Connecticut Nat. Bank v. Investors Capital Corp.

• Decision Date: 25 September 1992
• Docket Number: No. 10973,10973
• Citation: 29 Conn.App. 48,613 A.2d 1370
• Court: Connecticut Court of Appeals
• Parties: CONNECTICUT NATIONAL BANK v. INVESTORS CAPITAL CORPORATION et al.

Page 1370

613 A.2d 1370

29 Conn.App. 48

CONNECTICUT NATIONAL BANK v. INVESTORS CAPITAL CORPORATION et al.

No. 10973.

Appellate Court of Connecticut.

Argued June 4, 1992.

Decided Sept. 8, 1992.

Certification Denied Sept. 25, 1992.

Landau, J., concurred in result and filed opinion.

Richard P. Weinstein, West Hartford, for appellants (defendants).

Darrell K. Fennell, New York City, pro hac vice, with whom were Theodore R. Killian, Meriden, and, on the brief, Michael Winger, New York City, for appellee (plaintiff).

Before DALY, LANDAU and FREDERICK A. FREEDMAN, JJ.

FREDERICK A. FREEDMAN, Judge.

The defendants appeal from the judgment of the trial court rendered in favor of the plaintiff for $359,484.84. The defendants claim that the trial court abused its discretion (1) by entering a default against them for their failure to comply with a court order to disclose assets, and (2) by denying their motion to set aside the default. We affirm the judgment of the trial court.

The essential facts pertinent to this appeal are not substantially in dispute. During 1988 and 1989, the plaintiff made three separate $100,000 loans to the defendant Investors Capital Corporation (Investors). The payment of each loan was personally guaranteed, jointly and severally, by the other two defendants, Richard Breault and John Cellino. Each transaction was a "commercial transaction" as defined in General Statutes § 52-278a(a). ¹ As such, the note underlying each loan contained a commercial waiver provision wherein the defendants waived their right to notice and to a hearing on the right of the plaintiff to a prejudgment remedy.

Investors was dissolved in late 1989, an act constituting a default under the terms of the underlying notes. On July 23, 1990, the plaintiff simultaneously filed a complaint for collection of the balance due on the notes and an application for a prejudgment remedy, together with all of the necessary supporting documents. The prejudgment remedy was granted by the trial court, ex parte, on August 1, 1990. The defendants, who had received notice of both the collection action and the prejudgment remedy as well as notice of their statutory rights pursuant to General Statutes § 52-278e(b), ² did not move to dissolve, vacate or modify the prejudgment remedy. On August 9, 1990, the plaintiff filed, pursuant to General Statutes § 52-278n(a), ³ a motion that sought an order requiring the defendants to disclose the existence, location and extent of their assets.

On March 25, 1991, the defendants filed an answer to the plaintiff's complaint and a counterclaim. In their answer, the defendants denied having made a knowing and intelligent waiver of their rights to notice and to a hearing on the plaintiff's prejudgment remedy application. They raised as a special defense that they did not knowingly and intelligently make the commercial waiver contained in the notes, and, in their counterclaim, sought damages for a violation of their constitutional rights by the issuance of the prejudgment remedy.

On August 12, 1991, the trial court conducted a hearing on the plaintiff's motion to compel disclosure of the defendants' assets. The defendants did not appear at this hearing. The trial court granted the plaintiff's motion and ordered the defendants to comply by August 19, 1991. When the defendants failed to comply, the plaintiff, on August 23, 1991, filed another motion to compel disclosure of assets and requested that if the defendants failed to comply with the court's order within a specified period of time, the court should enter a default against the defendants on the plaintiff's complaint and on the defendants' special defense, and nonsuit the defendants on their counterclaim. On September 23, 1991, the trial court conducted a hearing on that motion. The defendants again failed to appear. The court granted the plaintiff's motion and ordered that the defendants be defaulted and nonsuited, but that the order would be vacated if they complied with the disclosure order by the end of the business day on September 26, 1991. The defendants did not comply.

On October 3, 1991, the defendants finally took action with respect to the prejudgment remedy and the orders compelling disclosure of assets. On that date, the defendants filed, for the first time, a motion to dissolve the prejudgment remedy and a "motion to reargue the order disclosing assets." Nothing was mentioned in the motion to reargue concerning the orders of default and nonsuit. On October 10, 1991, the defendants filed a motion for articulation in which they sought a clarification regarding the effective date of the September 23, 1991 order of default and nonsuit. All of the defendants' motions were heard by the trial court on October 21, 1991. The trial court made it clear that the default and nonsuit were effective as of September 23, 1991, subject to being vacated if the defendants complied by September 26, 1991, and denied the motion to dissolve and the motion to reargue.

On October 24, 1991, the defendants filed a motion to open the default and nonsuit that was entered by the trial court on September 23, 1991. ⁴ The defendants argued that the trial court had improperly ordered the disclosure of assets prior to a finding of probable cause on the plaintiff's prejudgment remedy and without providing the defendants with an opportunity to contest the validity of the commercial waiver, and then defaulted and nonsuited the defendants on the basis of their failure to comply with the disclosure order. On November 12, 1991, after a hearing at which the plaintiff and the defendants were present, the trial court denied the motion to set aside. On December 2, 1991, the defendants filed a notice of intent to appeal the trial court's denial of their motion to set aside the default. ⁵ After a hearing in damages, the trial court, on December 10, 1991 entered judgment in favor of the plaintiff against Investors Breault and Cellino for $359,484.84.

In this appeal, the defendants argue that the default entered against them for failing to disclose assets violated their constitutional due process rights because it was based on an ex parte finding of probable cause in a commercial waiver transaction in which the defendants had no meaningful opportunity to be heard. They argue that the trial court abused its discretion in entering the default and by denying their motion to set aside the default.

As a preliminary matter, we note that on October 3, 1991, the defendants filed a motion to dissolve the prejudgment remedy, a motion the statutory authority for which is derived from General Statutes § 52-278e. General Statutes § 52-278l provides that appeals from an order denying a motion to dissolve under § 52-278e must be taken within seven days of the rendering of the order. ⁶ Because the defendants failed to appeal the denial of their motion to dissolve within seven days, we are precluded from addressing the merits of the trial court's action. We concern ourselves with only the entry of the default and the refusal of the trial court to set it aside.

Practice Book § 230A and General Statutes § 52-278n permit the trial court to compel a defendant "to disclose property in which he has an interest or debts owing to him sufficient to satisfy a prejudgment remedy." Practice Book § 231 provides the means by which the trial court may enforce its disclosure orders. Specifically, it provides: "If any party has ... failed to comply with a discovery order made pursuant to Sec. 230A ... the court may, on motion, make such order as the ends of justice require. Such orders may include the following: (a) The entry of a nonsuit or default against the party failing to comply...."

The entry of sanctions pursuant to Practice Book § 231 rests within the sound discretion of the trial court. Rullo v. General Motors Corporation, 208 Conn. 74, 78, 543 A.2d 279 (1988); Zaleski v. Zaleski, 21 Conn.App. 185, 189, 572 A.2d 76 (1990). "In reviewing a claim that this discretion has been abused the unquestioned rule is that great weight is due to the action of the trial court and every reasonable presumption should be given in favor of its correctness.... [T]he ultimate issue is whether the court could reasonably conclude as it did." (Citations omitted; internal quotation marks omitted.) Rullo v. General Motors Corporation, supra, 208 Conn. at 78-79, 543 A.2d 279. With respect to the plaintiff's uncontested motions, the trial court twice ordered the defendants to disclose assets sufficient to satisfy the plaintiff's prejudgment remedy, which itself had never been challenged by the defendants at the time of the orders compelling disclosure. The defendants failed to comply with both disclosure orders. The trial court, therefore, did not abuse its discretion in entering a default against the defendants.

The defendants argue, however, that the trial court had no authority to compel disclosure because the trial court never made a finding of probable cause, a necessary prerequisite to an order compelling disclosure under General Statutes § 52-278n and Practice Book § 230A, ⁷ and because they were denied an opportunity to be heard on the validity of the commercial waiver. The defendants' argument is misplaced. First, the record clearly indicates that on August 1, 1990, the trial court, Fracasse, J., entered an order granting the plaintiff's application for a prejudgment remedy. That order specifically provided: "[I]t is found that there is probable cause to sustain the validity of the plaintiff's claim and the application for garnishment and attachment should be granted ex parte because of the commercial waivers of prejudgment remedies referred to above."

Second, the defendants attempt to mount a much belated constitutional challenge to the issuance of the underlying prejudgment remedy. Contrary to their claim, they were not denied an opportunity to challenge the validity of the commercial waiver or the...