202 Conn.App. 139
Conn. App. Ct.2021Background
- Twenty-three investors maintained custodial accounts managed by TAG (James Tagliaferri). TAG used funds from clients’ accounts to acquire and record M2 Systems “subnotes.”
- In 2006 M2 (through CEO Michael Muscato) executed a $2,050,000 promissory note payable to Matthew Szulik; $1,865,500 was advanced. The note later was extended but M2 stopped paying.
- Tagliaferri directed wires from plaintiffs’ accounts (2009–2010) totaling $1,848,000 into an escrow controlled by TAG’s counsel; bank records then showed corresponding “M2 subnotes” in plaintiffs’ accounts. Tagliaferri was later criminally convicted for investor fraud (though not specifically for M2 subnotes).
- Plaintiffs sued M2, alleging (1) assignment/subrogee rights in the note and (2) unjust enrichment. The trial court rejected the assignment theory but awarded unjust enrichment damages (principal + prejudgment interest), including an award to nonparty Douglas Lamm.
- Appeals: M2 appealed (challenging multiple findings and defenses, including setoff, unclean hands, amendment, unjust enrichment); plaintiffs appealed denial of attorney’s fees. Appellate court vacated award to Lamm and otherwise affirmed the trial court, including denial of attorney’s fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Court awarded damages to nonparty (Douglas Lamm) | Indoor Billboard (plaintiffs) treated Lamm’s interest as assigned to a plaintiff and relied on evidence at trial | Muscato (M2) argued Lamm was not a party nor assigned to any plaintiff; judgment exceeded pleadings and court lacked jurisdiction | Vacated the portion of judgment in Lamm’s favor — pleadings controlled; court had no jurisdiction to enter enforceable judgment for nonparty |
| Setoff / collateral-source discovery (tax returns) | Plaintiffs said settlements/tax returns did not show recoveries related to M2 notes; they complied with discovery rulings | M2 sought tax returns to prove collateral recoveries and setoff, argued prejudice from discovery limits | Affirmed trial court — no evidence plaintiffs recovered from collateral sources; court permitted postjudgment application to inspect returns; M2 failed to present setoff evidence |
| Unclean hands / judicial estoppel (prior suits) | Plaintiffs argued prior suits attacked TAG and bank, not M2; unjust enrichment claim is independent of assignment-based positions | M2 argued plaintiffs took inconsistent positions in earlier suits and are tainted by TAG’s fraud | Affirmed — doctrine not applicable to bar unjust enrichment here; prior inconsistent positions related to rejected assignment theory and earlier suits did not involve M2 |
| Merits of unjust enrichment (benefit, repayment, detriment; note amendment; cross-trading) | Plaintiffs argued their funds were used to repay M2’s debt to Szulik and M2 therefore benefited; unjust enrichment appropriate even if legal assignments fail | M2 argued no proof funds benefited it (or Szulik), subnotes were sham IOUs to TAG, amendment evidence unreliable, cross-trading undermines plaintiffs’ claims | Affirmed — trial court crediting portions of Tagliaferri’s (and Muscato’s) testimony and bank records supported finding M2 benefited and was unjustly enriched; errors on admission/amendment not shown harmful; cross-trading claim inadequately briefed by M2 |
| Attorney’s fees after unjust enrichment verdict | Plaintiffs claimed equitable subrogation/assignment rights let them recover contractual attorney’s fees under the note | M2 argued American rule bars fees absent contract/statute; court rejected assignment so plaintiffs lack contractual fee right; plaintiffs didn’t show full satisfaction required for subrogation | Affirmed denial of fees — plaintiffs recovered on unjust enrichment (equitable remedy) but were not found assignees/subrogees with contractual right to attorney’s fees; American rule applies and no bad-faith exception shown |
Key Cases Cited
- Dougan v. Dougan, 301 Conn. 361 (2011) (elements and application of judicial estoppel/judicial integrity rationale)
- Windels v. Environmental Protection Commission, 284 Conn. 268 (2007) (court lacks jurisdiction over nonparties)
- Selby v. Building Group, Inc., 129 Conn. App. 599 (2011) (pleadings limit issues and parties; purpose of complaint to give notice)
- Horner v. Bagnell, 324 Conn. 695 (2017) (elements and equitable nature of unjust enrichment)
- Westchester Fire Ins. Co. v. Allstate Ins. Co., 236 Conn. 362 (1996) (definition and purpose of equitable subrogation)
- ACMAT Corp. v. Greater New York Mutual Ins. Co., 282 Conn. 576 (2007) (American rule on attorney’s fees and limited exceptions)
- U.S. Bank Nat’l Assn. v. Eichten, 184 Conn. App. 727 (2018) (application of clean-hands doctrine and wilful misconduct standard)
- Lynn v. Bosco, 182 Conn. App. 200 (2018) (equitable proceedings constrained by pleadings; court cannot ignore framed issues)
- Piccolo v. American Auto Sales, LLC, 195 Conn. App. 486 (2020) (restitutionary nature of unjust enrichment)