Cahaly v. Benistar Property Exchange Trust Co.

• Decision Date: 29 October 2002
• Docket Number: (AC 21980)
• Citation: 73 Conn. App. 267,812 A.2d 1
• Court: Connecticut Court of Appeals
• Parties: GAIL A. CAHALY v. BENISTAR PROPERTY EXCHANGE TRUST COMPANY, INC., ET AL.

73 Conn. App. 267

812 A.2d 1

GAIL A. CAHALY v. BENISTAR PROPERTY EXCHANGE TRUST COMPANY, INC., ET AL.

(AC 21980)

Appellate Court of Connecticut

Argued April 1, 2002

Officially released October 29, 2002

Schaller, Flynn and Peters, Js. Richard S. Order, with whom was Thomas W. Edgington, for the appellants (named defendant et al.).

Seth Jacoby, for the appellee (plaintiff).

Opinion

FLYNN, J.

The defendants Benistar Property Exchange Trust Company (Benistar Property), Benistar, Ltd., and Daniel E. Carpenter appeal from the judgment of the trial court granting the application filed by the plaintiff, Gail A. Cahaly, for a prejudgment remedy.¹ On appeal, the defendants claim that the trial court improperly (1) granted the application because the prejudgment remedy statutes, General Statutes § 52-278a et seq., do not contemplate a plaintiff, in an out-of-state action, attaching a defendant's Connecticut assets prior to the entry of judgment in the out-of-state case, (2) denied the defendants' motion for a stay prior to the granting of the application for a prejudgment remedy, (3) granted a prejudgment remedy against Carpenter that is inconsistent with the prior orders of a Massachusetts court, and (4) granted a prejudgment remedy against Benistar, Ltd., and Carpenter without a demonstration by the plaintiff that she will have the ability to pierce the corporate veil. We affirm the judgment of the trial court.

Our review of the record, including the affidavits of the parties, discloses the following.² Benistar Property is a wholly owned subsidiary of Benistar, Ltd. Benistar, Ltd., maintains Connecticut offices in Stamford and Simsbury. Carpenter is the chairman and secretary of Benistar Property and the chairman and secretary of Benistar, Ltd. Carpenter is a Connecticut resident. Benistar Property was in the sole business of serving as an intermediary for like-kind exchanges of property pursuant to 26 U.S.C. § 1031 of the Internal Revenue Code.³ Carpenter's role in Benistar Property was to manage clients' proceeds from the sales of properties until further directed by the clients to return the proceeds or to apply the proceeds to the purchase of new property.

In October, 2000, Carpenter opened two accounts, a money market account and a trading account, with PaineWebber, Inc. (Paine Webber), under the name of Benistar Property Exchange. Carpenter instructed PaineWebber that Benistar Property would wire funds into the money market account, some of which would later be transferred to the trading account. In December, 2000, the balance in the trading account fell into a negative balance, and PaineWebber seized the money market funds to pay for the positions it covered in the trading account.

The plaintiff, in an exchange fee agreement dated November 8, 2000, had entered into a written contract with Benistar Property that provided that the plaintiff's funds would be held and invested in either a 3 percent per annum or a 6 percent per annum PaineWebber account. The 3 percent account allowed for liquidation by seventy-two hours written notice, and the 6 percent account allowed for liquidation by thirty days written notice. The plaintiff signed over a check in the amount of $2,412,230 to Benistar Property for investment. Since November 8, 2000, $1,420,000 of the plaintiff's money has been returned to her, leaving a balance of $992,230, plus interest.⁴ Benistar Property failed to return these funds to the plaintiff.

In a complaint dated January 21, 2001, the plaintiff filed suit against Benistar Property, Benistar, Ltd., Carpenter, Martin L. Paley and PaineWebber in Massachusetts Superior Court. In addition to the plaintiff, there are several other plaintiffs in the Massachusetts action who claim losses totaling nearly $9 million. One of the Massachusetts defendants, PaineWebber, was not named in the Connecticut prejudgment remedy application. On February 2, 2001, the Massachusetts Superior Court granted the plaintiffs' motion for prejudgment security. As of the July 18, 2001 hearing date on the Connecticut application for prejudgment remedy, the assets secured by the Massachusetts attachment totaled only about $500,000 in value for the $9 million in claims of all plaintiffs. Additionally, they had attached a Travelers Insurance Company bond in the amount of $5 million. However, Travelers disputes its liability claiming mismanagement on the part of the insured defendants. On January 30, 2001, the plaintiff filed an application for prejudgment remedy in the Hartford Superior Court, seeking an attachment of $1.1 million against the defendants. The defendants filed a motion to dismiss or to stay the plaintiff's application, arguing that a prejudgment attachment was improper because of the prior pending action doctrine and because there was no suit pending or contemplated in Connecticut. Following the denial of the defendants' motion to dismiss or stay the proceedings, the court held a probable cause hearing and granted the application for attachment in the amount of $500,000, with a maximum attachment against Carpenter in the amount of $250,000. This appeal followed.

I

The defendants first claim that a plaintiff in an out-of-state action is not allowed to attach a defendant's Connecticut assets by way of § 52-278a et seq. to secure a judgment that the plaintiff might receive in a sister state. That statute provides in relevant part that if, after a hearing, the court finds that there is probable cause that a judgment, in the amount of the prejudgment remedy sought, "will be rendered in the matter in the plaintiff's favor" which is not adequately secured by insurance, then the remedy sought, or some court ordered modification thereof, "shall be granted...." (Emphasis added.) General Statutes § 52-278d (a).

Specifically, the defendants place much emphasis on the phrase "in the matter" contained in § 52-278d (a). They argue that the use of this phrase mandates that a lawsuit must be pending, or at least contemplated, before a Connecticut court. The defendants first made this argument to the trial court in their motion to dismiss or stay the application for prejudgment remedy as well as at the prejudgment remedy hearing. The plain language of the statute, its legislative history and its construction in relationship to existing legislation, however, do not lend support to the defendants' contention that "a matter" must refer only to a lawsuit pending or contemplated in a Connecticut court.

When presented with an issue of statutory construction, our review is plenary. "The process of statutory interpretation involves a reasoned search for the intention of the legislature.... In other words, we seek to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of this case, including the question of whether the language actually does apply. In seeking to determine that meaning, we look to the words of the statute itself, to the legislative history and circumstances surrounding its enactment, to the legislative policy it was designed to implement, and to its relationship to existing legislation and common law principles governing the same general subject matter." (Citation omitted; internal quotation marks omitted.) Schiano v. Bliss Exterminating Co., 260 Conn. 21, 34, 792 A.2d 835 (2002). "In applying [the] principles [of statutory construction], we keep in mind that the legislature is presumed to have intended a reasonable, just and constitutional result." Gelinas v. West Hartford, 65 Conn. App. 265, 276, 782 A.2d 679, cert. denied, 258 Conn. 926, 783 A.2d 1028 (2001).

We first set forth the relevant portions of the prejudgment remedy statutes. General Statutes § 52-278b provides in relevant part that "no prejudgment remedy shall be available to a person in any action at law or equity (1) unless he has complied with the provisions of [this statute] or (2) for the garnishment of earnings...." The statutory definition of a prejudgment remedy is contained in § 52-278a (d), which provides that a prejudgment remedy is "any remedy or combination of remedies that enables a person by way of attachment, foreign attachment, garnishment or replevin to deprive the defendant in a civil action of, or affect the use, possession or enjoyment by such defendant of, his property prior to final judgment...."

General Statutes § 52-278d (a) provides in relevant part that a hearing on a prejudgment remedy "shall be limited to a determination of (1) whether or not there is probable cause that a judgment in the amount of the prejudgment remedy sought, or in an amount greater than the amount of the prejudgment remedy sought ... will be rendered in the matter in favor of the plaintiff [and] (2) whether payment of any judgment that may be rendered against the defendant is adequately secured by insurance.... If the court, upon consideration of the facts before it and taking into account any defenses, counterclaims or set-offs, claims of exemption and claims of adequate insurance, finds that the plaintiff has shown probable cause that such a judgment will be rendered in the matter in the plaintiff's favor in the amount of the prejudgment remedy sought and finds that a prejudgment remedy securing the judgment should be granted, the prejudgment remedy applied for shall be granted as requested or as modified by the court...."

These prejudgment remedy proceedings "are not involved with the adjudication of the merits of the action brought by the plaintiff or with the progress or result of that adjudication. They are only concerned with whether and to what extent the plaintiff is entitled to have property of the defendant held in the custody of the law pending adjudication of the merits of that action." E.J. Hansen Elevator, Inc. v. Stoll, 167 Conn. 623, 629-30, 356 A.2d 893 (1975).

Such prejudgment security can be sought either before or after the underlying action is commenced. If such security is sought...