Master-Halco, Inc. v. Scillia Dowling & Natarelli, LLC, No. 3:09cv1546(MRK)

CourtUnited States District Courts. 2nd Circuit. United States District Court (Connecticut)
Writing for the CourtMARK R. KRAVITZ
Citation739 F.Supp.2d 109
PartiesMASTER-HALCO, INC., Plaintiff, v. SCILLIA, DOWLING & NATARELLI, LLC, et al., Defendants.
Decision Date03 May 2010
Docket NumberNo. 3:09cv1546(MRK)
739 F.Supp.2d 109

MASTER-HALCO, INC., Plaintiff,
v.
SCILLIA, DOWLING & NATARELLI, LLC, et al., Defendants.


No. 3:09cv1546(MRK).

United States District Court,
D. Connecticut.


May 3, 2010.

739 F.Supp.2d 111

Brian D. Rich, Ernesto Antonio Castillo, George D. Royster, Jr., Michael F. MacDonald, Halloran & Sage, Hartford, CT, for Plaintiff.

Kenneth Rosenthal, Rowena Amanda Moffett, Brenner, Saltzman & Wallman, New Haven, CT, for Defendants.

US Trustee, New Haven, CT, pro se.

MEMORANDUM OF DECISION

MARK R. KRAVITZ, District Judge.

Plaintiff Master-Halco, Inc. ("Master-Halco") sued four Defendants—Scillia, Dowling & Natarelli, LLC, an accounting firm; two of the firm's certified public accountants, Joseph Natarelli and Robert Mercado; and its parent company, UHY, LLC—alleging fraudulent misrepresentation, aiding and abetting fraud, and civil

739 F.Supp.2d 112
conspiracy to commit fraud. See Compl. [doc. # 15]. This decision relates to two issues that arose in the course of the Court's preparation of the jury charge—namely, the appropriate burden of proof that Master-Halco must satisfy in establishing its common-law claims of civil conspiracy to commit fraud (Count One) and aiding and abetting fraud (Count Two).1

While conceding that all but one element of fraud must be proven by the heightened clear-and-convincing-evidence standard, Master-Halco has argued that under Connecticut common law, the additional elements necessary to prove civil conspiracy and aiding and abetting liability need be proven only by a preponderance of the evidence. See generally Pl.'s Obj. to Verdict Form and Jury Instructions [doc. # 48]. Defendants, meanwhile, have asserted that all of the additional elements must also be proven by clear and convincing evidence. See Defs.' Obj. to Draft Jury Instructions and Verdict Form [doc. # 150] at 6-7.

After considering the parties' arguments, and conscious of the caution that this Court must exercise in interpreting the common law of the State of Connecticut, the Court concludes that the appropriate burden of proof to be applied to the unique elements of civil conspiracy to commit common-law fraud and aiding and abetting common-law fraud, like the standard applied to most of the elements of the underlying fraud itself, is clear and convincing evidence. The reasoning for this conclusion is explained below.

I.

While the Court has explained the factual background and procedural history of this case numerous times in ruling on various pretrial evidentiary matters, it will do so once more. Plaintiff Master-Halco is a manufacturer of fencing materials, which it sells throughout the country. One of its biggest customers—particularly in New England—was for a number of years (and is once more) Atlas Fence and its subsidiaries (referred to collectively as "Atlas"). Atlas is a Connecticut company that at all times relevant to this case was owned and operated by Michael Picard.2 For portions of 2002 and 2003, Atlas was also a client of the accounting firm, Scillia, Dowling & Natarelli, LLC.

The gravamen of Master-Halco's lawsuit was that in late 2002 or early 2003, the Defendants created an intentionally-misleading and fraudulent financial statement for Atlas for the express purpose of inducing Master-Halco into delaying taking any action to collect on the approximately $600,000 debt it was owed by Atlas. Master-Halco claims that by the time it realized the precarious financial state that Atlas was actually in, Mr. Picard—with the

739 F.Supp.2d 113
Defendants' assistance—had successfully hidden and/or otherwise disposed of the company's and Mr. Picard's assets, such that there was nothing left for Master-Halco to attach for satisfaction of its debt. Master-Halco sought to hold Defendants responsible for their alleged wrongdoing, on the theory that:
Master-Halco relied on the financial statement prepared by [Defendants] to ship goods [to Atlas]. If [Master-Halco] had known the truth, however, [it] would not have been likely to continue shipping goods and would have moved to bring [its] debt to judgment or sought a prejudgment remedy against Picard and Atlas at an earlier point in time, and/or would have otherwise moved to protect [its] debt, and it is likely that an attachment could have been made at a time before Picard had a chance to make his assets disappear.
Compl. [doc. # 15] ¶ 24.

While Master-Halco did not name either Atlas or Mr. Picard as a defendant in this action, it did bring lawsuits against both in 2004,3 which, after being referred to the bankruptcy court, were settled sometime in 2008. In addition to seeking compensation for that part of the Atlas debt it was never paid, Master-Halco also seeks to recover in this lawsuit the attorneys' fees it expended while unsuccessfully litigating the lawsuits against Atlas, Mr. Picard, and numerous other individuals it has alleged were involved in Mr. Picard's fraudulent schemes.4 See Restatement (Second) Torts § 914 (explaining that although "damages in a tort action do not ordinarily include compensation for attorney fees or other expenses of the litigation," "[o]ne who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover reasonable compensation for loss of time, attorney fees and other expenditures thereby suffered or incurred in the earlier action"). The total of these attorneys' fees exceeds $2 million.

As mentioned, Count One of Master-Halco's Complaint alleges that the Defendants engaged in a civil conspiracy with Mr. Picard to commit a fraud against Master-Halco, while Count Two alleges that the Defendants aided and abetted Mr. Picard in his defrauding of Master-Halco. See Compl. [doc. # 15]. The Complaint contains a third count of fraudulent misrepresentation, but it is unaffected by this decision.

II.

The Court has had occasion to explain the elements of common-law civil conspiracy once already in this case. See Order dated Apr. 8, 2010, 739 F.Supp.2d 104, 2010 WL 3054428 (D.Conn.2010), [doc. # 125]. As explained there, under Connecticut law, civil conspiracy is not an independent cause of action. "Rather, the action is for damages caused by acts committed pursuant to a formed conspiracy rather than by the conspiracy itself.... Thus, to state a cause of action, a claim of civil conspiracy must be joined with an allegation of a substantive tort." Macomber v. Travelers Prop. & Casualty Corp., 277 Conn. 617, 636, 894 A.2d 240 (2006) (emphasis and alteration in original, citation

739 F.Supp.2d 114
omitted). To succeed on a claim of civil conspiracy, a plaintiff must prove the following elements:
(1) a combination between two or more persons, (2) to do a criminal or an unlawful act or a lawful act by criminal or unlawful means, (3) an act done by one or more of the conspirators pursuant to the scheme and in furtherance of the object, (4) which act results in damage to the plaintiff.
Id. at 635-36, 894 A.2d 240 (citation omitted).

The purpose of a civil conspiracy claim is to impose liability on all those who agreed to join the conspiracy. By joining, the members become legally responsible for the tortious acts taken in furtherance of the object of the conspiracy, including actions taken by co-conspirators. See id. at 636, 894 A.2d 240; see also Noll v. Hartford Roman Catholic Diocesan Corp., No. X04CV024000582S, 2005 WL 2130212, at *2 (Conn.Super.Ct. July 29, 2005) ("[T]he benefit of ... civil conspiracy to a plaintiff is not that it creates liability where otherwise none might exist, but rather it expands the universe of those potentially liable for the harm."). To say that individuals "join" a conspiracy, thereby exposing them to liability, is to say that they agree to participate, in some manner, in the object of the conspiracy. See Macomber, 277 Conn. at 636, 894 A.2d 240. As explained by the Connecticut Supreme Court, implicit in the purpose of imposing civil conspiracy liability, as well as in the requirement that a plaintiff prove an underlying tort, "is the notion that the co-conspirator be liable for the damages flowing from the underlying tortious conduct to which the co-conspirator agreed." Id.

Here, the tort on which Master-Halco has based its claim of civil conspiracy is the alleged fraud of Mr. Picard. Thus, to succeed on its civil conspiracy claim, Master-Halco must necessarily prove that Mr. Picard did indeed commit fraud. The law regarding common-law fraud is well established in Connecticut:

Fraud consists in deception practiced in order to induce another to part with property or surrender some legal right, and which accomplishes the end designed.... The elements of a fraud action are: (1) a false representation was made as a statement of fact; (2) the statement was untrue and known to be so by its maker; (3) the statement was made with the intent of inducing reliance thereon; and (4) the other party relied on the statement to his detriment....
Weinstein v. Weinstein, 275 Conn. 671, 685, 882 A.2d 53 (2005) (alterations in original, citation omitted). "It is well established that common law fraud must be proven by a higher standard than a fair preponderance of the evidence," typically referred to as clear and convincing evidence. Kilduff v. Adams, Inc., 219 Conn. 314, 328, 593 A.2d 478 (1991). The one exception is that, in an action for fraud, the plaintiff need only prove damages by the preponderance of the evidence. See id. at 330, 593 A.2d 478 ("[T]he trial court properly instructed the jury that the plaintiffs were required to prove their damages by a preponderance of the evidence and to prove all the other elements of fraud by clear and satisfactory evidence.").

While it has long been established that fraud must be proven by clear and convincing evidence—and no party disputes that proposition—the Court has been unable to locate a single Connecticut Supreme Court case that has addressed squarely the burden of proof applicable to...

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24 practice notes
  • O'Neil v. New Eng. Rd., Inc. (In re Neri Bros. Constr. Corp.), Case No.: 95-20169 (AMN)
    • United States
    • United States Bankruptcy Courts. Second Circuit
    • September 27, 2018
    ...222 (aiding and abetting a breach of fiduciary duty is a derivative claim); Master-Halco, Inc. v. Scillia Dowling & Natarelli, LLC, 739 F.Supp.2d 109, 117 (D. Conn. 2010) (civil conspiracy premised on fraud must, like fraud, be proven by clear and convincing evidence). The direct claim here......
  • Tarpon Bay Partners LLC v. Zerez Holdings Corp., No. 3:17-cv-579 (SRU)
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Connecticut)
    • July 7, 2021
    ...must prove an underlying tort that defendants allegedly facilitated." Master-Halco, Inc. v. Scillia Dowling & Natarelli, LLC , 739 F. Supp. 2d 109, 121 (D. Conn. 2010) ; see also Williams v. Cmty. Sols., Inc. , 932 F. Supp. 2d 323, 333 n.6 (D. Conn. 2013) ("[F]or tort liability to be based ......
  • Williams v. Cmty. Solutions, Inc., Civil No. 3:10cv01553(AWT).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Connecticut)
    • March 25, 2013
    ...(quoting Halberstam v. Welch, 705 F.2d 472, 477 (D.C.Cir.1983)); see also Master–Halco, Inc. v. Scillia, Dowling & Natarelli, LLC, 739 F.Supp.2d 109, 121 (D.Conn.2010) (“what must be proven for aider-abettor liability is that the individual gave substantial assistance to the tortfeasor in c......
  • Baltas v. Dones, 3:22-CV-38 (MPS)
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Connecticut)
    • April 27, 2022
    ...may also be liable for aiding and abetting with an assault and battery. See Master-Halco, Inc. v. Scillia, Dowling & Natarelli, LLC, 739 F.Supp.2d 109, 121 (D. Conn. 2010) (“what must be proven for aiderabettor liability is that the individual gave substantial assistance to the tortfeasor i......
  • Request a trial to view additional results
25 cases
  • O'Neil v. New Eng. Rd., Inc. (In re Neri Bros. Constr. Corp.), Case No.: 95-20169 (AMN)
    • United States
    • United States Bankruptcy Courts. Second Circuit
    • September 27, 2018
    ...222 (aiding and abetting a breach of fiduciary duty is a derivative claim); Master-Halco, Inc. v. Scillia Dowling & Natarelli, LLC, 739 F.Supp.2d 109, 117 (D. Conn. 2010) (civil conspiracy premised on fraud must, like fraud, be proven by clear and convincing evidence). The direct claim here......
  • Tarpon Bay Partners LLC v. Zerez Holdings Corp., No. 3:17-cv-579 (SRU)
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Connecticut)
    • July 7, 2021
    ...must prove an underlying tort that defendants allegedly facilitated." Master-Halco, Inc. v. Scillia Dowling & Natarelli, LLC , 739 F. Supp. 2d 109, 121 (D. Conn. 2010) ; see also Williams v. Cmty. Sols., Inc. , 932 F. Supp. 2d 323, 333 n.6 (D. Conn. 2013) ("[F]or tort liability to be based ......
  • Williams v. Cmty. Solutions, Inc., Civil No. 3:10cv01553(AWT).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Connecticut)
    • March 25, 2013
    ...(quoting Halberstam v. Welch, 705 F.2d 472, 477 (D.C.Cir.1983)); see also Master–Halco, Inc. v. Scillia, Dowling & Natarelli, LLC, 739 F.Supp.2d 109, 121 (D.Conn.2010) (“what must be proven for aider-abettor liability is that the individual gave substantial assistance to the tortfeasor in c......
  • Baltas v. Dones, 3:22-CV-38 (MPS)
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Connecticut)
    • April 27, 2022
    ...may also be liable for aiding and abetting with an assault and battery. See Master-Halco, Inc. v. Scillia, Dowling & Natarelli, LLC, 739 F.Supp.2d 109, 121 (D. Conn. 2010) (“what must be proven for aiderabettor liability is that the individual gave substantial assistance to the tortfeasor i......
  • Request a trial to view additional results

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