530 B.R. 540
Bankr. D. Conn.2015Background
- 3N overpaid VJC $81,095 on July 6, 2010 for an $81.95 invoice; VJC deposited the funds and moved $81,000 into a savings account soon after.
- Carrano was sole owner/control of VJC and affiliated entities; funds flowed freely among those entities and corporate formalities and reconciliation procedures were weak or absent.
- 3N discovered the overpayment in February 2011 and demanded return; VJC/Carrano admitted receipt but did not return funds and instead used money to cover business expenses and buy (and later refund) truck purchases for related entities.
- Connecticut Superior Court entered judgment against the Carrano entities (default) awarding treble and punitive damages for statutory theft and unfair trade practices.
- 3N sued Carrano individually in bankruptcy court alleging (1) conversion/statutory theft, (2) CUTPA, (3) veil piercing, and nondischargeability under 11 U.S.C. §§ 523(a)(2)(A), (a)(4) and (a)(6).
- Court found Carrano personally liable on conversion, statutory theft, CUTPA and veil-piercing claims; held debts nondischargeable under § 523(a)(4) and § 523(a)(6), but not under § 523(a)(2)(A).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Carrano is personally liable for conversion/statutory theft of the overpayment | Carrano personally authorized retention/use of funds after demand; thus he converted and embezzled the funds | VJC’s possession was initially authorized and any misuse was corporate, shielding Carrano | Liability imposed: Carrano personally liable for conversion and statutory theft |
| Whether CUTPA applies to Carrano individually | Retention/embezzlement of funds was unfair/deceptive trade practice causing monetary loss | Conduct was business necessity or corporate acts, not CUTPA actionable by Carrano individually | Carrano individually liable under CUTPA |
| Whether to pierce VJC’s corporate veil to reach Carrano | Carrano dominated finances/policies; entities were alter egos and used to perpetrate wrongdoing | Entities were separate; some employees had authority and corporate formalities existed | Veil pierced under instrumentality rule; VJC liability imputed to Carrano |
| Whether the debt is nondischargeable under §§ 523(a)(2)(A), (a)(4), (a)(6) | Debt is nondischargeable as obtained by fraud, embezzlement/larceny, and willful/malicious injury | No fraud in obtaining the original payment; but embezzlement and malicious conduct disputed | §523(a)(2)(A): not proven; §523(a)(4): nondischargeable (embezzlement proven); §523(a)(6): nondischargeable (willful and malicious injury proven) |
Key Cases Cited
- Sturm v. Harb Dev., LLC, 298 Conn. 124 (Conn. 2010) (LLC member not automatically liable; personal liability requires more than membership)
- Weber v. U.S. Sterling Securities, Inc., 282 Conn. 722 (Conn. 2007) (limitations on member liability and exceptions for personal torts)
- Rana v. Terdjanian, 136 Conn.App. 99 (Conn. App. 2012) (retention of funds after notice can constitute conversion and personal liability)
- Deming v. Nationwide Mut. Ins. Co., 279 Conn. 745 (Conn. 2006) (statutory theft requires intent to deprive beyond conversion)
- Naples v. Keystone Bldg. & Dev. Corp., 295 Conn. 214 (Conn. 2010) (instrumentality and identity rules for veil piercing)
- Kawaauhau v. Geiger, 523 U.S. 57 (U.S. 1998) ("willful" in §523(a)(6) requires deliberate intent to cause injury)
- Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (burden of proof for nondischargeability is preponderance of the evidence)