Opinion
No. CV 00 0175088
April 30, 2003
MEMORANDUM OF DECISION RE MOTION TO SET ASIDE VERDICT AND OTHER POST-TRIAL ISSUES
In this action the plaintiff Jeffrey Purcell sued Raymond Vogt derivatively on behalf of Surface Techniques, Inc., a closely held corporation of which both Purcell and Vogt were shareholders. In his third amended complaint, Purcell set forth that he, Vogt and one Frank Stephan were the only shareholders in Surface Techniques prior to 1994 and alleged that he had purchased Stephan's shares in 1994 and now owned two-thirds of all outstanding shares. Purcell alleged that Vogt, claiming he owned fifty percent of all shares, had blocked any corporate action.
Purcell further alleged Vogt, acting as company president and in charge of the company's books and finances, converted corporate funds by using them to pay personal expenses, and that such conversion and the failure to provide records to substantiate the payments to him, constituted a breach of fiduciary duty.
Vogt generally denied the allegations, and alleged that there was a restriction on the shares owned by Stephan which required them to be divided equally between him and Purcell, when and if, Stephan sold them.
Purcell's complaint sought: (1) injunctive relief barring Vogt from the corporate facilities and any corporate property; (2) removing Vogt as an officer and director; (3) ordering the recording of the transfer of the Stephan shares to Purcell's name; and (4) compensatory, punitive and treble damages pursuant to General Statutes § 52-564.
After deliberations, the jury returned a completed jury interrogatories form and a verdict for the plaintiff both signed by the foreperson. By means of the interrogatories, the jury stated that it found Vogt to have breached his fiduciary duties as an officer and director of Surface Techniques, to have converted funds of the corporation, and to have acted wantonly or maliciously in converting such funds so as to justify the imposition of punitive damages. The interrogatories also stated that the jury found by clear and convincing evidence that Vogt had committed statutory theft in violation of Section 52-564 and was liable for treble damages. Finally, the interrogatories found there was no written restriction prohibiting the sale of Stephan's stock to Purcell and that Purcell had not violated any duty to Vogt in purchasing the shares from Stephan. The jury verdict assessed compensatory damages in the amount of $120,000.
After the verdict was read and accepted, each juror was polled and affirmed the interrogatory answers and verdict.
As was explained to the jury, the court reserved for itself the ultimate decision on the request for injunctive relief to remove Vogt as the officer of Surface Techniques as well as the issues relating to ownership of the Stephan shares, and the amount of punitive damages.
The reasons for reserving the amount of punitive damages to the court are set out in Part III of this decision.
Before the court are the following: the defendant's motion to set aside the verdict; defendant's application to enter judgment for monies due and owing him pursuant to an earlier order of the court arising from plaintiff's application for a temporary injunction; defendant's motion for sanctions and costs; and plaintiff's motion for a finding that Vogt's defense was frivolous and vexatious.
I. Motion to Set Aside the Verdict
In his motion to set aside, the defendant first argues that since there were two counts in the third amended complaint that sought money damages, and a general verdict was rendered, it is impossible to ascertain whether the damages were assessed under the statutory theft count or the breach of fiduciary count. Therefore, he contends that there is no basis for trebling the damages assessed, citing DeMilo v. City of West Haven, 189 Conn. 671 (1983), Dunbar v. Jones, 87 Conn. 253 (1913), and Tillinghast v. Leppert, 93 Conn. 247 (1919). The court disagrees with this analysis. The touchstone of the above cases is that there be proof that the jury found a violation of the statute giving rise to treble damages. See Dunbar, supra, 87 Conn. 256; Tillinghast, supra, 93 Conn. 249; and DeMilo, supra, 189 Conn. 676. In this case that proof came by means of the unanimously affirmative response to jury interrogatory No. 4 which asked:
Do you find by clear and convincing evidence that the defendant Raymond Vogt committed statutory theft and is liable for treble damages?
The defendant's motion also contends that there was insufficient evidence to prove Vogt's actions were motivated by hatred, ill will or malice to support an award of punitive damages. Decisions concerning motivation do not necessarily rest on the substance of testimony or documentary evidence. A jury may make determination on more intangible factors such as witness demeanor or credibility. These are quintessentially jury functions and should not be overturned absent some extraordinary influencing factor such as obvious bias, prejudice or misunderstanding not present in this case.
Vogt also contends that the damages awarded by the jury were not supported by the evidence. The contention of the plaintiff was that Vogt, while he was actively working at Surface Techniques, and in charge of the books and finances, regularly used corporate monies to pay personal expenses. In essence, Vogt's defense was two-fold: (1) that it was accepted and agreed by he and Purcell (the only two shareholders after 1994) that certain personal expenses, such as gasoline and other automobile expenses of each shareholder would be paid by the corporation; and (2) that other expenses paid by corporate funds were used to reduce the amount owed by the company to Vogt as a result of numerous loans he made to it to keep the business operating. The plaintiff's evidence was reams of paper consisting of the company's general ledgers for 1997 through 1999 (recording payments received and paid out) copies of Vogt's credit card statements and efforts to show that many company payments went to pay off Vogt's personal expenses. These documents were discussed primarily in the testimony of Susan Purcell, Jeffrey Purcell's wife, who has acted as company bookkeeper for several years, and the testimony of an accountant, Anthony Valentino. Together, Mrs. Purcell and Valentino claimed documentation for a little over $121,000 of improper expense reimbursements to Vogt, and other misappropriations. The company's outside bookkeeper, Max Frohlein, according to testimony offered by Vogt, reviewed the questioned transactions, and found most, if not all, of the payments to Vogt appropriate. For unknown reasons, Frohlein was not called as a witness to testify in court.
Mrs. Purcell testified in a heartfelt, albeit occasionally disorganized fashion, referring to the documents in evidence and pointing out what she claimed to be $61,848.67 in improper expense reimbursements to Vogt, such as payments for marina's charges where Vogt maintained his private boat. On the other hand, Valentino's testimony was that he had received the company records and found $60,000 of additional "questionable" expenditures. Valentino's testimony focused primarily on three exhibits (Exs. 74, 75 and 76) which in turn were drawn from a larger collection of documents, Exhibit 64. From the testimony and exhibits, one could reasonably conclude that $9,000 of funds received by Surface Techniques were loans or advances from its own credit cards but which were credited as loans from Vogt. These same exhibits also showed other loans by Vogt to the company which were not questioned. The remaining $51,000 of "questionable" payments were not explained in testimony, except that they included some charges on a Texaco credit card emanating from a marina. There were several deficiencies in this testimony. With the exception of the $9,000 shown in Exhibits 74-76 Valentino did not assert the transactions were improper payments to Vogt, only that they were "questionable." He also testified that he classified all payments by the company of charges on Vogt's personal credit card as "questionable," even though there was uncontroverted evidence that both Vogt and Purcell, by agreement, charged company expenses on personal cards. By "questionable" Valentino seemed to indicate there was not appropriate documentation from which one could ascertain that the company payments were appropriate. With the exception of the $9,000 shown in Exhibits 74-76 and about which Valentino provided more detail, the court finds that as a matter of law there was insufficient evidence to establish by a preponderance of the evidence the plaintiff's claim that the amounts testified by Valentino were wrongfully appropriated or converted by Vogt. In reaching this conclusion, the court has reviewed Exhibit 64 which consisted largely of credit card statements, and excerpts from the company books, the documents purportedly reviewed by Valentino, and finds that without any explanatory testimony a jury could decide these documents evidenced improper payments to or conversion by Vogt only by means of speculation and conjecture.
The documents presented are convoluted, to say the least. The Connecticut Supreme Court has stated that the trial court must "determine in the light most favorable to sustaining the verdict whether the totality of the evidence including reasonable inferences therefrom supports the jury's verdict . . . if any jury could reasonably have reached its conclusion, the verdict must stand, even if this court disagrees with it." Gaudio v. Griffin Health Services Corp., 249 Conn. 523, 534 (1999) (citations omitted, internal quotations omitted, emphasis in original). However, the plaintiff must produce enough evidence to remove the jury's deliberative function from the realm of speculation and conjecture. Carrol v. Allstate Ins. Co., 262 Conn. 433, 442 (2003). Under these standards, the court concludes that the compensatory damages award in the amount of $120,000 must be reduced to reflect that only $9,000 of the damages testified to by Valentino were reasonably supported by the evidence. The jury verdict was a reduction of $1,848.67 from the total claimed on behalf of Surface Techniques. While it is not possible to know with certainty, looking at the verdict in the light most favorable to the plaintiff, the court determines that the reduction must be deemed to have been taken out of the $60,000 testified to by Valentino. Therefore, the court determines that $61,848.67 and $9,000, a total of $70,848.67 are the compensatory damages warranted by the evidence.
II. Plaintiff's Claims For Equitable Relief CT Page 5953
In the third amended complaint, the plaintiff Purcell seeks injunctive relief to remove Vogt as a director of Surface Techniques pursuant to General Statutes § 33-743. Based on the findings of the jury that Vogt breached his fiduciary duty to the corporation and converted funds and based also on the uncontroverted evidence that Surface Techniques' Board of Directors has been deadlocked at least since 1999, the court finds that the prerequisites for removal of a director under § 33-743 (a) have been met. Vogt is ordered removed as a director and enjoined from re-election to the board for a period of two years from the date of this decision.The plaintiff also seeks an adjudication that he is the owner of the one-third of the company shares formerly owned by Stephan. There was evidence that Purcell bought these shares from Stephan. Vogt contended that was a restriction on Stephan's shares requiring them to be equally divided between him and Purcell as the other holders of one-third of the shares. The jury determined there was no restriction and also found that Purcell's purchase of the shares without informing Vogt was not a breach of duty owed among shareholders of a close corporation. Therefore, the court orders that the corporate records be changed to reflect Purcell's ownership of the former Stephan shares.
In light of the above orders, placing two-thirds of the Surface Techniques shares in the ownership of Purcell and removing Vogt from the board of directors, the court believes it unnecessary and therefore declines to exercise its equitable power to remove Vogt as an officer. That decision should be left to the board.
III . Punitive Damages
The plaintiff seeks an award of punitive damages. Punitive or exemplary damages under Connecticut common law are interchangeable labels for damages awarded under certain circumstances to compensate a party for all expenses of litigation. Alaimo v. Royer, 188 Conn. 36, 42-43 (1982); Caufield v. Amica Mutual Ins. Co., 31 Conn. App. 781, 786 (1993). In this case, the jury found that Vogt had acted wantonly and maliciously so as to justify the imposition of punitive damages. Jury Interrogatory No. 3. Punitive damages in Connecticut are limited to the costs of litigation, less taxable costs. Waterbury Petroleum Products, Inc. v. Canaan Oil Fuel Co., 193 Conn. 308, 347-48 (1984). Within that limitation the extent such damages are awarded, is in the discretion of the trier. Chykirda v. Yanush, 131 Conn. 565, 568 (1945); Wedig v. Brinster, 1 Conn. App. 123, 134 (1983). Because legal fees can be a significant portion of punitive damages and there were objections lodged as to some of the fees and evidence pertaining to that subject would likely require the plaintiff's attorney, and perhaps the defendant's attorney, to testify, the court suggested, and the parties' consented to, reserving the amount of punitive damages, if any, for the court's determination after the jury was excused.
The jury found that Vogt had acted wantonly and maliciously in converting the funds of Surface Technologies so as to justify an award of punitive damages. The plaintiff has now submitted a claim for punitive damages in the amount of $111,588.07 consisting of $20,188.27 in expenses (including $8,488 in accounting fees) and $91,399.80 in attorneys fees. The accounting fees are not normally considered taxable costs. The court determines that only one-half of the fees, $4,244, are legitimate expenses since there was evidence that a considerable amount of Valentino's time was spent in support of the plaintiff's pursuit of criminal charges against Vogt. The court is also going to reduce the attorneys fee claim for the following reasons. First, the submitted bills total $87,367.70, plus $2,278 of fees from an attorney in California to assist with an out-of-state deposition. The total of $89,645.70 is less than the claimed amount. Second, one bill, No. 1396, includes 3 days of trial time in August 2002 when, to the best of the court's knowledge, no trial took place. Third, a significant portion of the description of work has been redacted. The court recognizes that these redactions may have occurred when plaintiff initially expected these bills to be presented to the jury, and he might have wished not to expose certain pre-trial and trial stratagems or confidential information. Nevertheless, the trial was over when the bills were presented as evidence, and the court must take into consideration that certain information is not available. Fourth, and most importantly, the attorney bills reveal in some detail what was evident to the court in pretrial proceedings and to both the court and jury during the trial itself i.e. the considerable rancor between the plaintiff's attorney and the defendant's attorney. There are innumerable references to seeking sanctions or contempt orders. Indeed, the evidence shows that a grievance was filed. The plaintiff's attorney was tireless and tenacious. However, he was also disorganized and apt to head in legally untenable directions, and his pleadings and other written submissions were often shambles. This resulted in more work for all considered, including the attorney himself.
From the bills totaling $89,645.70 the court deducts the amount of invoice No. 1396, $3,990. An amount of $4,000 is deducted for the redactions which prohibited the court from reviewing those portions of the bill, and an amount of $8,000 is deducted representing repetitive and unproductive time. Therefore, the legal fees are reduced to $73,655.70.
The remaining amount of the punitive damages claimed are described as
"Postage" $310.86
"Court Costs" $3,444.34
"Service" $1,641.37
The postage is allowed as an expense. The "court costs" consist largely of court reporter fees for deposition or court proceeding transcripts. There is also an unexplained charge from Goldfarb Ajello of $1,200, with no attached bill. There was no need for some of the transcripts which were primarily used to pursue untenable claims. The court allows $1,500 for these "court costs."
The "services" charge is primarily sheriff and marshal fees which are taxed as costs and not part of punitive damages. The "copying" charges are excessive and are reduced by half to $1,547.45.
In sum, the court sets punitive damages at $81,258.01 consisting of legal fees of $73,655.70, accounting fees of $4,244 and "postage," "court costs," and "services" of $3,358.31.
IV. Plaintiff's Claims of Vexatious and Frivolous Defenses
The plaintiff seeks a ruling from this court that the defendant's defenses were without merit, in bad faith, frivolous, vexatious and malicious. As evidence of the comments made in Part III above, the plaintiff has filed at least four memoranda on this subject, three of them after the verdict was returned. It is hard to understand exactly what the plaintiff is seeking. It is clearly premature and not even within this court's jurisdiction to determine a vexatious suit claim. Presumably, the plaintiff seeks a finding under General Statutes § 52-226a. The court declines to do so. Despite plaintiff's counsel's repetitive and often vituperative statements that Vogt and his attorney, inter alia had a baseless defense and counterclaim, committed perjury, tried to deceive the court, and carried out a cover-up, the court makes no such finding. This case was a difficult one, for all concerned, and neither side showed its finest colors. The jury has spoken in favor of the plaintiff; however, there is no basis for a § 52-226a finding.
V. Arrearages in Payments Due Pursuant to Court Order
On April 13, 2000 after a hearing on plaintiff's application for an injunction, the Superior Court (Lewis, J.) issued an order barring Vogt from exercising any authority over Surface Techniques' business. The court also ordered that Surface Techniques continue to pay Vogt's salary, as well as lease, insurance and gasoline payments for two automobiles, and certain repairs. Judge Lewis concluded that this order reflected a prior agreement reached between Purcell, Surface Techniques and Vogt in which the latter agreed in return for the above payments, to stay off the business premises and out of the business operations.
At some point later in 2000, Surface Techniques stopped making these payments. Therefore, Vogt is seeking an order assessing the amount of arrearages, holding the company in contempt, and requiring the company to pay those sums. Surface Techniques does not contest that it stopped making the payments. Nor does it take issue with the amount of monies that are claimed as owing to Vogt under the order. Vogt has submitted evidence as to the amount due as of December 17, 2002 to be $184,800.87.
In response to this claim the plaintiff contends that (1) the order of Judge Lewis was incorrect and that this court has the power to correct the error and (2) that Vogt was not entitled to the continued salary and benefits because of "his theft and perjury."
With respect to the first argument, this court doubts it has the power to correct, and in any event, this court is not in the least convinced that Judge Lewis' decision and order were incorrect. Based on the information before him in 2000, there was reason to believe that Vogt's contention that he should be a fifty-percent shareholder was not without merit. Under the circumstances, maintaining the status quo of paying salary and benefits was a reasonable result, particularly when the parties themselves had arrived at the arrangement. It should also be noted that the plaintiff, on several occasions, has tried to have Judge Lewis' order rescinded or modified, without success.
The second argument essentially posits that the jury's findings and verdict invalidates the order of Judge Lewis retroactively. The jury verdict may have vindicated the plaintiff, but it does not make Judge Lewis' order a nullity which could be ignored with impunity. The plaintiff's willful failure to obey Judge Lewis's order is a basis for an order of contempt. To remedy the contempt, the court finds that Surface Technologies is indebted to Vogt in the amount of $184,800.87.
V. Defendant's Motion for Costs and Sanctions
Vogt's motion for costs and sanctions arising out of the taking of a deposition immediately before trial is denied.
Conclusions
1. The court orders a remittitur of $49,151.33, for the reasons stated in Part I of this decision, reducing the jury verdict for compensatory damages to $70,848.67. Pursuant to General Statutes § 52-228b the plaintiff shall have thirty days to accept the remittitur by filing an appropriate writing with the Clerk's Office. Absent acceptance by the plaintiff, the court will order a new trial.
2. Assuming that the remittitur is accepted, the court will treble the damages of $70,848.67 to $212,546.01 based on the jury's response to Jury Interrogatory No. 4.
3. The court imposes punitive damages, pursuant to the response to Jury Interrogatory No. 3, in the amount of $81,258.01, as set forth in Part III.
4. The court will treat the order directing the plaintiff to pay Vogt $184,800.87 as a set off against the plaintiff's claims. Therefore, the court will enter judgment for the plaintiff in the amount calculated as follows:
Compensatory damages of $70,848.67 trebled = $212,546.01
Punitive damages 81,258.01 ----------- $293,804.02
Set off (184,800.87) ----------- Total judgment $109,003.15
5. Vogt is ordered removed from the Surface Techniques board of directors and is enjoined from serving on the board for a period of two years.
6. The books and records of Surface Techniques are ordered to reflect the transfer of the Stephan shares to Purcell in 1994.
7. Plaintiff's motion to find the defense vexatious and frivolous, and defendant's motion for costs and sanctions, are denied.
TAGGART D. ADAMS SUPERIOR COURT JUDGE