Connecticut Nat. Bank v. Giacomi, 15539

CourtSupreme Court of Connecticut
Writing for the CourtBORDEN; On remand, the trial court, Blue; BERDON
Citation699 A.2d 101,242 Conn. 17
Parties, Blue Sky L. Rep. P 74,157 CONNECTICUT NATIONAL BANK, v. Robert A. GIACOMI. CONNECTICUT NATIONAL BANK, v. Joseph J. SANTOPIETRO. CONNECTICUT NATIONAL BANK, v. Joseph A. SANTORO et al. CONNECTICUT NATIONAL BANK, v. Jack R. GIACOMI. CONNECTICUT NATIONAL BANK, v. John J. DePASTINO et al. CONNECTICUT NATIONAL BANK, v. Robert R. ROSA.
Docket NumberNo. 15539,15539
Decision Date22 July 1997

Page 101

699 A.2d 101
242 Conn. 17, Blue Sky L. Rep. P 74,157
CONNECTICUT NATIONAL BANK,
v.
Robert A. GIACOMI.
CONNECTICUT NATIONAL BANK,
v.
Joseph J. SANTOPIETRO.
CONNECTICUT NATIONAL BANK,
v.
Joseph A. SANTORO et al.
CONNECTICUT NATIONAL BANK,
v.
Jack R. GIACOMI.
CONNECTICUT NATIONAL BANK,
v.
John J. DePASTINO et al.
CONNECTICUT NATIONAL BANK,
v.
Robert R. ROSA.
No. 15539.
Supreme Court of Connecticut.
Argued Jan. 14, 1997.
Decided July 22, 1997.

Page 106

Darrell K. Fennell, with whom, on the brief, were Michael Winger and Philip M. Chiappone, New York City, for appellant (plaintiff).

James E. Hartley, Jr., Waterbury, for appellees (defendant Robert A. Giacomi et al.).

Richard P. Weinstein, with whom, on the brief, were Peter B. Rustin and Nathan A. Schatz, West Hartford, for appellees (defendant John J. DePastino et al.).

Eileen McGann, Hartford, filed a brief for appellee (defendant Joseph J. Santopietro).

Before BORDEN, BERDON, NORCOTT, KATZ and MENT, JJ.

[242 Conn. 20] BORDEN, Associate Justice.

The primary issue in this appeal is whether, for the purposes of General Statutes (Rev. to 1993) § 36-498(c) of the Connecticut Uniform Securities Act (CUSA), 1 a bank can be the agent of a person who is liable for fraudulent conduct in connection with a securities transaction under § 36-498(a). 2 The plaintiff, [242 Conn. 21] Connecticut National Bank, 3 brought separate actions, as payee, against the defendants, 4 as makers of promissory notes that were payable on demand. All of the defendants, except for Valerie DePastino, 5 were among the group of investors in the now defunct Great Rings Limited Partnership (Great Rings). Although the defendants who had invested in Great Rings do not deny that they had executed the notes or that

Page 107

demand had properly been made, they raised, inter alia, the special defense under § 36-498(g) 6 that the promissory notes are unenforceable as contracts in violation of CUSA. Valerie S. DePastino claimed 7 that she was discharged from the obligation on the note because the note was void for want of consideration, and because the note was an incomplete instrument that subsequently had been completed in an unauthorized manner in violation of General Statutes (Rev. to 1991) §§ 42a-3-115 and 42a-3-407 8 of the Uniform Commercial Code (UCC).

[242 Conn. 22] After a consolidated court trial, the trial court, Blue, J., concluded that the aiding and abetting of another person's securities fraud forms an independent basis for the imposition of liability under CUSA. Applying that rationale, the trial court found that the plaintiff had aided and abetted Great Rings' fraudulent conduct in connection with the defendants' purchase of securities from Great Rings, and consequently determined that the plaintiff's conduct was an affirmative defense to the defendants' liability on the notes under § 36-498(g). 9 The plaintiff appealed. In Connecticut National Bank v. Giacomi, 233 Conn. 304, 339, 659 A.2d 1166 (1995), we reversed the judgments of the trial court, concluding that "a person who aids and abets another person's fraudulent conduct in connection with a securities[242 Conn. 23] transaction has not violated [General Statutes (Rev. to 1993) ] § 36-472." Because the trial court's factual findings were not sufficient for us to conclude, as a matter of law, that the plaintiff's conduct constituted a violation of § 36-498; id.; we remanded the case to the trial court "to consider the defendants' argument that § 36-498(a) and (c) provide for a form of aider and abettor liability and to decide the merits of the defendants' other special defenses." 10 Id.

Page 108

On remand, the trial court, Blue, J., received briefs from the parties and, after holding a hearing, issued a second memorandum of decision. 11 In part III of its second memorandum of decision, the court stated its decision in the case. The court also made alternate findings of fact and conclusions of law, however, in part IV of its second memorandum of decision. The alternate analyses were discussed in the interests of judicial economy in the event that a reviewing court disagreed with the trial court's conclusions in part III. We discuss the trial court's decision and alternate conclusions in detail.

As was the case in the trial court's first decision, the court concluded in its second decision that § 36-498(g) [242 Conn. 24] provided an affirmative defense to the defendants if the plaintiff had violated a provision of CUSA. In its second decision, however, the court concluded that the plaintiff had made its contracts in violation of § 36-498(c) as an agent of Great Rings " 'who materially [aided] in the act or transaction constituting the violation.' " After concluding that the plaintiff was an agent of Great Rings, the court analyzed which transactions in violation of CUSA the plaintiff had materially aided. The court concluded that the plaintiff had materially aided in a violation of General Statutes (Rev. to 1993) § 36-485, a registration provision in CUSA, which is incorporated into § 36-498(a)(1). As the last element in this analysis, the court found that the plaintiff had not sustained its burden of proof under § 36-498(c) that " '[it] did not know, and in [the] exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist.' " On the basis of its findings, the court concluded that all of the defendants had an affirmative defense pursuant to § 36-498(g) because the plaintiff had made its contracts in violation of a provision in CUSA. 12

In part IV of its second memorandum of decision, the trial court made additional findings of fact and alternate conclusions of law. The trial court concluded that if a reviewing court were to decide either that there had not been a violation of § 36-498(a)(1), or that the plaintiff had not materially aided in such a violation, some of the defendants would nonetheless have an affirmative defense under its alternate conclusion, in which the court also relied on its determinations that § 36-498(g) provided an affirmative defense for the [242 Conn. 25] defendants and that the plaintiff was the agent of Great Rings. Following this alternate course, the court, however, concluded that the plaintiff had materially aided Great Rings in offering or selling a security by means of an untrue statement of a material fact or by the omission of a material fact in violation of § 36-498(a)(2). See footnote 2. Because one element of a § 36-498(a)(2) violation requires a finding concerning the buyer's state of mind as to the untruth or omission complained of, the trial court made additional findings of fact relevant to this element. Ultimately, it found that Robert Giacomi, Jack Giacomi, Joseph and Hope Santoro and Robert Rosa had sustained their separate burdens of proof that they "did not know, and in the exercise of reasonable care, could not have known of the untruths and omissions" when they purchased their interests in Great Rings. 13 At

Page 109

the last point in this analysis, the court found that the plaintiff had not sustained its burden of proof that " '[it] did not know, and in [the] exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist.' " At this point in its alternate conclusion, the court determined that the plaintiff "[was] barred by § 36-498(g) from pursuing its causes of action against Robert Giacomi, Jack Giacomi, Joseph Santoro, Hope Santoro, and Robert Rosa."

The trial court, however, continued along this alternate course by analyzing the remaining affirmative defenses presented by Santopietro and John and Valerie DePastino, who had failed to sustain their burdens of proof under a § 36-498(a)(2) violation. With respect to Santopietro and John DePastino, the court concluded that they had failed to establish any of the special defenses that they had asserted. 14

[242 Conn. 26] With respect to Valerie DePastino, however, the trial court concluded that she had a defense on the note pursuant to §§ 42a-3-115 and 42a-3-407. The court first determined that her note was an incomplete instrument that had been completed in an unauthorized manner in violation of § 42a-3-115. Then, pursuant to § 42a-3-407, the court determined that the alteration to the note was material and that the plaintiff was not a holder in due course. The court, however, could not find "from the evidence that the holder--i.e., [the plaintiff]--knew that the alteration here was unauthorized." The court concluded, therefore, that the instrument was to be enforced according to the authority given under § 42a-3-407(2)(b), but that because Valerie DePastino had not authorized any payment, the note could not be enforced. Because the court had already concluded that the plaintiff was not a holder in due course, the court rejected the plaintiff's argument that Valerie DePastino was negligent in signing the note, and that therefore the plaintiff, as a holder in due course, took free from her claim of unauthorized completion.

The plaintiff appealed from this second judgment of the trial court to the Appellate Court, and we transferred the appeal to this court pursuant to Practice Book § 4023 and

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General Statutes § 51-199(c). We affirm the judgment of the trial court with respect to Robert Giacomi, Jack Giacomi, Joseph and Hope Santoro, Robert Rosa and Valerie DePastino. With respect to Santopietro and John DePastino, we reverse the judgment of the trial court and remand the cases with direction to render judgment in favor of the plaintiff.

The relevant facts are as follows. 15 Great Rings was a real estate investment enterprise formed in 1988 under a certificate of limited partnership. In order to raise money to finance the Great Rings development, Kenneth Zak, a salesman for Great Rings, and the general partners planned that potential investors would...

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124 practice notes
  • In re Enron Corp. Securities, Derivative, MDL No. 1446.
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
    • February 16, 2005
    ...429 A.2d 855, 859 (1980), overruled on other grounds, Ely v. Murphy, 207 Conn. 88, 540 A.2d 54 (1988); Conn. National Bank v. Giacomi, 242 Conn. 17, 63, 699 A.2d 101, 126 (1997). See also Feen v. Benefit Plan Administrators, Inc., No. 406726, 2000 WL 1398898, *9 (Conn.Super. Sept. 7, 2000)(......
  • Im Partners v. Debit Direct Ltd., No. Civ.A. 304CV1651JCH.
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Connecticut)
    • September 29, 2005
    ...untruth or omission." Lehn v. Dailey, 77 Conn.App. 621, 630-31, 825 A.2d 140 (Conn.App.2003) (citing Connecticut National Bank v. Giacomi, 242 Conn. 17, 46, 699 A.2d 101 The plaintiffs allege that the defendants violated this provision through their conspiracy to divert funds, their materia......
  • Middlebury v. Dept. of Env. Protection, No. 17332.
    • United States
    • Supreme Court of Connecticut
    • July 17, 2007
    ...we afford substantial weight to her characterization of its objective and effect"); see also Connecticut National Bank v. Giacomi, 242 Conn. 17, 40-41, 699 A.2d 101 (1997) (Court afforded substantial weight to a legislator's unequivocal remark that the purpose of a statutory amendment was "......
  • CCT Commc'ns, Inc. v. Zone Telecom, Inc., SC 19574
    • United States
    • Supreme Court of Connecticut
    • November 21, 2017
    ...by evidence in the record, are not to be disturbed on appeal. See Practice Book § 60–5 ; see also Connecticut National Bank v. Giacomi, 242 Conn. 17, 70, 699 A.2d 101 (1997).In the present case, the trial court's findings of fact arguably would support the conclusions that (1) the plaintiff......
  • Request a trial to view additional results
124 cases
  • In re Enron Corp. Securities, Derivative, MDL No. 1446.
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
    • February 16, 2005
    ...429 A.2d 855, 859 (1980), overruled on other grounds, Ely v. Murphy, 207 Conn. 88, 540 A.2d 54 (1988); Conn. National Bank v. Giacomi, 242 Conn. 17, 63, 699 A.2d 101, 126 (1997). See also Feen v. Benefit Plan Administrators, Inc., No. 406726, 2000 WL 1398898, *9 (Conn.Super. Sept. 7, 2000)(......
  • Im Partners v. Debit Direct Ltd., No. Civ.A. 304CV1651JCH.
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Connecticut)
    • September 29, 2005
    ...untruth or omission." Lehn v. Dailey, 77 Conn.App. 621, 630-31, 825 A.2d 140 (Conn.App.2003) (citing Connecticut National Bank v. Giacomi, 242 Conn. 17, 46, 699 A.2d 101 The plaintiffs allege that the defendants violated this provision through their conspiracy to divert funds, their materia......
  • Middlebury v. Dept. of Env. Protection, No. 17332.
    • United States
    • Supreme Court of Connecticut
    • July 17, 2007
    ...we afford substantial weight to her characterization of its objective and effect"); see also Connecticut National Bank v. Giacomi, 242 Conn. 17, 40-41, 699 A.2d 101 (1997) (Court afforded substantial weight to a legislator's unequivocal remark that the purpose of a statutory amendment was "......
  • CCT Commc'ns, Inc. v. Zone Telecom, Inc., SC 19574
    • United States
    • Supreme Court of Connecticut
    • November 21, 2017
    ...by evidence in the record, are not to be disturbed on appeal. See Practice Book § 60–5 ; see also Connecticut National Bank v. Giacomi, 242 Conn. 17, 70, 699 A.2d 101 (1997).In the present case, the trial court's findings of fact arguably would support the conclusions that (1) the plaintiff......
  • Request a trial to view additional results

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