Stuart v. Stuart

297 Conn. 26

996 A.2d 259

William A. STUART et al.v.Kenneth J. STUART, Jr., et al.

No. 18324.

Supreme Court of Connecticut.

Argued Feb. 22, 2010.

Decided June 22, 2010.

COPYRIGHT MATERIAL OMITTED

Sandra J. Akoury, with whom, on the brief, was Paul J. Pacifico, for the appellants (plaintiffs).

William F. Gallagher, New Haven, for the appellee (named defendant).

NORCOTT, KATZ, PALMER, ZARELLA and BEACH, Js.

ZARELLA, J.

In this certified appeal,¹ we are called on to determine what standard of proof applies to statutory theft claims brought pursuant to General Statutes § 52-564.² The plaintiffs, William A. Stuart and Jonathan Stuart, appeal from the judgment of the Appellate Court, which upheld the trial court's application of the clear and convincing standard of proof to the plaintiffs' statutory theft claim against the named defendant, Kenneth J. Stuart, Jr.³ Stuart v. Stuart, 112 Conn.App. 160, 176, 962 A.2d 842 (2009). In their appeal, the plaintiffs assert that the proper standard of proof to be applied to statutory theft claims under § 52-564 is the preponderance of the evidence standard. We agree with the plaintiffs and, accordingly, reverse in part the judgment of the Appellate Court.

The following relevant facts and procedural history are set forth in the opinion of the Appellate Court. “The plaintiffs and [the defendant], are the only children and heirs of Kenneth J. Stuart, Sr. (Stuart, Sr.). In 1991, Stuart, Sr., executed an estate plan including the establishment and funding of a trust and the execution of a will that, upon his death, would have distributed his assets equally among his three sons. Stuart, Sr., had been the art director of Curtis Publishing Company, the publisher of The Saturday Evening Post, and, subsequently, the art director of ... Reader's Digest. He had collected many antiques and [amassed] a significant art collection, including several famous works by Norman Rockwell.

“In July, 1992, Stuart, Sr., was admitted to Norwalk Hospital. At that time, he was unable to give a medical history, and the hospital records indicated that he was suffering from a deteriorating mental condition. His physical and mental health progressively worsened until his death in February, 1993. Less than four months before his death, a series of transactions took place that materially altered the estate plan. On November 4, 1992, Stuart, Sr., and [the defendant] executed documents that formed Stuart & Sons, L.P. They were the only general partners; the plaintiffs had no interest in the partnership and were not aware that it had been created. Stuart, Sr., by bill of sale, conveyed most of his personal property to the partnership. [The defendant], as trustee, through various transactions, transferred properties located in Wilton at Ridgefield Road, the former residence of Stuart, Sr and at Hurlbutt Street, a new acquisition by the trust, to the partnership. As a consequence of those transactions, almost all of the assets of Stuart, Sr., were owned by the partnership, and the trust had few or no assets.

“Sometime in August, 1993, after the death of Stuart, Sr., [the defendant] told the plaintiffs about the creation and funding of Stuart & Sons, L.P. The partnership leased the Ridgefield Road and Hurlbutt Street properties and collected the rents. It acquired two additional properties in Wilton and, in 1993, formed a limited liability company to own a furniture store in Wilton known as Eldred Wheeler of Wilton, LLC ... which later became known as Talbot House. In 1995, [the defendant] hired [Deborah] Christman to manage the furniture business. In June, 2000, they married. At about that time, Talbot House closed its business, and [the defendant] and Christman opened a new business, Christman Stuart Interiors, LLC, in Ridgefield. A portion of the inventory of Talbot House was transferred to Christman Stuart Interiors, LLC.

“From 1991 to 2003, thousands of transactions were undertaken by [the defendant], as trustee, executor and general partner of Stuart & Sons, L.P. Most of the transactions occurred as part of the operations of the partnership, including its sale of the Hurlbutt Street property to [the defendant], and Christman for $900,000 in April, 2001.⁴ During that twelve year period, [the defendant] commingled funds and assets of the trust and the partnership and his own assets to such an extent as to hinder any proper accounting. His failure to keep adequate records and his use of the trust assets for his benefit further complicated any accurate accounting of his fiduciary obligations.

“The plaintiffs commenced the present action in 1994. In their operative nine count complaint filed March 10, 2003, the plaintiffs alleged that [the defendant] exercised undue influence over Stuart, Sr., when real estate was purchased with trust assets and when Stuart & Sons, L.P., was created and funded, and that Stuart, Sr., lacked the mental capacity to understand those transactions. They additionally alleged that [the defendant] breached his fiduciary duties as trustee, executor and general partner by mismanaging assets, failing to maintain records and self-dealing. The plaintiffs further claimed that the transfer by [the defendant] of the Hurl-butt Street property to Christman was a fraudulent conveyance, that the actions of [the defendant] constituted statutory theft pursuant to ... § 52-564 and that [the defendant], Christman and Christman Stuart Interiors, LLC, had been unjustly enriched by the misappropriation of the assets of the trust and estate. In their prayer for relief, the plaintiffs requested that the court impose a constructive trust on the assets of Stuart & Sons, L.P., set aside the conveyance of the Hurlbutt Street property, award accounting fees and award money damages, including treble damages [pursuant to § 52-564] and attorney's fees.

“During a twenty-five day trial, the court heard testimony from several witnesses and admitted twelve boxes of exhibits. Following trial, the parties submitted extensive ... briefs summarizing their respective positions. On June 28, 2004, the court issued its seventyeight page memorandum of decision in which it painstakingly evaluated the evidence with respect to each of the plaintiffs' claims and set forth the applicable remedies. The court made the following findings and conclusions with respect to the plaintiffs' claims: (1) Stuart, Sr., was not mentally competent to execute the partnership documents and the other instruments that transferred his assets into Stuart & Sons, L.P., in November, 1992; (2) the creation of the partnership and the resulting transfer of assets was the result of undue influence by [the defendant] over Stuart, Sr.; (3) [the defendant] owed a fiduciary duty to the plaintiffs in his capacities as trustee, executor and general partner of Stuart & Sons, L.P., the limited partnership that acquired almost all of the assets of Stuart, Sr.; (4) [the defendant] breached his fiduciary duties through the commingling of funds and assets, by failing to maintain adequate records of his stewardship and by using trust assets for his benefit; (5) [the defendant] proved by clear and convincing evidence that certain expenditures were business related and were not improper personal expenditures; (6) the transfer of the Hurlbutt Street property to [the defendant] and Christman for the consideration of $900,000 did not constitute improper self-dealing; (7) the plaintiffs failed to meet their burden of proof on their fraudulent conveyance claim; (8) the plaintiffs were required to prove their statutory theft claim by clear and convincing evidence; and (9) Christman Stuart Interiors, LLC, was unjustly enriched in the amount of $118,671, and was entitled to a setoff of $68,621.48.

“On the basis of those findings and conclusions, the court set forth the following remedies: (1) the creation of Stuart & Sons, L.P., was declared null and void; (2) all assets and liabilities of the partnership were to be transferred to the estate of Stuart, Sr., and a constructive trust was established over an undivided two-thirds of the assets and liabilities until the transfer was completed; (3) damages for the breach of fiduciary duties by [the defendant] totaled $1,062,332.25, and he was to pay that amount to the estate of Stuart, Sr.; (4) the plaintiffs' claim for [the] fraudulent transfer of the Hurl-butt Street property was dismissed; (5) with respect to the plaintiffs' statutory theft claim, [the trial court determined that $248,226.25 of the damages previously awarded for the plaintiffs' breach of fiduciary claims qualified for trebling under § 52-564 and, accordingly] an additional award of $496,452.50 ... was to be paid to the estate of Stuart, Sr.; ⁵ (6) Christman Stuart Interiors LLC, was unjustly enriched in the amount of $50,049.52, payable to the estate of Stuart, Sr.; (7) an award of attorney's fees was made, but the amount was to be determined at a subsequent hearing; (8) prejudgment interest in the amount of $636,743.63, calculated at a rate of 7.5 percent [per annum], was awarded to the estate of Stuart, Sr., for the breach of fiduciary duty claims; and (9) an award of $180,000, for accounting fees, incurred to prove the breach of fiduciary duty claims, was to be paid to the estate of Stuart, Sr. Accordingly, the [trial] court rendered judgment for money damages against [the defendant] in the amount of $2,375,528.38, and against Christman Stuart Interiors, LLC, in the amount of $60,539.19, to be paid to the estate of Stuart, Sr.” Id., at 165-69, 962 A.2d 842.

In addition, in recognition of the fact that the issue of the proper standard of proof to be applied to statutory theft claims was then pending before this court in Howard v. MacDonald, 270 Conn. 111, 851 A.2d 1142 (2004), ⁶ the trial court determined what additional damages would be subject to trebling if the preponderance of the evidence standard were applied to the plaintiffs' claim. The trial court...