Papallo v. Lefebvre
161 A.3d 603
| Conn. App. Ct. | 2017Background
- Shirley Papallo and Ronald Lefebvre were 50/50 members of Big Dog Entertainment, LLC, owner/operator of Central Cafe; Lefebvre managed the bar while Papallo had limited involvement.
- Papallo sued in 2013 alleging Lefebvre misappropriated LLC revenues, misused a barter-exchange account, breached fiduciary duty, committed statutory theft, violated CUTPA, and sought an accounting.
- At bench trial (plaintiffs represented; Lefebvre pro se) the court found a fiduciary breach based on misuse of the barter account and awarded $10,191.25, but found no breach as to handling of LLC revenues and ruled for Lefebvre on statutory theft, CUTPA, and denied an accounting.
- Papallo appealed, arguing the trial court misallocated the burden of proof on the revenue-theft breach, erred on statutory theft intent, wrongly denied an accounting, and wrongly rejected a CUTPA claim. Lefebvre did not participate in the appeal.
- The appellate court reversed in part: it held the trial court erred by placing the burden on Papallo regarding alleged misappropriation of LLC revenues and remanded for a new trial on that breach; it affirmed the trial court on statutory theft, accounting, and CUTPA claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether burden of proof shifted to fiduciary on alleged misappropriation of LLC revenues | Once a fiduciary duty exists, burden shifts to fiduciary to prove fair dealing by clear and convincing evidence | Trial court credited evidence showing no fraudulent intent and required plaintiff to prove revenue misappropriation | Court: trial court misallocated burden; burden should have shifted to Lefebvre; reversed and remanded for new trial on revenue misappropriation claim |
| Whether defendant had requisite intent for statutory theft (§ 52-564) | Papallo: accounting/tax discrepancies and unsubstantiated expenses show intent to deprive LLC of property | Lefebvre: sloppy records, used cash for business expenses, hired accountant, no specific intent to steal | Court: factual finding that Lefebvre lacked specific intent is not clearly erroneous; affirmed judgment for defendant on statutory theft |
| Whether an accounting should be ordered | Plaintiffs: discrepancies and missing records warrant equitable accounting of 2010–2012 books | Defendant: losses ascertainable, plaintiffs acquiesced and participated in practices; no equitable need for accounting | Court: exercised discretion properly; plaintiff (individually) lacked distinct injury and LLC failed to show need for mandatory accounting; affirmed |
| Whether conduct violated CUTPA | Plaintiffs: fiduciary breaches and misuse of assets amount to unfair/deceptive trade practices | Lefebvre: conduct was negligent, poor judgment or intra-corporate dispute not rising to CUTPA | Court: evidence supported finding of negligence/inexperience, not CUTPA-level misconduct; affirmed |
Key Cases Cited
- Murphy v. Wakelee, 247 Conn. 396 (discusses burden-shifting once fiduciary duty found)
- Oakhill Assocs. v. D’Amato, 228 Conn. 723 (applies burden-shifting in partnership self-dealing cases)
- Konover Dev. Corp. v. Zeller, 228 Conn. 206 (burden shifts to fiduciary to prove fair dealing)
- Martinelli v. Bridgeport Roman Catholic Diocesan Corp., 196 F.3d 409 (2d Cir.) (discusses Connecticut law shifting burden when fiduciary benefits at another's expense)
- Deming v. Nationwide Mut. Ins. Co., 279 Conn. 745 (defines statutory theft intent element vs conversion)
- Wiseman v. Armstrong, 295 Conn. 94 (new trial required only if erroneous ruling was harmful)
- Ulbrich v. Groth, 310 Conn. 375 (deference to trier on CUTPA factual findings)
- Naples v. Keystone Bldg. & Dev. Corp., 295 Conn. 214 (CUTPA unfairness standard and incompetence not alone dispositive)
- Fernwood Realty, LLC v. AeroCision, LLC, 166 Conn. App. 345 (standard of review for factual findings and intent issues)