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and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Carbonella & Desarbo, Inc. v. Dealer's Quest, Inc. et al.,
No. CV010446146 (Conn.Super. 05/12/2003)

CV010446146

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

May 12, 2003, Decided

May 12, 2003, 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 is a Connecticut corporation with an office in New Haven, and is engaged in the business of selling fruit and produce. The defendant, Dealer's Quest, Inc., is a Connecticut corporation which formerly did business as Golden Corral Restaurant with a principal place of business in Groton, Connecticut. The defendant, Superior Steaks, Inc., is a Connecticut corporation which formerly did business as JJ's Restaurant with a principal place of business in Stratford, Connecticut. The defendant Ralph Ruocco, is alleged to be the sole stockholder and director of Dealer's Quest.

The plaintiff is seeking payment for fruit and produce delivered to the two corporate defendants, and has filed an eight-count complaint. Counts one and three have been withdrawn. The second count is directed against Dealer's Quest alleging that between August 7 and October 6, 2000, the plaintiff sold and delivered to said defendant food and produce [*2] valued at $ 6,066.73 and the plaintiff has not been paid. The fourth count is directed at Superior Steaks and claims that fruit and produce was sold and delivered to said defendant between June 27 and October 31, 2000 in the amount of $ 6,246.00, and that the plaintiff has not been paid. The fifth count names both Dealer's Quest and Ruocco as defendants, and requests, with respect to the $ 6,066.73 claimed in the second count, that the court pierce the corporate veil and hold Ruocco personally liable for said obligation. The fifth count also alleges that Ruocco caused Dealer's Quest to convey all of the assets of Dealer's Quest to Ralroc, LLC without consideration in order to hinder delay and defraud creditors of Ruocco and Dealer's Quest. Ralroc, LLC is a limited liability corporation incorporated by Ruocco in April 2001. The sixth and seventh counts are directed at Dealer's Quest and allege that said defendant, between April 11 and 25, 2001, transferred all of its assets to Ralroc L.L.C. with the intent of avoiding payment of the obligation alleged in the second count. The eighth count is directed at Dealer's Quest and Ruocco and alleges that Dealer's Quest did not record a certificate [*3] of trade name in the Groton town clerk's office in violation of Connecticut General Statutes § 35-1(a), that this failure constitutes an unfair or deceptive practice pursuant to § 42-110b(a), and that this unfair or deceptive practice has caused the plaintiff a loss of money. By way of relief the plaintiff is seeking money damages and an order that the conveyance of the assets of Dealer's Quest to Ralroc, L.L.C., be set aside and declared null and void as to the plaintiff. The plaintiff is also seeking punitive damages and counsel fees in connection with the CUTPA violation alleged in the eighth count.

The defendants, Dealer's Quest and Ruocco, have by their answer, denied all of the essential allegations made in the complaint. In addition, by way of special defenses, Dealer's Quest alleges that a considerable portion of the produce provided by the plaintiff was unusable, and Ruocco alleges that he never purchased any produce from the plaintiff or agreed to make any payments for any item purchased.

On the second count, the court finds that the plaintiff has proven that it sold and delivered fruit and produce to the defendant, Dealer's Quest, as alleged in [*4] said count, and said defendant has failed to prove its special defense. Judgment may enter on the second count in the amount of $ 6,066.73, plus interest, as against Dealer's Quest.

The defendant, Superior Steaks, Inc., has not appeared. On February 27, 2001 this court (DeMayo, Judge Trial Referee), entered judgment against Superior Steaks, Inc. d/b/a JJ's Steakhouse, in the amount of $ 6,454.82. This judgment disposes of the fourth count.

The fifth count makes two claims. First, the plaintiff claims that Ruocco should be held personally liable for the obligation incurred by Dealer's Quest. Second, the fifth count alleges that between April 11, 2001 and April 25, 2001, there was a fraudulent transfer of the assets of Dealer's Quest to Ralroc, which is also the claim in the sixth and seventh counts.

The plaintiff, in seeking to have Ruocco held liable for the obligation of Dealer's Quest, is asking the court to "pierce the corporate veil."

General Statutes § 33-673(b) acts to exempt shareholders of a corporation from personal liability and provides in relevant part that "a shareholder of a corporation is not personally liable for the acts or debts of the [*5] corporation except that he may become personally liable by reason of his own acts or conduct." That statutory cloak protects those who own a corporation in all but the exceptional circumstance in which an individual may be held personally liable for the ostensible debts of the corporation.

"A court may pierce the corporate veil only under exceptional circumstances . . ." (Internal quotation marks omitted.) United Electrical Contractors, Inc. v. Progress Builders, Inc., 26 Conn.App. 749, 755, 603 A.2d 1190 (1992). In such unusual circumstances, "courts will disregard the fiction of separate legal entity when a corporation is a mere instrumentality or agent of another corporation or individual owning all or most of its stock . . . Under such circumstances the general rule, which recognizes the individuality of corporate entities and the independent character of each in respect to their corporate transactions, and the obligations incurred by each in the course of such transactions, will be disregarded, where . . . the interests of justice and righteous dealing so demand." (Internal quotation marks omitted.) Hersey v. Lonrho, Inc., 73 Conn.App. 78, 86, 807 A.2d 1009 (2002). [*6] The "issue of whether the corporate veil [should be] pierced presents a question of fact . . . (Citations omitted; internal quotation marks omitted.) Litchfield Asset Management Corp. v. Howell, 70 Conn.App. 133, 148, 799 A.2d 298, cert. denied, 261 Conn. 911, 806 A.2d 49 (2002).

When determining whether piercing the corporate veil is proper, our Supreme Court has endorsed two tests: the instrumentality test and the identity test. The instrumentality rule requires, in any case but an express agency, proof of three elements: (1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) that such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of plaintiff's legal rights; and (3) that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained [*7] of.

Hersey v. Lonrho, Inc., supra, 73 Conn.App. at 87.

The identity rule has been stated as follows: If a plaintiff can show that there was such a unity of interest and ownership that the independence of the corporations had in effect ceased or had never begun, an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability arising out of an operation conducted by one corporation for the benefit of the whole enterprise . . . The concept of piercing the corporate veil is equitable in nature and courts should pierce the corporate veil only under exceptional circumstances.

(Internal quotation marks omitted.) Id. n1 KLM Industries, Inc. v. Tylutki, 75 Conn.App. 27, 31-33, 815 A.2d 688.

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n1 Although the identity rule primarily applies to prevent injustice where two corporations are controlled as one enterprise; Angelo Tomasso, Inc. v. Armor Construction & Paving, Inc., 187 Conn. 544, 447 A.2d 406 (1982); it has been applied to hold an individual liable for a corporate obligation. See Saphir v. Neustadt, 177 Conn. 191, 209-10, 413 A.2d 843 (1979); Zaist v. Olson, 154 Conn. 563, 575-78, 227 A.2d 552 (1967).

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In its memorandum of law the plaintiff claims that the court should pierce the corporate veil of Superior Steaks and Dealer's Quest and hold Ruocco responsible for both obligations. The complaint does not make such a claim with respect to the debt owing by Superior Steaks.

Dealer's Quest was incorporated on November 26, 1998, and elected to be a Chapter S Corporation effective January 1, 1999. The corporation did business as Golden Corral operating a restaurant during 1999, 2000, and until sometime in April 2001. Between January 15, 1999, and October 6, 2000, the plaintiff sold fruit and produce valued at $ 80,399.48 to Dealer's Quest, all of which was paid for by Dealer's Quest, except for goods delivered between August 7 and October 6, 2000 valued at $ 6,066.73.

The only testimony relative to the operations of Dealer's Quest came from Ruocco. He was the president and the only stockholder and director of Dealer's Quest. This was a closely held corporation and Ruocco made all of the corporate decisions. He was the only one authorized to sign checks. He occupied an apartment in Groton which was leased to the corporation. He drew no salary, although all of his personal expenses were [*9] charged to his personal credit card and then paid by the corporation. It was his testimony that he had loaned large sums of money to the corporation and that his accountant, Jeffrey Seader, had advised him that any personal bills paid by the corporation would be considered as repayment of his loans to the corporation. He testified that his accountant had the books and records which would show what was owed to him, which he claimed exceeded $ 100,000. He also testified that some of the corporate records of Dealer's Quest had been destroyed following a robbery on March 16, 2002, and that bank statements and checks were thrown away after a couple of years.

In its memorandum of law the plaintiff claims that Ruocco had no personal bank accounts. While he had no personal bank accounts at the time of the trial in October 2002, Ruocco did have such accounts while Dealer's Quest was operating the restaurant from 1999 until April 2001. Corporate records of Dealer's Quest were maintained as is reflected by the 1999 and 2000 federal and state corporate tax returns which were in evidence. At the time of the trial the 2001 tax returns had not yet been filed.

In April 2001, Dealer's Quest became [*10] insolvent and Ruocco decided to terminate the corporation. He then formed a new entity, Ralroc, LLC which took over the Golden Corral restaurant and began operating it. Ruocco is one of the limited partners and his relationship with Ralroc, LLC appears to be similar to the one he had with Dealer's Quest.

As indicated earlier, the only witness who testified concerning the operation of Dealer's Quest was Ruocco. He indicated that the business records of the corporation were handled by his accountant, Jeffrey Seader. The only records of the corporation that were offered in evidence were the 1999 and 2000 federal and state income tax returns which were prepared by Mr. Seader. Mr. Seader was not called as a witness.

It is clear that Ruocco was the principal figure in the operation of Dealer's Quest, Inc., d/b/a Golden Corral Restaurant. The Corporation did business with the plaintiff for a period of over twenty-one months and for nineteen of these months the corporation paid the bills, although sometimes late. The bills incurred during the last two months of the business relationship remain unpaid and the plaintiff now seeks to hold Ruocco personally responsible.

The plaintiff has the [*11] burden of proving that the relationship of Ruocco to Dealer's Quest was such that this court, under either the instrumentality or identity theory, should pierce the corporate veil and hold Ruocco personally responsible for the corporate obligation. Based on the limited evidence presented the court finds that the plaintiff has not met its burden of proof under either theory. As was pointed out in KLM Industries, Inc., even though a corporation has a distinct legal existence, it must act through individuals. A court should not pierce the corporate veil except under exceptional circumstances. Those exceptional circumstances have not been shown in this case.

The fifth count also includes a claim that in April 2001 Ruocco caused Dealer's Quest to make a transfer of all of its assets to Ralroc, without consideration and when Dealer's Quest was insolvent, with the deliberate intent to defraud creditors of Ruocco and Dealer's Quest, and that Ralroc received these assets with knowledge of said fraudulent intent and with the intent to assist Ruocco and Dealer's Quest in that fraudulent purpose. The sixth count alleges that Dealer's Quest transferred all of its assets to Ralroc with the [*12] intent of avoiding the plaintiff's debt and that Ralroc, in accepting the assets, conspired with Dealer's Quest to accomplish that purpose. The seventh count alleges that Dealer's Quest transferred all if its assets to Ralroc without consideration with the intent to defraud the plaintiff. By way of relief the plaintiff asks the court to set aside the conveyance of the assets and declare it null and void as to the plaintiff. The plaintiff has failed to prove the various claims in connection with the alleged transfer of assets by Dealer's Quest. The only evidence about assets of Dealer's Quest was that the various fixtures located in the restaurant were owned by Ruocco, that Dealer's Quest owned no physical assets, and that neither Dealer's Quest nor Ruocco transferred any assets to Ralroc. The court also notes that Ralroc is not a defendant in this case.

The eighth count is directed at Ruocco and Dealer's Quest. It realleges the entire fifth count and then adds a claim that Ruocco and Dealer's Quest committed an unfair or deceptive trade practice in violation of the Connecticut Unfair Trade Practice Act, § 42-110a et seq., of the Connecticut General Statutes (CUTPA). The basis for [*13] this claim is that Dealer's Quest did business as Golden Corral and failed to file a trade name certificate disclosing this with the Groton Town Clerk as is required by § 35-1(a) of the Connecticut General Statutes. The failure to file a trade name certificate is a per se CUTPA violation.

No such certificate was filed by Dealer's Quest. However, even though a CUTPA violation may have occurred, the plaintiff cannot recover on this count. Section 42-110g(a) of the General Statutes provides that any person who suffers any loss of money "as a result of the use" of an act prohibited by CUTPA may recover actual damages. The plaintiff has failed to prove that the failure of Dealer's Quest to file a trade name certificate with the Town Clerk caused the plaintiff any loss. At all times, the plaintiff knew that it was dealing with a restaurant known as Golden Corral as is shown by Exhibit 1.

Accordingly, for the reasons set forth above, judgment may enter on the second count in favor of the plaintiff as against the defendant Dealer's Quest, Inc., in the amount of $ 6,066.73 and in favor of the defendants Ralph Ruocco and Dealer's Quest, Inc. [*14] on the fifth, sixth, seventh and eighth counts.

William L. Hadden, Jr.

Judge Trial Referee

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