JUDGMENT FOLLOWING BENCH TRIAL – Fraud – Plaintiff alleged that defendants engaged in fraudulent conveyances when principals were paid monies owed to corporation.

Hartford County, CT

In this matter, the plaintiff alleged that the defendants engaged in fraudulent conveyances which violated the state’s consumer protection statutes when it diverted monies owed to the insolvent corporation to its shareholders. As a result, the plaintiff was not paid for services rendered. The defendants denied the allegations, and maintained that partial repayment had been made to the plaintiff, and there was no intent to defraud.

The plaintiff is a landscaping company that provided landscaping and snow removal services to the defendant restaurant. The defendant restaurant corporation was compromised of family members, particularly two brothers. The two brothers invested personally in the company, notably loaning the company monies when it was financially strapped. The plaintiff alleged that it was owed monies on the ________-________ snow removal contract. Particularly, the plaintiff alleged that it was owed the sum of $________. It brought a small claims complaint seeking the jurisdictional limit of $________ plus costs. Since the defendant did not contest the proceeding as it was attempting to straighten out its financial affairs, and admitted that monies may have been owed to the plaintiff, a judgment was entered. The facts demonstrated that payment was not made to the plaintiff either on the balance of the bill due and owing or in satisfaction of its judgment. However, the plaintiff alleged that during this same period of time, the defendant corporation was making payments to its shareholders. The plaintiff contends that the transfers were made fraudulently with the intent of defrauding the defendant’s creditors, such as the plaintiff. The plaintiff brought suit, alleging fraudulent conveyances and seeking to pierce the corporate veil in order to hold the individual shareholders liable.

The defendant denied the allegations, and maintained that the various defendants made financial investment into the business and those cash infusions were listed as such. Additionally, the defendants deny any fraudulent activity and maintain that monies coming in were used to pay expenses for the insolvent corporation.

The matter proceeded to a bench trial over a period of four days. At the conclusion of the evidence, the court ruled in favor of the defendants. The plaintiff had a heightened burden of proof as to its claims of fraudulent conveyances, the standard being that the plaintiff needed to prove its case by clear and convincing evidence. The court determined that the plaintiff failed to meet its burden of proof in demonstrating that the defendants had the intent to defraud the plaintiff. As to the plaintiff’s claims of constructive fraudulent conveyances under Connecticut statute – the court determined that the plaintiff failed to meet the clear and convincing burden of proof that the defendant corporation was insolvent at the time that the alleged transfers were made. As to the plaintiff’s claim of unfair trade practices under state law – the court determined that the plaintiff failed to meet any of the requirements of the cigarette rule, namely; (1) that the practice is immoral, unethical, oppressive, or unscrupulous; (2) it causes substantial injury to consumers or (3) the practice offends public policy. Accordingly, the court ruled in favor of the defendants on that portion of the plaintiff’s complaint. The court determined that the plaintiff failed to meet its burden of proof in order to pierce the corporate veil in regard to its claims of vexatious litigation.