Aspic, LLC v. Poitier

179 Conn.App. 631

181 A.3d 593

ASPIC, LLC

v.Brack G. POITIER

AC 39301

Appellate Court of Connecticut.

Argued November 28, 2017

Officially released February 13, 2018

Mark A. Rosenblum, with whom was Michael D. Blumberg, for the appellant (defendant).

Timothy A. Diemand, with whom were Jeffrey R. Babbin and, on the brief, Michael Menapace, for the appellee (plaintiff).

Alvord, Bright and Sullivan, Js.

BRIGHT, J.

The defendant, Brack G. Poitier, appeals from the judgment of the trial court granting the prejudgment remedy application filed by the plaintiff, ASPIC, LLC. The defendant claims that the trial court erred in awarding the plaintiff a $1 million prejudgment remedy because he specifically had pleaded, inter alia, a defense of breach of fiduciary duties, which required the court to shift the burden to the plaintiff to establish fair dealing, and the court failed to do so. He also claims that even if the court appears to have shifted the burden, the record was devoid of evidence to demonstrate fair dealing. Finally, the defendant claims that the trial court failed to make any finding that the plaintiff had met its burden to show that there was probable cause that it would prevail in establishing that the transactions at issue were the product of fair dealing. We agree with the defendant and reverse the judgment of the trial court.

The following facts, as ascertained from the record, reasonably could have been found by the trial court.¹

The plaintiff is a single member limited liability company, whose sole member is Municipal Capital Appreciation Partners III, L.P. (Muni). The defendant is a general partner in four limited partnerships, GAB Hill Limited Partnership, BHP Limited Partnership, WCH Limited Partnership, and Renaissance Limited Partnership. These partnerships collectively are known as the Court Hill Partnerships (Court Hill). The partnership agreements provide that each general partner has unlimited personal liability for all obligations of the partnerships. Court Hill owns properties that served low income individuals in the New Haven area. In addition to the defendant, George Bumbray and Wendell C. Harp² also are general partners in Court Hill, with Harp having been appointed as the managing partner. Harp's company, Renaissance Management Company, Inc. (Renaissance), acts as the managing agent for all of the properties owned by Court Hill.

On December 24, 2008, Harp, on behalf of Court Hill, signed an amended and restated promissory note in the amount of $2,039,763 in substitution for an August, 2008 promissory note.³ The note purported to memorialize Court Hill's debt for "operating expenses as of November 30, 2008, plus accrued interest" by entering into an "amended and restated promissory note" with Renaissance for that amount. Harp endorsed this note four times, once for each of the Court Hill member partnerships. Also on December 24, 2008, Harp, on behalf of Court Hill, then entered into an "amended and restated promissory note," in the amount of $817,692, with Harp, individually. This note also was for "operating expenses as of November 30, 2008, plus accrued interest thereon." Harp also endorsed this note four times, once for each of the Court Hill member partnerships.⁴

On December 30, 2008, Harp, on behalf of himself and Renaissance, executed a loan agreement and a $1.5 million promissory note with Muni (Muni note). The loan agreement provided in part that $695,963.94 of the loan would be advanced to Harp and Renaissance "to be used by [Harp and Renaissance] to repay the promissory note made by [Muni] to Harp," and that proceeds from this loan also were to be used to pay federal, state, and local tax liabilities of Harp and/or Renaissance. Schedule 7(f) of the loan agreement contains, inter alia, a listing of the tax obligations of Renaissance: $950,000 to the Department of Revenue Services; $732,000 to the Internal Revenue Service; and $3700 to the city of New Haven.

Harp, Renaissance, and Muni also entered into a "pledge and security agreement" on December 30, 2008, whereby Renaissance and Harp pledged as collateral for the Muni note their interests in and rights under the Court Hill notes. Additionally, on April 1, 2009, Harp, Renaissance, and Muni entered into a "first amendment to pledge and security agreement" (amended security agreement), which amended the December 30, 2008 pledge and security agreement to include a collateral pledge of two additional notes payable by Court Hill (2009 advance notes), one in favor of Renaissance in the amount of $251,010 for operating expenses between December 1, 2008, and February 28, 2009, and one in favor of Harp in the amount of $13,572, also for operating expenses during that same period.

The entire principal balance of the Muni note was due and payable on December 31, 2010, but no payment ever was made. The note is in default.

In light of the default on the Muni note and the amended security agreement, Muni held a public sale of the collateral on January 8, 2014, at which it was the highest bidder. Muni thereafter transferred legal title of the collateral to the plaintiff, which now seeks to enforce the Court Hill notes and the 2009 advance notes against the defendant, a general partner in Court Hill.

On the basis of the foregoing, the plaintiff, in an application filed on December 10, 2015, sought a prejudgment remedy against the defendant in the amount of $3 million. The defendant raised the following amended special defenses: (1) the Court Hill collateral notes are void for lack of consideration; (2) the Court Hill collateral notes were procured by fraud; (3) to the extent that the defendant can be held liable, he is liable only for the amounts on the Court Hill collateral notes; (4) the plaintiff has accepted payment for the sums due; (5) any and all obligations to pay the Court Hill collateral notes have been assumed by third parties; (6) the plaintiff is barred from recovery by unclean hands; (7) the plaintiff is barred from recovery by virtue of Harp's breach of his fiduciary duties to Court Hill and the defendant; and (8) the plaintiff is barred from recovery by virtue of Renaissance's breach of its fiduciary duties to Court Hill and the defendant.⁵

Following a hearing, the court issued its ruling on the plaintiff's application on June 7, 2016. The court first addressed the evidence presented in support of the plaintiff's allegations and found that the plaintiff had established probable cause to sustain the validity of its claim on the promissory notes at issue. The court then addressed all of the defendant's defenses, except his breach of fiduciary duty claims, and held that none of them were meritorious at that time.

The court then turned to the defendant's breach of fiduciary duty defense and made the following findings relevant to this appeal. "The nature and chronology of the underlying loan transactions raise questions about whether Harp's conduct in connection with those loans [was] consistent with his fiduciary duties to [the defendant].... There is no reason to believe, on the present state of the record, that [the defendant] was aware of any aspect of the [Muni] loan or the associated Court Hill notes—all of the documentation was signed on behalf of the Court Hill partnerships by Harp alone." (Citations omitted.)

The court then noted that it did not have sufficient information to determine the ultimate strength of the breach of fiduciary duty defense and noted several unanswered questions including, "[w]hether the putative debts to Harp and Renaissance, underlying the Court Hill notes at issue here, were actually owed by the Court Hill partnerships to Harp and/or Renaissance at the time the Court Hill notes were issued; whether Harp had anything to do, directly or indirectly, explicitly or implicitly, with [the defendant's] current predicament as the lone obligor from whom payment is being sought, and if so, whether Harp's acts or omissions in that regard breached his fiduciary duties to [the defendant]; and whether the various loans and purchase transactions spanning the years between 2008 and 2012 involving Harp, [Muni] and the various [Muni] affiliates have resulted in financial consequences that were foreseeably disadvantageous or unequal among Harp's partners, and cannot be squared with Harp's fiduciary duties to his partners and partnerships."

In light of these questions, the court stated that it had "no idea, on this record, about [the defendant's] role in any of the underlying business activity involving [Muni], nor do we know how the extensive transactions between Harp and [Muni] may have interacted, in whole or in part, with other transactions between or among the Court Hill partners, including [the defendant]." After noting that there still may be other questions that need to be resolved before the merits of the case could be decided, the court stated that "[t]he important point is that, in the court's mind, too little is known presently for any prediction to be made regarding the ultimate fate of the fiduciary duty defense.... The current record does not reveal whether the fiduciary duty defense has merit. The only certainty at this time, based upon the limited facts known to the court, is that legitimate questions have been raised under the circumstances."

The court concluded by granting the plaintiff's application, but only for $1 million, rather than the $3 million requested. The court did not explain how it arrived at this number other than to say that "[t]his amount represents the court's best effort, on the present record, to account for all of the factors discussed above." The defendant now appeals.

On appeal, the defendant argues that "in its application for a prejudgment remedy, [the plaintiff] was obligated to prove that there is probable cause to believe that [it] can establish, by clear and convincing evidence at trial, that the transactions at issue were fair. Indeed, in considering whether there is the requisite...