Connecticut

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

McNeiece Corporation v. Pacelli Dry Wall, LLC, et. al.
No. CV010449092S (Conn.Super. 12/14/2004)

Synopsis

The Superior Court of Connecticut held a fraudulent transfer occurred in violation of the Uniform Fraudulent Transfers Act where the debtor transferred title of his home to his wife the day after the creditor served a lawsuit on the debtor and the wife subsequently transferred the title to debtor’s father.

Opinion

McNeiece Corporation v. Pacelli Dry Wall, LLC, et. al.,
No. CV010449092S (Conn.Super. 12/14/2004)

2004 Conn. Super. LEXIS 3591,*

McNeiece Corporation v. Pacelli Dry Wall, LLC et al.

CV010449092S

SUPERIOR COURT OF CONNECTICUT, JUDICIAL DISTRICT OF NEW HAVEN, AT NEW HAVEN

2004 Conn. Super. LEXIS 3591

December 14, 2004, Decided

December 14, 2004, Filed

NOTICE: [*1] THIS DECISION IS UNREPORTED AND MAY BE SUBJECT TO FURTHER APPELLATE REVIEW. COUNSEL IS CAUTIONED TO MAKE AN INDEPENDENT DETERMINATION OF THE STATUS OF THIS CASE.

JUDGES: William L. Hadden, Jr., Judge Trial Referee.

OPINIONBY: William L. Hadden

OPINION: MEMORANDUM OF DECISION

The plaintiff McNeiece Corporation (plaintiff) filed this action on March 12, 2001 seeking money damages against, initially, the defendants Pacelli Drywall, LLC (corporation) and Vincent Pacelli, Jr. (Pacelli Jr.). The three-count complaint alleges that the plaintiff was the general contractor on a construction project, that it entered into a subcontract (subcontract) with the corporation, that the corporation had financial problems completing the subcontract, that the plaintiff then entered into an additional agreement (agreement) with the corporation and Pacelli Jr. its president, concerning the subcontract that Pacelli Jr. guaranteed the financial obligations of the corporation under the agreement, and that the corporation and Pacelli Jr. have failed to pay the plaintiff what is owed pursuant to the agreement.

On November 4, 2002, the plaintiff filed an amended complaint adding Kimberly Pacelli (Kimberly) and Vincent [*2] Pacelli Sr. (Pacelli Sr.) as defendants. The amended complaint added a fourth count directed at Pacelli Jr., Pacelli Sr., and Kimberly alleging that those defendants have engaged in certain conduct concerning a piece of real estate; and that said conduct constitutes a fraudulent transfer under the Uniform Fraudulent Transfer Act, Connecticut General Statutes, Sections 52-552a, et seq. The various defendants have denied or pleaded insufficient knowledge to all of the material allegations of the amended complaint, and Pacelli Jr. claims by way of special defense that the guaranty and agreement is invalid as a matter of law because it lacks consideration. The case was tried before this court on September 15, 16, 17 and 20, 2004.

Pacelli Jr. and the corporation were represented by the same counsel, and Pacelli Jr. and Kimberly were each represented by separate counsel. Pacelli Sr. and his counsel did not attend the trial. Kimberly did not attend the trial although her counsel was present. Post-trial briefs were filed by the plaintiff, Pacelli Jr. and the corporation. No briefs have been filed by Pacelli Sr. or Kimberly.

The court finds the following facts and reaches the following conclusions. [*3] The plaintiff is a construction company located in Guilford, Connecticut which has been in business for approximately twenty years, and which has acted as the general contractor on many projects in the New Haven, Connecticut area, ranging in price from $ 10,000 to $ 50,000,000. Pacelli Jr. is the president, owner, and member of the defendant corporation, which has its place of business in North Branford, Connecticut. On or about March 1, 1999 the plaintiff and the corporation entered into a written subcontract (subcontract) Exhibit 2, for the performance of certain construction work by the corporation for the plaintiff at the Esplanade Project, located in New Haven. The plaintiff was the general contractor on this project which was a $ 1,300,000 job. The subcontract, which was a standard American Institute of Architects form of agreement between a contractor and subcontractor, provided for the corporation to be paid $ 106,555.00 in exchange for the corporation performing the work as described in the subcontract. The subcontract provided for progress payments to be made by the plaintiff to the corporation in accordance with the percentage of completion of the corporation's work. During [*4] the course of the job Pacelli Jr. indicated that the corporation was having cash flow problems and the plaintiff then made accelerated payments to help out the corporation. By the end of 1999 the cash flow problems were affecting the ability of the corporation to perform its obligations under the subcontract. The corporation had a considerable amount of work left to do and not enough money to do it. The corporation stopped work on the job in January 2000.

On March 3, 2000, the plaintiff, the corporation, and Pacelli Jr. entered into an additional agreement (agreement), Exhibit 3, concerning the corporation's problems in completing its subcontract. The agreement was entered into after several meetings involving William McNeiece IV, the president of the plaintiff, Pacelli Jr., and Pacelli Jr.'s attorney. Mr. McNeiece, Pacelli Jr., and Pacelli Jr.'s attorney were aware that the final indebtedness of the corporation and Pacelli Jr., after the plaintiff finished the job in accordance with the subcontract and the agreement, was going to be approximately $ 30,000.00. Pacelli Jr. signed the agreement on behalf of the corporation and individually as guarantor. The agreement incorporated the [*5] subcontract by reference and stated that the corporation "finds itself unable to meet its financial and professional responsibilities required by the contract," and "has enlisted the plaintiff in a resolution of its contractual responsibilities under this agreement." The agreement changed the obligations of the corporation under the subcontract but did not terminate the subcontract. The agreement contained a "contract accounting" concerning payments and credits under the subcontract which reflected that change orders had increased the total price on the subcontract to $ 111,242.00, that certain work described as "millwork and painting," which was the responsibility of the corporation under the subcontract, would be removed from the subcontract by the corporation executing a credit change order of $ 37,055.00, thus reducing the subcontract price to $ 74,187.00, that the corporation had been paid $ 63,503.00 and that the balance of $ 10,684.00 would be credited as against the cost to the plaintiff of completing the remaining obligations of the corporation under the subcontract. The agreement provided that the plaintiff would pay for the materials needed to complete the work of the corporation [*6] under the subcontract that it would pay several unpaid invoices for material already purchased by the corporation, that it would charge an hourly rate of $ 35.00 for all labor done by its forces necessary to complete the corporation's work under the subcontract and that the total cost of these materials, invoices and labor, less the credit of $ 10,684, would be a debt of Pacelli Jr. The agreement was signed by William McNeiece, IV, on behalf of the plaintiff, by Pacelli Jr. on behalf of the defendant corporation, and by Pacelli Jr., individually and as guarantor. The agreement also provided that any monies saved through the millwork and painting, which were part of the corporation's responsibilities in the subcontract would be credited towards the corporation. No money was saved when the plaintiff did this work. The agreement provided that both the plaintiff and the corporation must agree if a subcontractor is hired to complete the drywall work, and they agreed on a subcontractor, Carlos Melo. The agreement also provided that the corporation would help the plaintiff obtain a project in Norwich, Connecticut and if the plaintiff got this job the indebtedness would be excused. The plaintiff [*7] did not get the job in Norwich.

The defendants Pacelli Jr., and the corporation have made several claims in their brief with respect to the merits of the plaintiff's case. The first of these is that the plaintiff brought suit before any debt under the agreement was due and before Pacelli Jr., knew what was the amount being claimed by the plaintiff. The evidence shows that the work done by the plaintiff pursuant to the agreement was completed by August 2000, and that Pacelli Jr. had been aware since at least March 2000 that the debt was going to be around $ 30,000.00. The debt was due when the work was completed, although the agreement provided that interest at 10% would not be charged until one year after March 3, 2000. Pacelli Jr., made no inquiries concerning the debt and did not respond to the plaintiff's October 17, 2000 letter inquiring about how he intended to pay the obligation.

The next claim by Pacelli Jr., and the corporation is that the agreement terminated the rights and responsibilities under the subcontract. This claim is without merit. The agreement specifically incorporated the subcontract by reference and the evidence shows that, there was no intent by the parties [*8] to terminate the subcontract by entering into the agreement.

When the parties negotiated the subcontract they broke down the scope of the work to be performed by the corporation into three categories, drywall and framing, millwork, and painting. The agreement relieved the corporation of the responsibility for doing the millwork and painting, and the plaintiff agreed to finish the drywall and framing. One of the claims of the plaintiff in this case concerns its work done on an exterior cornice molding. Pacelli Jr., and the corporation claim that the agreement is ambiguous as to what was intended by the parties concerning the scope of work included in the drywall and framing portion of the project. They claim that the work done by the plaintiff in connection with the exterior cornice molding is included in millwork which had been removed from the scope of work to be performed by the plaintiff under the agreement. The court finds that all of the work done by the plaintiff which is claimed in this action, including the exterior cornice molding, was part of the work included in the drywall and framing pursuant to the subcontract and the agreement. The agreement is clear and unambiguous, [*9] and reflects what was the intent of the plaintiff, Pacelli Jr., and the corporation when they entered into the agreement. The terms were arrived at after several weeks of negotiations involving the parties to the agreement and counsel for Pacelli Jr., and the corporation.

Pacelli Jr., and the corporation also claim that the plaintiff used a subcontractor, Tradesource, rather than employees of the plaintiff for labor in completion of the drywall and framing, in violation of the agreement. The plaintiff used its own laborers and "day laborers" obtained from Tradesource to perform this work required by the agreement. Neither Tradesource nor the day laborers were subcontractors, as is claimed by Pacelli Jr., and the corporation. The laborers were part of the plaintiff's own forces as contemplated by the terms of the agreement, and were paid the $ 35.00 rate per day in accordance with the agreement.

Pacelli Jr. claims by way of special defense, that the guaranty and agreement is invalid for lack of consideration. Although Pacelli Jr. testified that he understood that he personally guaranteed the performance of the agreement, he claims in his brief that his personal guaranty is unenforceable [*10] for two reasons. He first claims that the guaranty is unenforceable because of a lack of consideration. The court does not agree. Pursuant to paragraph 1 of the agreement the plaintiff paid several invoices for material received by the corporation. Pacelli Jr., had personally guaranteed at least three of these corporate obligations. The evidence is clear that the corporation was in serious financial trouble, unable to perform its obligations under the subcontract, and Pacelli Jr., had a personal interest in tying to keep the corporation in business. He was the sole owner of the corporation which was his primary source of income. The agreement was to his benefit and under all the circumstances was valid consideration for his personal guaranty. It is also clear that the plaintiff relied on the personal guaranty when it assumed and performed the corporation's obligations under the subcontract.

The agreement provided that any money advanced by the plaintiff could be repaid by way of services rendered by the corporation. The second reason given by Pacelli Jr. as to why his guaranty is unenforceable is his claim that the plaintiff failed to "adhere or pursue this" prior to commencing suit [*11] and that this failure should preclude enforcement of the personal guaranty. There is no evidence that after March 3, 2000 the corporation was ever ready, willing, and able to perform any services, or that it ever offered to perform such services, even though Pacelli Jr. knew that as of that date that the obligation was going to be at least $ 30,000.00. The evidence shows that the corporation was in serious financial trouble, and was unable to pay its bills. This claim is without merit.

The evidence offered by the plaintiff in support of its claims was detailed and very persuasive. The records concerning the labor costs incurred by the plaintiff in performing the corporation's obligations under the subcontract were accurate and were maintained on a daily basis as the work was done.

There was a considerable conflict between the evidence offered by McNeiece and Pacelli Jr. McNeiece's testimony was consistent, supported by a large number of exhibits, and very credible. Pacelli Jr.'s testimony was inconsistent, frequently self-contradictory, and contradicted by various exhibits. He was not a credible witness.

The court finds that the plaintiff has proven, by overwhelming evidence, that [*12] it has incurred the following expenses and costs in connection with performing the obligations of the corporation pursuant to the subcontract and in accordance with the agreement. Payment of obligations previously incurred by the corporation--$ 18,923.50. Carlos Melo, subcontractor--$ 4,831.06. Materials purchased by the plaintiff--$ 2,160.81. Labor costs--$ 20,285.23. The total of these items is $ 46,200.60, against which the corporation and Pacelli Jr., are entitled to a credit pursuant to the agreement of $ 10,684.00. The net amount which the court finds is due and owing by the corporation, and Pacelli Jr., by virtue of his personal guaranty, is $ 35,516.60 plus interest at 10% commencing on March 3, 2002, costs, and attorneys fees,

The original three-count complaint directed at the corporation and Pacelli Jr., was filed in March 2001. On November 4, 2002, Kimberly and Pacelli Sr., were added as defendants and the complaint was amended by the addition of the fourth count directed at Pacelli Jr., Kimberly, and Pacelli Sr. This count incorporated all of the allegations of the first three counts and further alleged a claim of fraudulent transfer of a piece of real property located [*13] at 16 Overlook Drive, North Branford, Connecticut, pursuant to Connecticut General Statutes § 52-552a, et seq.

The Uniform Fraudulent Transfer Act upon which the fourth count is premised, defines a transfer which is fraudulent as to present creditors as follows:

Sec. 52-552e. Transfers fraudulent as to present creditors.

(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, if the creditor's claim arose before the transfer was made or the obligation was incurred and if the debtor made the transfer or incurred the obligation: (1) With actual intent to hinder, delay or defraud any creditor of the debtor; or (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor (A) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction, or (B) intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.

(b) In determining actual intent under subdivision (1) of subsection (a) of this section, consideration may be [*14] given, among other factors, to whether: (1) The transfer or obligation was to an insider, (2) the debtor retained possession or control of the property transferred after the transfer, (3) the transfer or obligation was disclosed or concealed, (4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit, (5) the transfer was of substantially all the debtor's assets, (6) the debtor absconded, (7) the debtor removed or concealed assets, ( the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred, (9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred, (10) the transfer occurred shortly before or shortly after a substantial debt was incurred, and (11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

"The party seeking to set aside a conveyance as fraudulent n1 bears the burden of proving either: (1) that the conveyance was made without substantial consideration and rendered the transferor unable to [*15] meet his obligations; or (2) that the conveyance was made with a fraudulent intent in which the grantee participated. Bizzoco v. Chinitz, 193 Conn. 304, 312, 476 A.2d 572 (1984); Zapolsky v. Sacks, 191 Conn. 194, 200, 464 A.2d 30 (1983). The party seeking to set aside the conveyance need not satisfy both alternatives. Bizzoco v. Chinitz, supra." Tyers v. Coma, 214 Conn. 8, 11, 570 A.2d 186 (1990). It is the plaintiff's claim that the evidence satisfies the burden of proof with respect to both alternatives. The court agrees.

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n1 General Statutes 52-552 provides that "all fraudulent conveyances suits, judgments, executions or contracts, made or contrived with intent to avoid any debt or duty belonging to others, shall, notwithstanding any pretended consideration therefore, be void as against those persons only, their heirs, executors, administrators or assigns, to whom such debt or duty belongs."

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The court finds the following facts and reaches [*16] the following conclusions in addition to these facts and conclusions previously found and drawn. The home at 16 Overlook Drive in North Branford is the subject of the alleged fraudulent transfers. Pacelli Jr. and Kimberly purchased the land on September 8, 1998. On April 21, 1999 they quit claimed the property to Pacelli Sr. because they wished to build a house, but did not have sufficient credit to obtain a loan. It was necessary to transfer the property to Pacelli Sr. so he could get a bank loan. On the same day, April 21, 1999, Pacelli Sr. gave a mortgage and note to New Haven Savings Bank for $ 150,000.00 and quit claimed the property back to Pacelli Jr. and Kimberly. That quit claim deed was not recorded until July 6, 1999. On March 3, 2000 the agreement with the plaintiff was entered into and Pacelli Jr. was aware that his personal obligation was going to be at least $ 30,000.00. On May 12, 2000, Pacelli Jr. and Kimberly gave a mortgage and note for $ 54,000.00 to Preferred Investment Assoc., Inc. This money was used by Pacelli Jr. to pay personal obligations and he did not make any payment or offer to make any payment to the plaintiff. On October 17, 2000, the plaintiff wrote [*17] to Pacelli Jr. requesting a definitive plan to pay off the debt and stating that collection efforts would begin if they did not hear from Pacelli Jr. within ten days. Pacelli Jr. did not contact the plaintiff. On January 16, 2001 Pacelli Jr. quit claimed the property to Kimberly, but the deed was not recorded. At this point Pacelli Jr.'s interest in the property was his only asset of any value. This deed, and all the prior quit claim deeds, recited as consideration one dollar but less than one hundred dollars. On April 2, 2001, Pacelli Jr. and the corporation were served with legal process in this case, including an application for a prejudgment remedy in the amount of $ 48,783.00. On April 3, 2001 the quit claim deed executed on January 16, 2001 by Pacelli Jr. to Kimberly was recorded on the North Branford land records. On May 7, 2001 the court (DeMayo, J.T.R.) granted a prejudgment remedy in the amount of $ 50,000 as against the corporation and Pacelli Jr. On August 2, 2001 in response to a motion for disclosure of assets, Pacelli Jr. filed affidavits stating that the only asset in his name was an encumbered used automobile with a net value of $ 7,200.00 and the only assets in the [*18] corporation's home was a $ 1,200.00 bank account and tools worth $ 300.00. On October 23, 2001 Kimberly quit claimed the property to Pacelli Sr. and on that same day Pacelli Sr. gave a mortgage and note for $ 240,000.00 to Great Harbor Financial Services. Pacelli Jr. and his wife Kimberly had occupied the home since it was built in 1999 and until November 2003, when Pacelli Jr. moved out because of marital problems. Kimberly presently resides in the home. Title to the property remains in the name of Pacelli Sr.

The transfers of title which the plaintiff claims are fraudulent as to the plaintiff are the transfer of his interest in the property by Pacelli Jr. to his wife Kimberly on January 16, 2001, recorded on April 3, 2001, and the transfer by Kimberly to Pacelli Sr. on October 23, 2001.

The court finds that both of the aforesaid transfers were made after the debt of Pacelli Jr. and the corporation to the plaintiff arose, and that both transfers were made with actual intent to hinder, delay or defraud the plaintiff for the following reasons. The transfers were made to an insider. Pacelli Jr. retained possession or control of the property after the transfers. Before the transfers [*19] were made, Pacelli Jr. and the corporation had been threatened with suit and sued. The transfers were of substantially all of Pacelli Jr.'s assets. The transfers were made for a consideration not reasonably equivalent to the value of the property. Pacelli Jr. and the corporation were insolvent when the transfers were made. The transfers were made shortly after a substantial debt was incurred by Pacelli Jr. and the corporation. The two transfers were between Pacelli Jr., his wife, and his father, all parties being represented by the same attorney, who was Kimberly's uncle.

The court finds that the transfers were made without receiving a reasonably equivalent value in exchange, and that Pacelli Jr. was engaged in a transaction for which his remaining assets were unreasonably small in relation to the transaction. For the reasons set forth above the court finds that the plaintiff has proven by clear, precise and unequivocal evidence that the transfers of the property made by Vincent Pacelli, Jr. on January 16, 2001, and by Kimberly Pacelli on October 23, 2001, were fraudulent as to the plaintiff.

Avoidance of said transfers is ordered as against the defendants Vincent Pacelli Jr., Kimberly [*20] Pacelli, and Vincent Pacelli Sr. to the extent necessary to satisfy the final judgment to be hereinafter entered, and the plaintiff may proceed to levy execution as provided for in Connecticut General Statute's § 52-552h(b). The defendant Vincent Pacelli, Sr. is enjoined from transferring or encumbering the property until further order of the court.

The court finds that the plaintiff is entitled to damages as against the defendants Pacelli Jr. and the corporation in the amount of $ 35,516.60 plus interest at 10% per year from March 3, 2001 to the date of judgment plus costs and attorneys fees. The court will withhold entering a final judgment at this time. On or before December 22, 2004 the plaintiff is to file a computation of interest including the per diem rate, and an affidavit with respect to attorneys fees and costs. If any party wishes to be heard further with respect to the computation of interest or attorneys fees and costs as filed by the plaintiff, he or she should file an appropriate motion on or before December 30, 2004.

William L. Hadden, Jr.

Judge Trial Referee

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