Metcoff v. NCT Grp., Inc., No. X06–CV–040184701–S.

• Decision Date: 17 February 2012
• Docket Number: No. X06–CV–040184701–S.
• Citation: 52 Conn.Supp. 363,50 A.3d 1004
• Court: Connecticut Superior Court
• Parties: Jerrold M. METCOFF et al. v. NCT GROUP, INC., et al.

52 Conn.Supp. 363

50 A.3d 1004

Jerrold M. METCOFF et al.

v.NCT GROUP, INC., et al.^*

No. X06–CV–040184701–S.

Superior Court of Connecticut.

Feb. 17, 2012.

Michael P. Berman and Suzanne LaPlante, Hartford, for the plaintiffs.

Edward T. Krumeich, Greenwich, for the defendant Michael J. Parrella, Sr.

STEVENS, J.

STATEMENT OF THE CASE

I

This case was tried to a jury on the second substitute complaint (# 240) filed by the plaintiffs, Jerrold M. Metcoff and David B. Wilson, against the defendant Michael J. Parrella, Sr., and the corporate defendants NCT Group, Inc., Midcore Software, Inc., and Artera Group, Inc. The corporate defendants were defaulted for failure to appear, and the trial proceeded against them as a hearing in damages. The other defendants named in the complaint are Carole Salkind and Morton Salkind. The trial did not proceed against the Salkinds because they filed bankruptcy and the trial proceedings against them were stayed by operation of federal law.¹

The plaintiffs were the principals of a company called Midcore Software Inc. This company developed and marketed certain computer software called Midpoint. On August 29, 2000, the plaintiffs executed a merger agreement for Midcore to be acquired by NCT Group. Parrella was the chief executive officer of NCT Group, and he negotiated the contract on behalf of NCT Group. After the merger, Midcore would become NCT Midcore. Under the terms of the contract, the plaintiffs were entitled to receive NCT Group stock and certain royalties generated from the sale of Midcore products. The gravamen of the plaintiffs' complaint is that they did not receive the stock or royalties promised to them under the agreement and that Parrella made false representations to them as part of the merger transaction.

As addressed further below, the jury's verdict in favor of the plaintiffs included a finding that Parrella made intentional misrepresentations and violated the Connecticut Unfair Trade Practices Act, General Statutes § 42–110g (CUTPA). Based on this finding against Parrella and the default against the corporate defendants, the plaintiffs' claims for attorney fees, costs and punitive damages under CUTPA and for punitive damages under common law are pending before the court.² On July 21, 2010, August 3, 2010, and August 6, 2010, supplementary hearings were held before the court on these claims. Subsequently, the plaintiffs and Parrella filed memoranda in accordance with the briefing schedule issued by the court.

II

The complaint presents a complex litany of claims asserted against the defendants in twenty-six counts. The claims against Parrella were asserted in eight counts.³ In counts ten and eleven, the complaint alleges that Parrella, NCT Group and NCT Midcore made negligent and intentional misrepresentations about the availability of NCT Group stock and about NCT Group's ability to issue the stock to the plaintiffs as required under the agreement. The jury found in favor of the plaintiffs on the negligent misrepresentation claim (count ten) and awarded $559,982 to Metcoff and $496,318 to Wilson. The jury found against the plaintiffs on the intentional misrepresentation claim (count eleven).⁴

In counts twelve and thirteen, the complaint alleges that Parrella, NCT Group and NCT Midcore made negligent and intentional misrepresentations that after the merger, NCT Midcore would operate in the same manner as Midcore Software and would continue the business of Midcore Software. The jury found against the plaintiffs on the negligent misrepresentation claim (count twelve) as asserted against Parrella.⁵ The jury found in favor of the plaintiffs on the intentional misrepresentation claim (count thirteen) and awarded $113,855 to Metcoff and $143,434 to Wilson.

Count fifteen is against Artera and Parrella acting in his capacity as the chief executive officer and chairman of Artera. The count alleges that Artera and Parrella tortiously interfered with the plaintiffs' right to receive royalties under the merger agreement. Count seventeen is also against Artera and Parrella acting in his capacity as the chief executive officer and chairman of Artera This count alleges that these defendants conspired with NCT Group and NCT Midcore to defraud them from receiving the royalties that they were entitled to under the merger agreement. The jury found against the plaintiffs on these claims alleging tortious interference and conspiracy.⁶

Count twenty-four is the last count against Parrella considered by the jury. This count alleges that Parrella, NCT Group, NCT Midcore and Artera violated CUTPA on the basis of the claims of intentional misrepresentations, tortious interference and conspiracy to defraud as asserted in the complaint. The jury found in favor of the plaintiffs and against Parrella on this count, awarding Metcoff $113,855 and awarding Wilson $143,434. The interrogatories contained in the verdict form indicate that the CUTPA finding against Parrella was based solely on the jury's finding that he made intentional misrepresentationsconcerning the continuation of the plaintiffs' business after the merger.

III

The complaint asserts twelve counts solely against NCT Group or NCT Midcore, and eight of these counts were presented to the jury.⁷ The first count is against NCT Group and alleges that NCT Group breached the merger agreement by failing to deliver NCT Group stock to the plaintiffs. On this count, the jury awarded Metcoff $559,982, plus $315,609 interest; and awarded Wilson $496,318, plus $283,704 interest.

Count two is against NCT Group and NCT Midcore for breach of contract and alleges that they failed to pay royalties to the plaintiffs from sales generated by NCT Midcore as required by the merger agreement. The jury awarded “0 dollars damages” on this count, and as a result, the court will award $1 nominal damages. See Ratner v. Willametz, 9 Conn.App. 565, 579, 520 A.2d 621 (1987) (“an entry of default against a defendant in a legal action ... entitles the plaintiff to at least nominal damages”).

Count three is against NCT Group and alleges that as part of their compensation under the terms of the merger agreement, the plaintiffs could elect to receive additional shares of NCT Group stock in lieu of certain royalties guaranteed to them. In count three, the plaintiffs allege that they made this election, but NCT Group breached the merger agreement by failing to deliver the required shares to them. On this count, the jury awarded Metcoff $113,855, plus $64,169 interest; and awarded Wilson $143,434, plus $81,989 interest.

Counts six and nine are against NCT Group and NCT Midcore for breach of contract and allege that the merger agreement made warranties or representations that a sufficient number of shares of NCT Group common stock were available to satisfy the defendants' obligations under the agreement and that no further shareholder action was necessary in order to issue the required stock to the plaintiffs. According to the allegations of count six, NCT Group and NCT Midcore breached the agreement because, when the merger agreement was executed, the “number of shares of NCT Group common stock required to be issued or available [to be issued] exceeded the number of shares authorized.” Complaint, Count Six, ¶ 40. According to the allegations of count nine, when the time arrived for the plaintiffs to receive additional shares as required under the merger agreement, they were informed by NCT Group that it “could not issue to either or both of them the requisite number [of shares]” as required by the agreement. Complaint, Count Nine, ¶ 46. Under counts six and nine, the jury awarded Metcoff $559,982, plus $315,609 interest; and awarded Wilson $496,318, plus $283,704 interest.

Count eight alleges that the merger agreement warranted or represented that after the merger, NCT Midcore “would operate in the same manner as Midcore Software and would continue the business of Midcore Software.” Count eight claims that NCT Group and NCT Midcore discontinuedthe business of Midcore Software in violation of this warranty. On count eight, the jury awarded Metcoff $113,855, plus $64,169 interest; and awarded Wilson $143,434, plus $81,989 interest.

Count fourteen alleges that the merger agreement obligated NCT Group and NCT Midcore to indemnify the plaintiffs for all damages sustained by the plaintiffs as a result of their breach of any representation, warranty or obligation arising under the merger agreement. On count fourteen, the jury awarded Metcoff $673,837, plus $379,778 interest; and awarded Wilson $639,752, plus $365,693 interest.⁸

Count eighteen alleges that NCT Group and NCT Midcore breached the implied covenant of good faith and fair dealing by their conduct that violated the terms of the merger agreement and deprived the plaintiffs of the consideration to which they were entitled under its terms. On count eighteen, the jury awarded Metcoff $113,855, plus $64,169 interest; and awarded Wilson $143,434, plus $81,989 interest.

As mentioned above, Artera is named as a defendant in six counts of the complaint. Artera is named in counts fifteen and seventeen, respectively alleging tortious interference and civil conspiracy. In count sixteen, the complaint alleges that property was fraudulently transferred from NCT Midcore to Artera. See footnote 3 of this opinion. The remaining claims against Artera, counts nineteen and twenty, were not presented to the jury because they sought equitable relief from the court. Count nineteen seeks an award against Artera based on unjust enrichment, and count twenty requests an order for a resulting trust against Artera. Artera is named as one of the defendants in count twenty-four, which asserts a claim for violation of CUTPA. The CUTPA claim against Artera is predicated on the allegations of counts fifteen, sixteen, seventeen and nineteen.⁹

DISCUSSION

IAttorney Fees, Costs and Punitive Damages Under CUTPA

A

The law and criteria governing an...