Mystic Color Lab v. Auctions Worldwide

• Decision Date: 20 November 2007
• Docket Number: No. 17838.,17838.
• Citation: 934 A.2d 227,284 Conn. 408
• Court: Connecticut Supreme Court
• Parties: MYSTIC COLOR LAB, INC. v. AUCTIONS WORLDWIDE, LLC, et al.

934 A.2d 227

284 Conn. 408

MYSTIC COLOR LAB, INC. v. AUCTIONS WORLDWIDE, LLC, et al.

No. 17838.

Supreme Court of Connecticut.

Argued May 18, 2007.

Decided November 20, 2007.

Walter Weir, Jr., pro hac vice, with whom were William E. Murray and, Hartford, on the brief, Jason M. Reiser, pro hac vice, for the appellants (defendants).

Thomas J. Riley, New London, with whom, on the brief, was Kristen D. DeCato, for the appellee (substitute plaintiff Valora AG).

ROGERS, C.J., and BORDEN, PALMER, VERTEFEUILLE and ZARELLA, Js.^*

ZARELLA, J.

In this matter involving an auctioneer's alleged conversion and statutory theft for failure to remit the proceeds of an auction to the seller, the defendants, Auctions Worldwide, LLC (Auctions Worldwide) and A. David Loeser, Jr.,¹ appeal² from the trial court's judgment in favor of the plaintiff, Mystic Color Lab, Inc. (Mystic).³ The defendants claim that the trial court improperly (1) concluded that the defendants were liable in tort for the conversion of proceeds from an auction of Mystic's photo processing equipment, (2) concluded that the defendants were liable for statutory theft of the auction proceeds under General Statutes § 52-564 and, thus, improperly awarded treble damages to Mystic, and (3) failed to apply the economic loss doctrine to the common-law conversion claim, which would have precluded recovery for purely economic loss. Mystic claims that the trial court properly concluded that the auction proceeds belong to Mystic and that Auctions Worldwide was responsible for safeguarding those proceeds. We agree with the defendants as to the claims for conversion and statutory theft and, therefore, need not determine the applicability of the economic loss doctrine. Accordingly, we reverse in part the judgment of the trial court.

The facts of the case are largely undisputed. On March 12, 2003, Mystic, a Connecticut corporation, executed a written commission sale agreement (agreement) with Auctions Worldwide, a Delaware corporation, to sell certain photo processing equipment that Mystic had used in the course of its business. The purpose of the agreement was defined in 1, which provides that "[t]he [s]eller [Mystic] hereby hires [Auctions Worldwide] as [its] exclusive agent, to sell the [a]ssets from the date of signing this [a]greement to sixty ... days after the auction is conducted .... [Auctions Worldwide] in [its] sole discretion shall determine whether the [a]ssets are to be sold by private sale or at a public auction...." Pursuant to 15, the parties agreed that Connecticut law would govern the agreement and that "[i]t is understood that [Auctions Worldwide] is merely an independent contractor retained by [Mystic] and not acting as an agent of [Mystic]."

The agreement further provided under 2, entitled "[c]ommission," that "[p]roceeds from the sale of the [a]ssets shall be paid directly to [Auctions Worldwide]." Mystic specifically agreed to "reimburse [Auctions Worldwide] up to the amount of [$29,500] for labor, advertising, and marketing expenses ... based on actual costs incurred." In addition, the agreement provided that Auctions Worldwide "reserve[d] the right to charge a [10 percent] [b]uyer's [p]remium payable to [Auctions Worldwide] and [would] rebate [10 percent] of the [b]uyer's premium to [Mystic]." The agreement also stated that Auctions Worldwide would deliver all proceeds due to Mystic "[w]ithin fifteen ... business days following the auction ... and each Friday after this period ... as collected and cleared...." The proceeds due to Mystic would be "less [Auctions Worldwide's] [a]uction [e]xpenses, commission, and other amounts due [Auctions Worldwide]." Auctions Worldwide agreed to deliver the proceeds to Mystic, "together with a preliminary accounting thereof" and a "final accounting report," within sixty business days of the date of the auction. The agreement was silent, however with respect to any requirements or restrictions regarding Auctions Worldwide's handling of the funds prior to the time for remittance of the amount due to Mystic.

Pursuant to the agreement, Auctions Worldwide conducted the auction at Mystic's place of business on May 1, 2003. The photo processing equipment remained on Mystic's premises after the agreement was executed until the auction buyers took possession after the sale. The amount due to Mystic following the auction, less Auctions Worldwide's expenses and commission, was $310,847.89.⁴ Upon receipt of the auction proceeds, Auctions Worldwide deposited the funds into its general operating account, where they were commingled with "funds from purchases of other auctions as well as other [money] belonging to Auctions Worldwide." According to testimony at trial, it was standard practice for Auctions Worldwide to deposit all auction proceeds that it received in its general operating account. Auctions Worldwide did not deliver the final accounting or the proceeds due to Mystic within the time period on which Mystic and Auctions Worldwide had agreed.

Thereafter, Mystic demanded payment of the proceeds. Although Auctions Worldwide acknowledged that it owed money to Mystic, it made no payment until May, 2004. After the time for payment under the agreement had expired, and in response to Mystic's demands, the defendants, beginning sometime in the fall of 2003, attempted to resolve the debt by proposing various repayment plans, which Mystic rejected. Each proposal called for an initial lump sum payment, to be immediately followed by subsequent payments subject to various terms.⁵ In response, Mystic's attorney contacted Auctions Worldwide's controller and demanded that any funds available for immediate payment be wired to Mystic. At no time during the negotiations, however, did Auctions Worldwide transfer funds to Mystic. As of the filing of this appeal, Auctions Worldwide's payments to Mystic totaled $42,940.22. These funds were paid in two checks dated May and June, 2004, respectively.

Following the May, 2003 auction, Auctions Worldwide used the funds in its general operating account to satisfy numerous financial obligations of the company. These included obligations incurred by other related companies⁶ owned by Loeser for employees' salaries, rent and utilities. At the time of trial, Auctions Worldwide still existed as a legal entity but no longer was operational, having become insolvent without making any additional payments to Mystic.

Mystic filed this civil action in January, 2004, alleging claims against Auctions Worldwide for breach of contract and claims against both Auctions Worldwide and Loeser for common-law conversion, statutory theft under § 52-564 and violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq. Thereafter, the defendants conceded that they owed Mystic a balance of $267,907.67. By agreement between the parties, the CUTPA claim was withdrawn.

At the conclusion of the trial, the court issued a memorandum of decision. In determining liability for conversion and statutory theft, the court found that Mystic had a "right to the proceeds beginning fifteen days after the auction. All the proceeds were due within sixty days and certainly by the end of ... 2003." The court also found that "the evidence at trial clearly proves that the money held by [Auctions Worldwide] belonged to [Mystic]. ..." According to the trial court, Auction Worldwide's "retaining possession of the proceeds," coupled with its use of the funds collected to pay other financial obligations, constituted the "unauthorized act" required for conversion. In concluding that Loeser should be held personally liable, the court found that, as the managing director of Auctions Worldwide, he "wrongfully used his authority and responsibility to divert or direct the diversion of funds owed to [Mystic]...." The court also found that Loeser "derive[d] a personal benefit from the conversion of the [Mystic] funds in that significant amounts were paid to ... other companies owned and operated by Loeser ... [and] by satisfying financial obligations other than the obligation owed to [Mystic], Loeser was able to avoid personal liability on certain obligations and to maintain the viability of all three companies ...."⁷ The court noted that, once it had found conversion, a finding of liability for statutory theft required proof of the additional element of "intent to deprive another of his property...." The court found that Loeser had the requisite intent by virtue of his failure to "safeguard" the funds from the auction and his diversion of those "funds to his own companies," knowing that such a diversion would mean that Auctions Worldwide "would not be able to satisfy its obligations to [Mystic]." On the basis of these findings, the court rendered judgment for Mystic in the amount of $803,723.01, plus statutory interest on the conversion and statutory theft claims. The judgment⁸ consisted of treble damages in accordance with § 52-564.⁹ This appeal followed.

I

Before we consider the merits of the appeal, we address the threshold issue of whether the relationship between an auctioneer and a seller of goods is fiduciary in nature, thus giving rise to an obligation on the part of the auctioneer to "safeguard" the auction proceeds. Mystic urges this court to conclude, as a matter of public policy, that auctioneers act as agents of sellers, that they have a common-law duty to hold proceeds in trust for the benefit of the seller and that a failure to do so creates liability for theft. The record presented, however, does not permit us to reach this issue. Mystic never alleged in its pleadings that the parties had either a fiduciary or an agency relationship. Moreover, Mystic presented no evidence from which the trial court reasonably could have found that the special trust or confidence characteristic of a fiduciary relationship existed between the parties in the present case.¹⁰ Both Mystic and Auctions Worldwide...