Beverly Hills Concepts, Inc. v. Schatz and Schatz, Ribicoff and Kotkin, 15730
| Decision Date | 15 September 1998 |
| Docket Number | No. 15730,15730 |
| Citation | 717 A.2d 724,247 Conn. 48 |
| Court | Connecticut Supreme Court |
| Parties | BEVERLY HILLS CONCEPTS, INC. et al. v. SCHATZ AND SCHATZ, RIBICOFF AND KOTKIN et al. |
Mark R. Kravitz, New Haven, with whom were Daniel J. Klau and William J. Doyle, for appellants-appellees (defendants).
Jeffrey J. Tinley, Waterbury, with whom, on the brief, were Steven D. Ecker, New Haven and Paula A. Platano, Cheshire, for appellee-appellant (named plaintiff).
Before NORCOTT, KATZ, PALMER, PETERS and EDWARD Y. O'CONNELL, JJ.
The principal issue in this appeal is the proper method for calculating damages for the destruction of a nascent business. We conclude that: (1) unestablished enterprises must be permitted to recover damages for legal malpractice and that a flexible approach in determining those damages generally is appropriate; (2) lost profits for a reasonable period of time may serve as an appropriate measure of damages under certain circumstances; and (3) the plaintiff bears the burden of proving lost profits to a reasonable certainty. As applied to the facts of this case, however, we conclude that the plaintiff has not sustained its burden of proof regarding damages.
This appeal arises from a malpractice action brought by Beverly Hills Concepts, Inc. (plaintiff) 1 against the named defendant, the law firm, Schatz and Schatz, Ribicoff and Kotkin (Schatz & Schatz), and the individual defendants, attorneys Stanford Goldman, Ira Dansky and Jane Seidl. In its complaint, dated November 2, 1989, the plaintiff alleged legal malpractice (first count), breach of contract (second count), intentional misrepresentation (third and fifth counts), negligent misrepresentation (fourth count), breach of fiduciary duty (sixth count), breach of the covenant of good faith and fair dealing (seventh count), and violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq. (eighth count). 2 On January 27, 1997, following a trial to the court, Hon. Robert J. Hale, judge trial referee, rendered judgment for the plaintiff on the first, second, fourth, sixth and seventh counts, and for the defendants on the third, fifth and eighth counts. The trial court awarded the plaintiff damages in the amount of $15,931,289.
On February 6, 1997, the defendants filed a motion to reargue and/or open or set aside the judgment, for a new trial, and/or for judgment, which the trial court denied. The defendants also filed, on June 17, 1997, a motion for articulation, which the trial court, likewise, denied.
The defendants appealed the judgment to the Appellate Court. The plaintiff filed a cross appeal, 3 challenging the trial court's rejection of the CUTPA claim. We transferred the appeal and the cross appeal to this court pursuant to Practice Book (Rev.1998) § 65-1, formerly § 4023, and General Statutes § 51-199(c). 4 The trier of fact reasonably could have found the following facts. Charles Remington, Wayne Steidle, and Jeannie Leitao, incorporated the plaintiff as a Massachusetts corporation in April, 1987. They sold fitness equipment with a distinctive color scheme and logo, as well as a plan for operating a fitness club for women. The plaintiff's system included everything an owner would need to run a club, including equipment, training, sales and marketing support, and advertising and promotional materials. The plaintiff incorporated in Connecticut on August 17, 1987, and opened a corporate headquarters in Rocky Hill. From its Rocky Hill headquarters, the plaintiff licensed purchasers to use its concept, and sold distributorships to investors who gained the exclusive right to sell the plaintiff's products and to sublicense its name within a regional territory.
In October, 1987, prompted by a legal problem regarding the plaintiff's trademark in California, Leitao contacted the law firm of Schatz & Schatz. On October 28, 1987, the plaintiff met with Goldman, a partner at Schatz & Schatz, and Seidl, an associate in the firm. Leitao advised them that she recently had filed a trademark application for the name "Beverly Hills Concepts" in Washington, D.C. Goldman assumed incorrectly that this meant that the plaintiff had a "federally registered trademark," which would have alleviated the need to register as a "business opportunity" pursuant to the Connecticut Business Opportunity Investment Act (act). General Statutes (Rev. to 1987) § 36-503 et seq. 5 He told Leitao that Schatz & Schatz possessed expertise in the field of franchising, and that the firm was well qualified to handle the plaintiff's legal affairs. Goldman also said that he would be involved personally in the firm's representation of the plaintiff.
In fact, beginning in late 1987, Goldman turned the plaintiff's file over to Seidl, a junior associate, and Ira Dansky, a "contract" lawyer not yet admitted to the Connecticut bar. Neither Seidl nor Dansky possessed expertise in the law of franchising and business opportunities. Schatz & Schatz billing records revealed that Goldman spent only about two hours on the plaintiff's matter between December, 1987, and June, 1988.
Before turning the plaintiff's file over to Seidl, Goldman visited the plaintiff's headquarters in Rocky Hill and examined its distributorship and licensing agreements and promotional materials. Despite the plaintiff's request for guidelines regarding the sale of its equipment and "system" pending its franchise registration, Schatz & Schatz failed to advise the plaintiff that it was violating the act by selling fitness club packages without first registering with the state banking commissioner. Rather, after analyzing the plaintiff's documents, Goldman told Remington that the question of whether the plaintiff was offering business opportunities within the meaning of the act was a "gray area" of the law.
Recognizing that the plaintiff would need financial statements in order to file its franchise documents, Schatz & Schatz referred the plaintiff to the accounting firm of Coopers and Lybrand (Coopers). Schatz & Schatz advised Coopers, however, only of the financial statements required under federal law. It failed to inform Coopers of the requirements of the act.
In the winter of 1987-88, Seidl began drafting the plaintiff's franchise documents. On February 8, 1988, another Schatz & Schatz associate, who had been assigned the task of researching the franchise registration requirements of fourteen states, including Connecticut, informed Seidl that the plaintiff was not exempt from the registration requirements of the act. That same day, Schatz & Schatz contacted the plaintiff's Washington, D.C., trademark attorney, who confirmed that the plaintiff's trademark application was pending, and that no federal registration had been issued. Under these circumstances, Schatz & Schatz lawyers should have realized that the plaintiff was not exempt from the filing requirements of the act. Yet no one from the defendant law firm apprised the plaintiff of that fact. 6
In June, 1988, Dansky terminated Schatz & Schatz's representation of the plaintiff, stating that he was concerned that the plaintiff's franchise offering documents overstated its financial position. Shortly afterwards, the plaintiff retained Martin Clayman, an attorney with the firm of Clayman, Markowitz and Tapper, to complete the plaintiff's franchise registration. Within a few weeks, Clayman and his partner, Holly Abery-Wetstone, had prepared an application for the plaintiff to register as a business opportunity in Connecticut. The plaintiff decided not to file the registration documents, however, until its trademark had been approved, an event that its Washington, D.C., attorney had estimated would occur within a few months.
On September 15, 1988, an official acting for the banking commissioner notified the plaintiff that its marketing of franchises violated the act. The plaintiff contacted Clayman and Abery-Wetstone, who began preparing a postsale registration for the plaintiff's previous sales. The plaintiff complied immediately with advice from Abery-Wetstone that it should stop advertising and selling franchises. The plaintiff filed a postsale registration application on December 7, 1988, in an effort to comply with the act. Nevertheless, on June 28, 1989, the banking commissioner issued a cease and desist order and a notice of intent to fine the plaintiff up to $10,000 for each sale made in violation of the act. The commissioner further issued a stop order invalidating the plaintiff's postsale registration. On June 26, 1991, following hearings in September and November of 1989 and May of 1990, the commissioner issued a final cease and desist order, stating that the plaintiff had violated the act repeatedly by selling unregistered business opportunities in Connecticut. This malpractice action followed.
For purposes of this appeal, the defendants do not challenge the trial court's determination that they breached the applicable professional standard of care. Rather, they raise claims regarding the issues of causation and damages. Specifically, the defendants argue that the trial court improperly: (1) rendered judgment against Seidl on the negligent misrepresentation and breach of fiduciary duty claims based on the same conduct underlying the judgment of malpractice; (2) concluded that the defendants' failure to advise the plaintiff of its violation of the act caused its demise; (3) awarded damages based on lost profits rather than the going concern value of the business at the date of destruction; (4) awarded the plaintiff approximately $15.9 million in lost profits calculated over a period of twelve years; and (5) included prejudgment interest in the damages award.
We agree with the defendants' first and fourth claims. Accordingly, we reverse the judgment of the trial court and render judgment for the defendants.
We first examine whether the trial...
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