary to the express terms of the Settlement Agreements. Stagg claims that he was misled by Focht, and did not learn of this transfer of Katcher's investment until 2008, approximately one year later, but in light of all the circumstances, the court cannot find that statement credible. In today's fast moving markets, even one month or 30 days can seem like an eternity. The idea that a full twelve months passed with Stagg in a state of ignorance as to the true status of Katcher's 3V investment defies credibility, notwithstanding Focht's admitted criminality. Especially is this so in light of Stagg's level of experience and sophistication, his degree of involvement in the affairs of 3V, Katcher's efforts in seeking the return of his money, and the explicit terms of the Settlement Agreements, which Stagg himself signed.
According to Katcher's post-PJR brief, in addition to Stagg himself and the defendant 3V entities, the SV Master Fund is the only one of the defendant SV entities against which a PJR and injunctive relief is sought.
When Katcher demanded the return of his $4.1 million investment in 3V Partners, Focht sought to delay or avoid returning it to him. On or about January 22, 2008, Focht confirmed to Katcher that the 3V Partners fund had been liquidated. Focht referenced a liquidating audit of the partnership, and told Katcher that he would first have to execute a release in order to receive his distribution. Focht represented that such a release would provide Focht with a level of comfort in order to make payment to Katcher of his 3V Partners investment prior to the completion of the liquidating audit. No limited partners other than Katcher were asked to sign a release, and there is no requirement in the Limited Partnership Agreement that a limited partner sign such a release in order to receive a distribution of his investment upon liquidation. Katcher declined to do so, and indeed as previously noted, the Settlement Agreements already included release language. Some months later, on July 28, 2008, Focht emailed Katcher, "I understand that . . . you are pissed about the 3V money and I will do my best to take care of that right now . . . You know just as well as anyone that the market has crapped out and that things are tight for funds including us right now." In October 2008, the defendants caused 3V Partners to issue a Schedule K-1 to Katcher for federal income tax purposes. The K-1 represented that the value of Katcher's 3V Partners investment was $4,124,543, and also represented that such sum had been distributed to Katcher. The court finds that this K-1 was false in this latter representation, and Stagg admitted it was an error to show such a distribution.
The defendants contend that 3V Partners and 3V Advisors were successful solely due to the efforts of Stagg, and that Katcher unjustly profited from Stagg's management. Stagg claims that Katcher breached his contractual obligations by failing to provide management to these entities as required, and did not earn the significant profits the 3V entities generated. Stagg asserts that Katcher fraudulently and deceptively induced Stagg into signing the Settlement Agreements, and that the reason Katcher was asked to sign a release was due to his prior litigious conduct.
Stagg admits that Katcher's 3V Partners investment has not been returned to him, but claims good cause exists for non-payment, including that it was proper under the terms of the Limited Partnership Agreement. Stagg asserts that Katcher's claims are not ripe for adjudication because 3V Partners has not been liquidated, and that Katcher is not entitled to any recovery, nor is he entitled to a PJR or injunctive relief based on the doctrine of unclean hands. Stagg claims Katcher encouraged or induced key investors to withdraw investments from 3V Partners, thereby irreparably impairing and harming one or more of the defendants, and waiving his right to the recovery he seeks. Stagg also claims that Katcher and Libertas secretly stole approximately $12.3 million from 3V Master Fund. The defendants also assert several counterclaims against Katcher, including breaches of different contracts, breach of fiduciary duty, violation of the Connecticut Unfair Trade Practices Act, civil conspiracy, tortious interference and breach of the covenant of good faith and fair dealing.
Most of these same claims are also asserted by the 3V Master Fund in a separate federal lawsuit referenced earlier and filed in the U.S. District Court in Connecticut against Katcher, Libertas and some related business entities (Federal Action). In the Federal Action, 3V Master Fund asserts damages based on three transactions that it claims improperly benefited various Libertas entities in the amount of approximately $12 million. However, the plaintiff in the Federal Action, 3V Master Fund, is not a party to the instant case before this court. Moreover, with the exception of Katcher, none of the various Libertas entities which are named as defendants in the Federal Action, and which are alleged to have somehow benefited from those transactions complained of, is a party to these proceedings here in Superior Court.
Specifically, Stagg claims that Libertas is responsible for the improper transfer of approximately $2.4 million from 3V Master Fund; $2.9 million from the non-party Access International; and $450,000 from the non-party Pierce Diversified Strategy Master Fund, LLC. These transfers were to pay for certain bonds called "Stelco." Stagg alleges these aforementioned entities received no consideration for these transfers. Stagg also claims that in February 2007, Focht falsely represented that a $3.3 million transfer from the 3V Master Fund into the Libertas' payroll account went towards an investment. Stagg further claims that in April 2007, Focht improperly transferred approximately $3.1 million from 3V Master Fund to the First Bank of Boston to pay for Libertas' February 2006 purchase of a bond called "Transport." Although Stagg seeks to impute liability to Libertas and/or Katcher for these transfers, the Letters of Authorization authorizing all of these transfers apparently bear Stagg's signature. Stagg also admitted that he has no evidence that Katcher had any knowledge of the transfers at the heart of the Federal Action.
Further, certain criminal misconduct came to light on the part of Focht, who was fired by Stagg in October 2008 when Stagg caught Focht in a lie over a supposed wire transfer which was to pay for an investment. In August 2009, Focht pled guilty in New York state court to grand larceny charges for misappropriating millions of dollars from 3V Master Fund. As part of his guilty plea, Focht expressly confirmed under oath that no one from Libertas, including Katcher, assisted him in connection with his misconduct. Focht explicitly stated in his guilty plea that "[i]n connection with my wrongful conduct I acted alone . . . no one from Libertas Partners knowing[ly] assisted me in any of my misappropriations of funds from 3V Capital Fund or was made aware by me that I was misappropriating those funds." Stagg claims that his professional reputation and his corresponding ability to raise capital have been adversely affected by Focht's crimes, which is undoubtedly true in an industry based on trust and confidence. Stagg seeks rescission of the Settlement Agreements, claiming that Katcher knew of Focht's thefts. However, such a rescission is beyond the scope of these proceedings, and there is no evidence for this court to make such a finding, only Stagg's suspicions. Moreover, Focht's admitted criminality does not affect the court's findings of probable cause articulated herein.
The Motion to Reopen
The defendants filed a motion to reopen the evidence following the conclusion of the PJR hearing, claiming newly discovered evidence. The defendants contend that this evidence gleaned from discovery in the Federal Action demonstrates "Katcher's motive and methodology in perpetrating a scheme to steal $17 million from 3V Capital Master Fund Ltd. and the accounts it managed (`3V Master Fund') and use it for the benefit of Katcher and his companies." Other than asserting an even higher amount of allegedly stolen funds than was previously claimed, the defendants further claim that Katcher stole this money to prop up the undercapitalized Libertas companies in order to sell the entities in 2008, a sale which yielded a substantial profit to Katcher personally.
Putting aside the separate requirement that motions to reopen must concern new evidence which could not have been discovered earlier through due diligence, motions to reopen should only be granted where the moving party can also demonstrate a reasonable probability that the outcome would be different if the new information is presented and found credible. See Apex Environmental, Inc. v. Stanwicks, Superior Court, judicial district of Hartford, Docket No. 9705395 (May 7, 1998, Lavine, J.) ( 22 Conn. L. Rptr. 151). Having considered the briefs and the cases cited, the defendants have failed to persuade the court that the probable cause hearing should be reopened. This evidence concerns a supposed injury suffered by the 3V Master Fund, which is not a party here and which has already asserted its claims for that alleged injury in the Federal Action. There is a genuine issue of standing implicated by these circumstances, and there is an insufficient basis to believe such motive evidence on these matters would alter the finding of probable cause as to the failure to return Katcher's 3V limited partnership investment. Just as the court declines plaintiff's request to grant him a PJR for additional amounts he claims remain unpaid pursuant to the Settlement Agreements, separate and apart from his partnership investment and the PJR application, the court declines to reopen the PJR hearing to consider evidence and claims best addressed in the Federal Action. The motion to reopen is therefore denied.
II. The Prejudgment Remedy Statute
The PJR remedy itself is grounded in statutory law, with the added gloss of judicial opinions construing those statutes. "`Prejudgment remedy' means any remedy or combination of remedies that enables a person by way of attachment, foreign attachment, garnishment or replevin to deprive the defendant in a civil action of, or affect the use, possession or enjoyment by such defendant of, his property prior to final judgment but shall not include a temporary restraining order." General Statutes § 52-278a(d). "Prejudgment remedies are statutory devices designed to bring the defendants' assets into custody as security for the satisfaction of the judgment the plaintiff may recover. They are limited by definition to attachments, foreign attachments, garnishments, replevin, or a combination thereof . . . Pursuant to § 52-278d(a), the prejudgment remedy hearing is limited to a determination of: `(1) whether or not there is probable cause that a judgment in the amount of the prejudgment remedy sought, or in an amount greater than the amount of the prejudgment remedy sought, taking into account any defenses, counterclaims or set-offs, will be rendered in the matter in favor of the plaintiff.'" Butova v. Bielonko, Superior Court, judicial district of Hartford, Docket No. CV 07 5010057 (November 9, 2007, Bentivenga, J.).
Pursuant to General Statutes § 52-278d(a), "[i]f the court, upon consideration of the facts before it and taking into account any defenses, counterclaims or set-offs, claims of exemption and claims of adequate insurance, finds that the plaintiff has shown probable cause that such a judgment will be rendered in the matter in the plaintiff's favor in the amount of the prejudgment remedy sought and finds that a prejudgment remedy securing the judgment should be granted, the prejudgment remedy applied for shall be granted as requested or as modified by the court . . ."
"[P]rejudgment remedy proceedings are not involved with the adjudication of the merits of the action brought by the plaintiff or with the progress or result of that adjudication. They are only concerned with whether and to what extent the plaintiff is entitled to have property of the defendant held in the custody of the law pending adjudication of the merits of that action . . . This limited evidentiary proceeding contrasts sharply with, for example, the detailed and substantive arguments and conclusions that must be addressed in a motion to strike." (Citation omitted; internal quotation marks omitted.) Id., 646. The court is not concerned here with whether or not the plaintiff will ultimately prevail on any of its claims at trial. "[P]rejudgment remedy proceedings are not involved with the adjudication of the merits of the action brought by the plaintiff or with the progress or result of that adjudication. They are only concerned with whether and to what extent the plaintiff is entitled to have property of the defendant held in the custody of the law pending adjudication of the merits of that action." Id., 646.
"The role of the court in considering an award of a prejudgment remedy is well established. Pursuant to our prejudgment remedy statutes . . . the trial court's function is to determine whether there is probable cause to believe that a judgment will be rendered in favor of the plaintiff in a trial on the merits." (Citations omitted; internal quotation marks omitted.) Id. "[A] hearing in probable cause is not intended to be a full scale, trial on the merits of the [moving party's] claim. The [moving party] does not have to establish that he will prevail, only that there is probable cause to sustain the validity of the claim . . . The court's role in such a hearing is to determine probable success by weighing probabilities . . . The legal idea of probable cause is a bona fide belief in the existence of the facts essential under the law for the action and such as would warrant a man of ordinary caution, prudence and judgment, under the circumstances, in entertaining it . . . Probable cause is a flexible common sense standard. It does not demand that a belief be correct or more likely true than false." Spilke v. Spilke, 116 Conn.App. 590, 593 n. 6, 976 A.2d. 69 (2009). "Proof of probable cause as a condition of obtaining a prejudgment remedy is not as demanding as proof by a fair preponderance of the evidence." (Internal quotation marks omitted.) Kosiorek v. Smigelski, 112 Conn.App. 315, 319, 962 A.2d 880, cert. denied, 291 Conn. 903, 967 A.2d 113 (2009); see 36 DeForest Avenue, LLC v. Creadore, 99 Conn.App. 690, 698, 915 A.2d 916, cert. denied, 282 Conn. 905, 920 A.2d 311 (2007) (stating that the burden of proof at a probable cause hearing is a low one). "At a probable cause hearing on a prejudgment remedy, a trial court may properly consider all evidence presented, including testimony of witnesses, documentary evidence, and affidavits." Fleet Bank of Connecticut v. Dowling, 28 Conn.App. 221, 225, 610 A.2d 707, cert. granted on other grounds, 223 Conn. 921, 614 A.2d 821 (1992).
III. The Allegations
By way of a twelve-count amended complaint dated March 27, 2009, Katcher alleges a number of different causes of action against the various defendants, many of which are summarized herein.
In several counts, Katcher makes the additional allegation that certain defendants acted wilfully and wantonly, and are further liable for punitive damages, "in an amount to be determined at trial." Similar punitive damages are asserted by the defendants in their counterclaims against Katcher. Because this is a pretrial, pre-discovery application, the court is not concerned at this stage of the proceedings with potential punitive damage awards at trial. Therefore, those allegations are not addressed herein.
Count One — Breach of Contract
In the first count, Katcher alleges a breach of contract against 3V Partners and 3V Advisors for their breach of various provisions of the Limited Partnership Agreement. "The elements of an action based upon breach of contract are, the formation of an agreement, performance by one party, breach of the agreement by the other party and damages." (Citations omitted; internal quotation marks omitted.) Oddo v. Warren, Superior Court, judicial district of Waterbury, Docket No. CV 07 5003533 (January 3, 2008, Trombley, J.). "When a plaintiff pleads a cause of action for breach of contract by setting forth a specific contractual obligation and alleges that it has not been met, this is sufficient to sustain a motion to strike. It is not necessary to allege specific terms of the contract . . . Whether the terms of the contract support that allegation is a factual question to be determined by the fact finder . . ." (Citations omitted; internal quotation marks omitted.) Golek v. St. Mary's Hospital, Superior Court, judicial district of Waterbury, Docket No. CV 08 5007118 (August 22, 2008, Roche, J.).
Katcher has established probable cause to prevail on this claim. The Settlement Agreements require Stagg, in his capacity as Managing Member of 3V Advisors, to commence a prompt and orderly liquidation of 3V Partners on September 30, 2007. Section 9.4 of the Limited Partnership Agreement then obligates 3V Advisors, as the general partner of 3V Partners, to wind up the business of 3V Partners, satisfy all liabilities, and distribute the remaining assets to its partners in proportion to their respective partnership interests. Accordingly, the Limited Partnership Agreement obligates 3V Advisors and 3V Partners to return to Katcher his 3V Partners investment. Stagg admitted to the foregoing obligation, and testified that he intended to pay Katcher in full.
Despite the defendants' answer, which denies that the 3V Partners fund was liquidated, the court finds probable cause to believe that it essentially has been, and Stagg has admitted that there is no money remaining in that fund. Therefore, Section 6.1 of the Limited Partnership Agreement, on which defendants rely in their special defenses, does not apply here. That provision pertains to limited partners' withdrawals during the active life of the partnership and its fund. Katcher is not seeking a withdrawal, but rather a distribution following a partnership balance of zero. Such distributions are governed by Section 9.4, not Section 6.1. The single exception to payment under Section 9.4 of the Limited Partnership Agreement, on which defendants also seek to rely, similarly does not apply here. That exception permits a post-liquidation holdback of the distribution to limited partners to the extent necessary to pay 3V's creditors. Here, there is insufficient evidence of such creditors. Accordingly, Katcher has established probable cause as to his entitlement to the post-liquidation return of his 3V Partners investment.
Stagg testified as to the existence of two other pending lawsuits, in New York and Florida. However, those lawsuits are contested and unresolved, such that the plaintiffs therein do not qualify as creditors. Secondly, 3V Partners is not a defendant or a party in either of those lawsuits, which were commenced after the liquidation of 3V Partners. The claims asserted in those actions are exclusively against 3V Master Fund, which is a non-party here. Accordingly, those lawsuits do not prevent a finding of probable cause as to Katcher's post-liquidation claim under section 9.4 of the Limited Partnership Agreement.
The court finds that Katcher's 3V Partners investment has not been returned to him. That investment is in an amount no less than $4,124,543. There is therefore probable cause that 3V Partners and 3V Advisors are in breach of the Limited Partnership Agreement, causing damages to Katcher in the foregoing amount.
Counts Two Three — Breach of Fiduciary Duty; Aiding and Abetting
In the second count, the defendant 3V Advisors, as the General Partner of 3V Partners, is charged with the breach of its fiduciary duty owed to Katcher as a limited partner of 3V Partners. In the third count, Stagg, Focht, and the Stagg Entities are charged with aiding and abetting 3V Advisors' breach of that duty. Notwithstanding a Delaware choice of law provision in the Limited Partnership Agreement of 3V Partners, the court finds that Katcher's tort and statutory claims are governed by Connecticut law. See Blakeslee Arpaia Chapman Inc. v. Helmsman Management Services Inc., Superior Court, judicial district of New Haven, Docket No. 443753 (January 9, 2002, Blue, J.) ( 31 Conn. L. Rptr. 214) (holding that tort claims, including violation of CUTPA, are governed by Connecticut law unless choice of law provision explicitly states that such claims are governed by foreign law).
"To assert a claim for breach of a fiduciary duty the plaintiff has the burden of proving the existence of a fiduciary relationship . . . In the context of discussing a claim of breach of fiduciary duty, the Supreme Court has observed that [i]t is well settled that a fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other . . . Although this court has refrained from defining a fiduciary relationship in precise detail and in such a manner as to exclude new situations we have recognized that not all business relationships implicate the duty of a fiduciary . . . In particular instances, certain relationships, as a matter of law, do not impose upon either party the duty of a fiduciary . . .
"In the seminal cases in which this court has recognized the existence of a fiduciary relationship, the fiduciary was either in a dominant position, thereby creating a relationship of dependency, or was under a specific duty to act for the benefit of another . . . On the other hand, [i]n the cases in which this court has, as a matter of law, refused to recognize a fiduciary relationship, the parties were either dealing at arm's length, thereby lacking a relationship of dominance and dependence, or the parties were not engaged in a relationship of special trust and confidence . . . Furthermore, [t]he law will imply [fiduciary responsibilities] only where one party to a relationship is unable to fully protect its interests [or where one party has a high degree of control over the property or subject matter of another] and the unprotected party has placed its trust and confidence in the other . . ." Webster Financial Corp. v. McDonald, Superior Court, judicial district of Waterbury, Docket No. CV 08 4016026 (January 28, 2009, Brunetti, J.).
As to the adding and abetting the breach of duty allegations of the third count, "The Connecticut Supreme Court recognized a civil cause of action for aiding and abetting in Carney v. DeWees, 136 Conn. 256, 262, 70 A.2d 142 (1949). Today, liability for this cause of action is based on the principle articulated in section 876 of the Restatement (Second) of Torts (1979), which provides that a person may be held liable for `harm resulting to a third person from the tortious conduct of another . . . if he . . . knows that the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself . . .' (Internal quotation marks omitted.) Connecticut National Bank v. Giacomi, 242 Conn. 17, 63 n. 42, 699 A.2d 101 (1997). Therefore, to sustain a cause of action for aiding and abetting, a plaintiff is required to plead and prove (1) the party whom the defendant aids must perform a wrongful act that causes an injury; (2) the defendant must be generally aware of his role as part of an overall illegal or tortious activity at the time that he provides the assistance, and (3) the defendant must knowingly and substantially assist the principal violation." Palmieri v. Lee, Superior Court, judicial district of New Haven, Docket No. 405641 (November 24, 1999, Levin, J.).
It is clear that general partners like 3V Advisors owe a fiduciary duty to the partnership's limited partners like Katcher. Konover Development Corp. v. Zeller, 228 Conn. 206, 220, 635 A.2d 798, 805 (1994). A fiduciary relationship is "characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other." Dunham v. Dunham, 204 Conn. 303, 322, 528 A.2d 1123, 1133 (1987), overruled on other grounds by Santopietro v. City of New Haven, 239 Conn. 207, 682 A.2d 106 (1996).
Many relationships implicate fiduciary duties, including "agents, partners, lawyers, directors, trustees, executors, receivers, bailees and guardians." Konover Development Corp. v. Zeller, supra, 228 Conn. 222. Because these associations are imbued with the utmost trust, the parties are bound to "act honestly, and with the finest and undivided loyalty . . . not merely with that standard of honor required of men dealing at arm's length and the workaday world, but with a punctilio of honor the most sensitive." Id., 220. Connecticut courts have always held fiduciary duties to be "higher than that trodden by the crowd." Adams v. Williamson, 150 Conn. 105, 112, 186 A.2d 157, 160 (1962) (quoting Meinhard v. Salmon, 249 N.Y. 458, 464, 164 N.E. 545, 546 (1928)). Because the "superior position of the fiduciary or dominant party affords him great opportunity for abuse of the confidence reposed in him," once a plaintiff has established a fiduciary duty, the burden then shifts to the defendant fiduciary to prove fair dealing by clear and convincing evidence. Konover Development Corp. v. Zeller, supra, 228 Conn. 229.
The elements of aiding and abetting a breach of fiduciary duty are: (1) a breach of duty by the party who owes a fiduciary duty; (2) knowledge by the aider that the fiduciary is breaching, and (3) provision by the alleged aider of substantial assistance in the wrongdoing by the aider. Manufacturers Hanover Trust Co. v. Stamford Hotel Ltd. Partnership, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 91 011691 (December 19, 1994, Karazin, J.).
There is probable cause to find that 3V Advisors breached its fiduciary duty to Katcher, and that both Stagg and SV Master Fund knowingly aided and abetted that breach by improperly transferring Katcher's $4,124,543 3V Partners investment into SV Master Fund without Katcher's knowledge or consent. Stagg argues that he cannot be held liable in his individual capacity. However, the general partner of 3V Partners was the defendant 3V Advisors, and as previously noted, Stagg himself acted as the managing member of 3V Advisors. In that capacity, and based upon all the facts and circumstances present here, Stagg may be personally liable for aiding and abetting the breach of fiduciary duty committed by 3V Advisors. See, e.g., Wallace v. Wood, 752 A.2d 1175, 1184 (Del.Ch. 1999) (agents of general partner can be held liable for aiding and abetting general partner's breach of fiduciary duties). Accordingly, there is probable cause to believe Stagg may be liable to Katcher in his individual capacity.
Count Four — Civil Conspiracy
The fourth count alleges a civil conspiracy on the part of the defendants to deprive Katcher of the full value of his partnership interest in 3V Partners. "The [elements] of a civil action for conspiracy are: (1) a combination between two or more persons, (2) to do a criminal or an unlawful act or a lawful act by criminal or unlawful means, (3) an act done by one or more of the conspirators pursuant to the scheme and in furtherance of the object, (4) which act results in damage to the plaintiff . . . There is, however, no independent claim of civil conspiracy. Rather, [t]he action is for damages caused by acts committed pursuant to a formed conspiracy rather than by the conspiracy itself . . . Thus, to state a cause of action, a claim of civil conspiracy must be joined with an allegation of a substantive tort . . . [T]he essence of a civil conspiracy . . . [is] two or more persons acting together to achieve a shared goal that results in injury to another . . .
"Thus, the purpose of a civil conspiracy claim is to impose civil liability for damages on those who agree to join in a tortfeasor's conduct and, thereby, become liable for the ensuing damage, simply by virtue of their agreement to engage in the wrongdoing. Implicit in this purpose, and in the principle that there must be an underlying tort for the viability of a civil conspiracy claim, is the notion that the coconspirator be liable for the damages flowing from the underlying tortious conduct to which the coconspirator agreed. This reasoning, however, does not extend so as to impose civil liability on a coconspirator for damage caused by the actual wrongdoer before the civil coconspirator even joined the conspiracy. By that time, the underlying tort had already been completed. The purpose of civil liability is to allocate the loss between persons who may be in some legal sense responsible for that loss. We can see no reason to extend that purpose to a defendant who could not have been in any sense responsible for a loss because it had not begun to participate in the civil conspiracy resulting in that loss until long after the loss was incurred." (Citations omitted; internal quotation marks omitted.) Macomber v. Travelers Property Casualty Corp., 277 Conn. 617, 635-37, 894 A.2d 240 (2006).
Probable cause has already been established for the commission of a substantive tort as previously discussed. The court also finds probable cause as to a civil conspiracy; that 3V Partners, 3V Advisors, Stagg, and SV Master Fund all conspired to deprive Katcher of his $4,124,543 investment in 3V Partners. This was accomplished by transferring it out of 3V Advisors and into the SV Master Fund without Katcher's consent.
Count Five — Violation of CUTPA
The fifth count charges that the actions of the defendants constitute unfair and deceptive acts and practices in the conduct of a trade or commerce, in violation of the Connecticut Unfair Practices Act (CUTPA), General Statutes § 42-110 et seq. "CUTPA provides that [n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce . . . In order to enforce this prohibition, CUTPA provides a private cause of action to [a]ny person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of a [prohibited] method, act or practice . . . Thus, in order to prevail in a CUTPA action, a plaintiff must establish both that the defendant has engaged in a prohibited act and that, as a result of this act, the plaintiff suffered an injury." (Citations omitted; emphasis in original; internal quotation marks omitted.) Stevenson Lumber Co.-Suffield, Inc. v. Chase Associates, Inc., 284 Conn. 205, 213-14, 932 A.2d 401 (2007).
General Statutes § 42-110a(3) defines "person" as, among other things, a corporation.
"It is well settled that in determining whether a practice violates CUTPA [the Connecticut Supreme Court has] adopted the criteria set out in the cigarette rule by the federal trade commission for determining when a practice is unfair: (1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise — in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other businesspersons] . . . All three criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three." (Internal quotation marks omitted.) Ventres v. Goodspeed Airport, LLC, 275 Conn. 105, 155, 881 A.2d 937 (2005), cert. denied, 547 U.S. 1111, 126 S.Ct. 1913, 164 L.Ed.2d 664 (2006).
Although "the same facts that establish a breach of contract claim may be sufficient to establish a CUTPA violation;" Greene v. Orsini, 50 Conn.Sup. 312, 315, 926 A.2d 708 (2007); "[a] breach of contract claim can make out a legally sufficient CUTPA claim [only] as long as there are substantial aggravating circumstances." (Internal quotation marks omitted.) Alliance Food Management v. Gems Sensors, Superior Court, judicial district of Waterbury, Docket No. CV 06 5002996 (June 12, 2007, Gallagher, J.). In addition to a finding of probable cause as to breach of contract, the court has also found probable cause as to the breach of a fiduciary duty, which may itself be a violation of CUTPA. Spector v. Konover, 57 Conn.App. 121, 133, 747 A.2d 39, 46 (2000). Therefore, probable cause is also found that the defendants may be liable under CUTPA in the amount of Katcher's $4,124,543 investment in 3V Partners.
"Although there is a split of authority in the Superior Courts regarding what is necessary to establish a CUTPA claim for breach of contract, the vast majority of Superior Court decisions [conclude] that, absent allegations of sufficient aggravating circumstances, [a] simple breach of contract, even if intentional, does not amount to a violation of [CUTPA]." (Internal quotation marks omitted.) Centimark Corp. v. Village Manor Associates, Superior Court, judicial district of Windham, Docket No. CV 03 0070166 (June 21, 2007, Martin, J.).
The defendants' Twelfth Special Defense asserts that Katcher cannot prevail on his CUTPA claim because of the Delaware choice-of-law provision in the Limited Partnership Agreement. This states, "[A]ll rights and liabilities of the parties hereto shall be governed by and construed in accordance with the laws of the State of Delaware." However, a choice-of-law clause does not extend to tort or statutory claims unless it is clear that the parties intended to do so. See Blakeslee Arpaia Chapman Inc. v. Helmsman Management Services Inc., supra, 31 Conn. L. Rptr. 214 (allowing CUTPA claim to go forward where the choice-of-law provision required that the agreement be "construed under and governed by" Massachusetts law); Greystone Community Reinvestment Associates v. First Union National Bank, No. 3:00CV871, 2002 U.S. Dist. LEXIS 2529, at *5 (D.Conn. January 25, 2002) (CUTPA claim allowed where choice-of-law clause provided that agreement "shall be governed and construed in accordance with the laws of the State of New York"). Indeed, at least one court has held that CUTPA claims should be available to plaintiffs notwithstanding of a choice of law clause, as a matter of public policy. Custard Ins. Adjusters, Inc. v. Nardi, Superior Court, judicial district of Ansonia-Milford, Docket No. CV 98 0061967 (April 20, 2000, Corradino, J.) (holding that CUTPA represents "fundamental public polic[y] of the State of Connecticut" and should be available to the plaintiff, who alleged violation of fiduciary obligations and improper taking of trade secrets). Therefore, notwithstanding the choice-of-law language in the Limited Partnership Agreement, this is only a preliminary hearing, and the court finds that Katcher may maintain the statutory CUTPA claims.
Count Six — Conversion
The sixth count charges that the failure of Stagg, Focht, 3V Advisors and 3V Partners to distribute to Katcher the value of Katcher's limited partnership interest in 3V Partners constitutes a conversion of property rightfully belonging to Katcher. "The tort of [c]onversion occurs when one, without authorization, assumes and exercises ownership over property belonging to another, to the exclusion of the owner's rights . . . Thus, [c]onversion is some unauthorized act which deprives another of this property permanently or for indefinite time; some unauthorized assumption and exercise of the powers of the owner to his harm. The essence of the wrong is that the property rights of the plaintiff have been dealt with in a manner adverse to him, inconsistent with his right of dominion and to his harm . . . The term owner is one of general application and includes one having an interest other than the full legal and beneficial title . . . The word owner is one of flexible meaning, and it varies from an absolute proprietary interest to a mere possessory right . . . It is not a technical term and, thus, is not confined to a person who has the absolute right in a chattel, but also applies to a person who has possession and control thereof . . . Under Connecticut law, "[m]oney can clearly be subject to conversion . . . The plaintiffs must establish however, legal ownership or right to possession of specifically identifiable moneys . . .
"[A]n action for conversion of funds may not be maintained to satisfy a mere obligation to pay money . . . It must be shown that the money claimed, or its equivalent, at all times belonged to the plaintiff and that the defendant converted it to his own use . . . Thus, [t]he requirement that the money be identified as a specific chattel does not permit as a subject of conversion an indebtedness which may be discharged by the payment of money generally . . . A mere obligation to pay money may not be enforced by a conversion action . . . and an action in tort is inappropriate where the basis of the suit is a contract, either express or implied . . . Consistent with this rule, in our case law sustaining a cause of action wherein money was the subject of the conversion or theft, the plaintiffs in those cases at one time had possession of, or legal title to, the money." (Citations omitted; internal quotation marks omitted.) Greenwich Interiors, LLC v. Statham Woodwork, Inc., Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 09 5010083 (February 19, 2010, Brazzel-Massaro, J.).
For the reasons previously discussed, the plaintiff has established probable cause that the defendants Stagg, 3V Advisors, 3V Partners, and SV Master Fund converted Katcher's 3V Partners investment in the amount of $4,124,543.
Count Twelve — Unjust Enrichment
In the plaintiff's proposed findings of fact and conclusions of law (#189) submitted following the conclusion of the hearing on his PJR application, the plaintiff does not address certain counts of his complaint. Those allegations not addressed are as follows: Count Seven — Violation of General Statutes § 52-564 (Civil Theft); Count Eight — Fraud; Count Nine — Violation of Connecticut Uniform Securities Act § 36b-5; and Counts Ten Eleven — Statutory and Common-Law Fraudulent Transfer, respectively. The plaintiff acknowledges as much, stating in a footnote in his brief, "These Findings and Conclusions do not address each and every one of Katcher's claims in the Plenary Action. All those claims are expressly reserved." In light of the plaintiff's position, the court will not address those allegations at this time either, and will reserve any findings as to them.
The twelfth and final count alleges that the defendants were unjustly enriched by wrongfully retaining the benefit of Katcher's partnership investment when 3V Partners was liquidated. "Unjust enrichment is a legal doctrine to be applied when no remedy is available pursuant to a contract . . . Recovery is proper if the defendant was benefited, the defendant did not pay for the benefit and the failure of payment operated to the detriment of the plaintiff . . . Although restitution for unjust enrichment often applies to situations in which there is no written contract, it can also apply to situations in which there is a written contract and the party seeking restitution has breached the contract." (Citations omitted; internal quotation marks omitted.) The Final Cut, LLC v. Sharkey, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 08 5007365 (May 5, 2009, Adams, J.).
"Unjust enrichment applies wherever justice requires compensation to be given for property or services rendered under a contract, and no remedy is available by an action on the contract . . . A right of recovery under the doctrine of unjust enrichment is essentially equitable, its basis being that in a given situation it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another . . . With no other test than what, under a given set of circumstances, is just or unjust, equitable or inequitable, conscionable or unconscionable, it becomes necessary in any case where the benefit of the doctrine is claimed, to examine the circumstances and the conduct of the parties and apply this standard . . . Unjust enrichment is, consistent with the principles of equity, a broad and flexible remedy . . . Plaintiffs seeking recovery for unjust enrichment must prove (1) that the defendants were benefited, (2) that the defendants unjustly did not pay the plaintiffs for the benefits, and (3) that the failure of payment was to the plaintiffs' detriment . . ." (Citations omitted; internal quotation marks omitted.) Vertex, Inc. v. Waterbury, 278 Conn. 557, 573, 898 A.2d 178 (2006).
For the reasons previously discussed, Katcher has established probable cause that the SV Master Fund has been unjustly enriched by the amount of Katcher's 3V Partner investment, which Stagg admitted that the SV Master Fund is currently holding. The court finds the value of that investment to be $4,124,543.
IV. Temporary Injunctions
Many of the factors the court must consider here at the trial court level in granting or denying a requested injunction are similar to the ones articulated by the Supreme Court in whether to grant an appellate stay to preserve the status quo of the parties. This is because the PJR is designed to preserve the status quo of the parties pending a trial on the merits. "These considerations involve essentially the application of familiar equitable principles in the context of adjusting the rights of the parties during the pendency of litigation until a final determination on the merits." Griffin Hospital v. Commission on Hospitals Health Care, 196 Conn. 451, 458 (1985). The CT Page 5925 Griffin Hospital court went on to note that it is not possible to reduce all of those considerations to a rigid formula. Id.
The plaintiff seeks an order that the defendants immediately produce assets sufficient to satisfy the PJR. Since the transfer of money into the state by the defendant is a necessary step preceding the actual attachment of the defendant's funds pursuant to the PJR, the court treats the plaintiff's motion as a request for a temporary injunction, an injunction separate and apart from a PJR. "The standard for granting a temporary injunction is well settled. In general, a court may, in its discretion exercise its equitable power to order a temporary injunction pending final determination of the order, upon a proper showing by the movant that if the injunction is not granted he or she will suffer irreparable harm for which there is no adequate remedy at law . . . The temporary injunction is a preliminary order, granted at the outset or during the pendency of an action . . . until the rights of the parties can be finally determined by the court . . . A party seeking injunctive relief must demonstrate that: (1) it has no adequate remedy at law; (2) it will suffer irreparable harm absent an injunction; (3) it will likely prevail on the merits; and (4) the balance of equities tip in its favor . . .
"The plaintiff seeking injunctive relief bears the burden of proving facts which will establish irreparable harm and the lack of adequate remedy at law . . . Moreover, [t]he extraordinary nature of injunctive relief requires that the harm complained of is occurring or will occur if the injunction is not granted. Although an absolute certainty is not required, it must appear that there is a substantial probability that but for the issuance of the injunction, the party seeking it will suffer irreparable harm . . . Whether or not the plaintiff is entitled to relief is determined, not by the situation existing at the time of the alleged violations, but by that which has developed at the time of trial." OSHNO International Foundation v. O'Neill, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 10 6004365 (September 8, 2010, Brazzel-Massaro, J.); see also General Statutes § 52-471 et seq.
The case of Rhode Island National Bank v. Trust, 25 Conn.App. 28 (1991) is instructive. The trial court entered a PJR against the defendant, a resident of the state of New Hampshire. Significantly for the facts of this case, the court also issued a companion temporary injunction ordering the defendant to bring certain property into the state of Connecticut, in order that it might be attached to satisfy that PJR. The Appellate Court in Rhode Island National Bank distinguished the immediate appealability of a PJR from a temporary injunction, which is interlocutory in nature. A majority of the court held that a temporary injunction does not thereby become eligible for immediate appellate review, even if such an injunction is ordered simultaneously in conjunction with a PJR.
Judge Foti dissented on that procedural issue of the injunction's appealability, which is unrelated to the issue before this court. The reason for Judge Foti's dissent on a matter of appellate procedure does not lessen the relevance of his observations on the practical problems trial courts are faced with in these circumstances. He went on to elaborate his views on the importance to a plaintiff creditor like Katcher of both a PJR and a temporary injunction, which is essentially an order of the trial court to compel the production of assets by the defendants. Judge Foti writes that, "The court, after a finding of probable cause, effectuated the plaintiff's right of attachment, by the order to compel, recognizing that without that injunctive relief the plaintiff's right of attachment would be meaningless. The prejudgment remedy of attachment provides necessary security for the creditor by protecting it from the uncertainties of future events. The defendant's present ability to satisfy his probable present debt is the status quo that must be maintained for the prejudgment remedy to be meaningful. The court properly concluded that the plaintiff could be irreparably harmed unless it was allowed to secure the defendant's property because property that is here today may be gone tomorrow . . .
"The defendant argues that an equitable remedy is inappropriate in this case because there is a sufficient remedy at law. Although money damages would be a sufficient remedy in this case, and the defendant maintains a net worth several multiples in excess of the requisite amount, there is no assurance that a judgment obtained against the defendant would not be valueless. Only present security for the enforceability of that probable future judgment ensures the purpose of the prejudgment remedy to preserve the status quo." Rhode Island Hospital Trust National Bank v. Trust, supra, 25 Conn.App. 40-41 (Foti, J., dissenting).
"The purpose of the prejudgment remedy of attachment is security for the satisfaction of the plaintiff's judgment, should he obtain one . . . It is primarily designed to forestall any dissipation of assets by the defendant and to bring [those assets] into the custody of the law to be held as security for the satisfaction of such judgment as the plaintiff may recover . . . The adjudication made by the court on [an] application for a prejudgment remedy is not part of the proceedings ultimately to decide the validity and merits of the plaintiff's cause of action. It is independent of and collateral thereto." (Internal quotation marks omitted.) Marlin Broadcasting, LLC v. Law Office of Kent Avery, LLC, 101 Conn.App. 638, 646-47, 922 A.2d 1131 (2007).
The court is not concerned here with whether or not the plaintiff will ultimately prevail on any of its claims at trial. "[P]rejudgment remedy proceedings are not involved with the adjudication of the merits of the action brought by the plaintiff or with the progress or result of that adjudication. They are only concerned with whether and to what extent the plaintiff is entitled to have property of the defendant held in the custody of the law pending adjudication of the merits of that action." Id., 646.
While injunctive relief is not a part of a PJR attachment itself, this court has the authority to order it under these circumstances. By Stagg's own admission, the assets of the various corporate defendants are dissipating. The court finds that a temporary injunction is an essential adjunct to the prejudgment relief being granted here. An injunction separate and apart from any PJR to compel the delivery of assets into Connecticut is ordered on the basis of this record. See CFM of Connecticut, Inc. v. Chowdhury, 239 Conn. 375, 384 (1996) (stating that the trial court has the "inherent power to take all steps that are reasonably necessary for the administration of justice, including the powers to fashion remedies to enforce its judgments and to impose sanctions in order to enforce its orders"). Under General Statutes § 52-472, temporary injunctive relief may be issued without a bond when, for good cause shown, the court is of the opinion that a temporary injunction ought to issue without bond. Good cause is found to exist.
V. Conclusion
The court finds that pursuant to the Settlement Agreements and to the Limited Partnership Agreement, the plaintiff was entitled upon the liquidation of the 3V Partners fund to the full return to him of his investment as a limited partner. Katcher never authorized the re-investment of those monies into any of the SV entities, and such a financial transfer cannot be allowed to stand pending trial on the face of this record. It is what a prejudgment remedy was designed for. The court is also satisfied on this record that security requires that a temporary injunction should issue, to ensure no further dissipation of assets needed to satisfy any potential judgment against the defendants. Without it, insufficient security is a potential problem, a concern solved by a temporary injunctive decree.
Based upon all the evidence the court heard, and the reasonable inferences to be drawn therefrom, and in light of the applicable standards of law, the court rules as follows.
1. Taking into account and notwithstanding any of the defendants' defenses, counterclaims or claims of setoff, the court finds that probable cause exists that a judgment will be rendered in favor of the plaintiff Gary Katcher on his 3V partnership investment. Accordingly, a statutory prejudgment remedy is granted. The plaintiff Katcher is entitled to a prejudgment remedy of attachment for the $4,124,543 amount of his 3V Partners investments.
2. The defendants' motion to reopen the PJR hearing is denied. There are other times and forums after full discovery is finished to complete whatever parts of this record either side feels may be lacking here, not to mention the Federal Action. It is not the last word. While the amount attached pursuant to this order is lower than the total amount sought by the plaintiff, it is entirely appropriate. Katcher's limited partnership interest here in 3V is not clouded by other possible claims and defenses in other courts, state and federal, at least for these purposes.
3. It is hereby ordered that the plaintiff may attach and/or garnish the property and/or assets of the defendants 3V Capital Partners LP, 3V Capital Advisors LLC, Scott A. Stagg, and SV Special Situations Master Fund, Ltd. (PJR Defendants) to the value of Four Million, One Hundred Twenty-Four Thousand, Five Hundred Forty-Three Dollars ($4,124,543). This PJR may be enforced against any and all assets of the PJR Defendants.
4. Katcher's Motion for Disclosure of Assets, made pursuant to General Statutes § 52-278n, is hereby granted. The PJR Defendants are hereby ordered to transfer sufficient assets into Connecticut for the purpose of perfecting the PJR awarded herein.
5. The following additional injunctive relief is awarded: The PJR Defendants are enjoined from using, reducing, diminishing, transferring, disposing of, and/or in any respect dissipating, the sums owed to Katcher under the Limited Partnership Agreement, namely, $4,124,543. The PJR Defendants are required to hold, preserve, and maintain inviolate, for Katcher's benefit, the sum of $4,124,543. The PJR Defendants are enjoined from using, reducing, diminishing, transferring, disposing of and/or in any respect dissipating any assets, including, without limitation, any personal property and/or bank or investment accounts. The PJR Defendants are enjoined from conveying, transferring or encumbering any interest in any real property.
IT IS SO ORDERED,