Garnet Analytics, Inc. v. Diversified Solutions, Inc. et al

Filing 113

Ruling granting 29 Motion for Disclosure of Assets; granting in part and reserving in part 96 Motion Pursuant to Fed. R. Civ. P. 37 for Failure to Respond to Discovery; granting 27 Motion for Prejudgment Remedy. See opinion attached. Signed by Judge Holly B. Fitzsimmons on 3/13/13. (Esposito, A.)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
GARNET ANALYTICS, INC.

v.
DIVERSIFIED SOLUTIONS, INC.,
MICHAEL LUNDY, and BRIAN SOL

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CIV. NO. 3:12CV716 (WWE)

RULING ON PLAINTIFF'S APPLICATION
FOR PREJUDGMENT REMEDY
Plaintiff, Garnet Analytics, Inc., (“Garnet”), brings this
action to recover payment and damages for breach of contract.1
[Doc. #1; Doc. #27 at 1]. Defendants are Diversified Solutions,
Inc., (“DSI”); Michael Lundy, President of DSI, and Brian Sol,
Vice President of DSI (collectively “defendants”).
Beginning in 2008, Garnet and its predecessor, Kaskie Plude
and Company, LLC (“Kaskie Plude”), provided analytical services
to DSI including preparation of tax studies and Internal Revenue
Service tax returns for DSI clients in support of the clients’
telephone excise tax refund (“TETR”) claims, and DSI agreed to
compensate Garnet for doing so. Defendant instructed plaintiff
to stop work on DSI projects on April 3, 2012. Plaintiff filed
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By complaint dated May 14, 2012, plaintiff alleges breach of
contract (against DSI), breach of the implied covenant of good
faith and fair dealing (against DSI), promissory estoppel
(against DSI), quantum meruit (against DSI), negligent
misrepresentation (against DSI), fraud (against all defendants),
and violation of the Connecticut Unfair Trade Practices Act
(“CUTPA”), Conn. Gen. Stat. §42-110a to 110q (against DSI).
[Doc. #1].
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this action on May 14, 2012, to recover payment for services
rendered in addition to punitive damages and attorneys’ fees.
Plaintiff seeks a prejudgment remedy (“PJR”) against
defendants in the amount of $1,932,068.65. [Doc. #27]. This
amount represents actual damages of $1,095,452.77 for completed
pending TETR applications, and $507,137.50 for TETR applications
not fully completed or submitted at the time DSI terminated the
parties’ relationship. [Pl. Ex Q and S].

Plaintiff also seeks a

prejudgment award of punitive damages and attorneys’ fees
calculated at twenty-five percent of actual damages [Doc. #28 at
26-7].

A hearing was held on January 30, and March 11, 12, and

13, 2013.
In support of its application, plaintiff filed the
Affidavits of Denise Plude, President of Garnet, and

Michael

Plude, CPA and principal of Kaskie Plude. At the hearing,
plaintiff presented the testimony of Michael Plude and Denise
Plude, along with exhibits. Defendants cross-examined
plaintiff’s witnesses and provided not-yet-completed testimony
from Gary Kondler, an employee of Kondler and Associates, and
Michael Lundy, President of DSI, along with exhibits.

PROBABLE CAUSE STANDARD
To grant a prejudgment remedy ("PJR") of attachment, the
court must make a finding of "probable cause." Connecticut
General Statutes § 52-278c(a)(2) requires that the application
include:

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An affidavit sworn to by the plaintiff or
any competent affiant setting forth a
statement of facts sufficient to show that
there is probable cause that a judgment in
the amount of the prejudgment remedy sought,
or in an amount greater than the amount of
the prejudgment remedy sought, taking into
account any known defenses, counterclaims or
set-offs, will be rendered in the matter in
favor of the plaintiff.
Connecticut General Statute §52-278d provides that a PJR hearing
is limited to a determination of "whether or not there is
probable cause that a judgment in the amount of the prejudgment
remedy sought, taking into account any defenses, counterclaims
or set-offs, will be rendered in the matter in favor of the
plaintiff."
"Probable cause," in the context of a prejudgment remedy,
has been defined by Connecticut courts as "a bona fide belief in
the existence of the facts essential under the law for the
action and such as would warrant a man of ordinary caution,
prudence and judgment, under the circumstances, in entertaining
it."

Three S. Dev. Co. v. Santore, 193 Conn. 174, 175 (1984)

(quotation marks and citation omitted).
In other words, in addressing PJR applications, the "trial
court's function is to determine whether there is probable cause
to believe that a judgment will be rendered in favor of the
plaintiff in a trial on the merits." Calfee v. Usman, 224 Conn.
29, 36-37 (1992) (citation omitted).

A probable cause hearing

for the issuance of a prejudgment remedy "is not contemplated to
be a full scale trial on the merits of the plaintiff's claim."
Id. at 37.

The plaintiff need only establish that "there is

probable cause to sustain the validity of the claim." Id.
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Probable cause "is a flexible common sense standard.

It does

not demand that a belief be correct or more likely true than
false." New England Land Co. v. DeMarkey, 213 Conn. 612, 620
(1990) (citation omitted).
After a hearing, the Court considers “not only the validity
of the plaintiff’s claim but also the amount that is being
sought.” Calfee, 224 Conn. at 38.

The Court will make a

determination of how much of the defendant’s property may
properly be attached in order to safeguard the collectibility of
a potential future judgment in favor of the plaintiff.” Calfee,
224 Conn. at 39. "[D]amages need not be established with
precision but only on the basis of evidence yielding a fair and
reasonable estimate." Burkert v. Petrol Plus of Naugatuck, Inc.,
5 Conn. App. 296, 301 (1985) (citation omitted).
"[T]he Court must evaluate not only the plaintiff's claim
but also any defenses raised by the defendant."

Haxhi v. Moss,

25 Conn. App. 16, 20 (1991) (citation omitted).

FINDINGS
After four days of hearings and for the reasons set out
below, the Court GRANTS the application for prejudgment remedy
in the amount of $1,602,690.27. [Doc. #27]. This Order is
subject to reconsideration if defendants provide to plaintiff’s
counsel the discovery requested and necessary for adequate cross
examination of witnesses the defendants propose to offer to
establish their claimed defenses, counterclaims and setoffs.

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Through the testimony of Michael Plude and Denise Plude,
plaintiff Garnet Analytics Inc. established probable cause to
believe the plaintiff will prevail, at the very least, on their
breach of contract claim, set out in Count One of the complaint.
The court credits the testimony of both Michael Plude and Denise
Plude, which was corroborated by extensive documentation and not
challenged in any significant respect on cross-examination.
Plaintiff tendered Denise Plude for cross-examination at the
conclusion of the second of four scheduled hearing days.
Defendants, after being told they could not divide the crossexamination of Ms. Plude between two defense lawyers, spent an
entire court day on that cross-examination. While the crossexamination focused on the email and telephone relationship
between the parties, a considerable amount of time was spent on
what appeared to be diversions or general attacks on the
witness’ character or credibility, notwithstanding a warning
from the bench that the witness had given detailed evidence
about the time spent working on specific projects for
defendants, and that the Court had yet to hear anything about
the defendants’ defenses, set-offs or counterclaims. Counsel
made it clear through argument that defendants’ position was
that the Court should not accept any of the evidence of time
spent because it was not contemporaneously recorded.

None of

the specific time entries was discussed or challenged on crossexamination.
At the start of the fourth (final) scheduled day, counsel
for defendants said that they would not further cross-examine
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Ms. Plude and expressed concern about whether they could present
their defense witnesses in the remaining scheduled day.
Plaintiff’s counsel, after re-asserting his position that the
defendants had failed to produce promised discovery or an
adequate disclosure for defendant’s proposed expert witness,
suggested proceeding with defendants’ witnesses.
Defendants chose to begin their case with their proposed
expert. After hearing preliminary testimony about the witness’
qualifications and experience, the Court ruled that he was not
qualified to render the proposed opinion, which was described in
the defendants’ limited disclosure as, “the preparation of a
TETR claim does not involve more than fifty (50) man hours under
any circumstances.”

After that ruling, defendants were warned

again from the bench that the court had not yet heard any
evidence concerning defenses, set-offs and counterclaims, and
left to counsel the determination of how to present the
remaining witnesses. With the agreement of counsel, instead of
taking a morning recess, the court adjourned early for a lunch
break (at about 12:40 p.m.) and reconvened at 1:30 p.m.
Defendants elected to continue by presenting the proposed
expert as a fact witness. He testified on direct until after 4
p.m., when defense counsel represented that they would not
finish his direct testimony that day, and asked that the hearing
be continued. Plaintiff’s counsel had already reiterated through
repeated objections to the testimony that he would be unable to
cross-examine the witness effectively because none of the

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information or documents on which the witness relied had been
produced in discovery.
At that point, the Court found that, due to the prejudice
to the plaintiff from the defendants’ failure to provide
discovery or an adequate disclosure concerning the proposed
expert witness,1 the appropriate sanction was to rule on the
application for prejudgment remedy based on the evidence
presented to that time, subject to reconsideration after
defendants complied with their discovery obligations and
presented any additional witnesses.
Defendants then asked to suspend the Kondler testimony and
call another witness; in response to their request, the Court
proposed to sit until 6 p.m. Michael Lundy testified until
approximately 5:15 p.m. on direct, and then for another
approximately 30 minutes on cross-examination, but plaintiff’s
counsel was not close to finishing cross-examination and
represented that his cross-examination was hampered by the
absence of requested discovery materials.
Counsel for each of the parties then offered argument based
on the existing record and the Court indicated it would render a
written ruling the following day.
On the current record before the Court and amply
demonstrated during the four day PJR hearing, Garnet has
established that it is prejudiced by defendants’ litigation
strategy and failure to provide timely discovery responses.
Plaintiff filed this action on May 14, 2012, and the PJR
Application on July 2, 2012. By mid-September, plaintiff
provided its initial disclosure which included every hardcopy
and electronic document in its possession. Defendant was invited
to inspect Garnet’s and Kaskie Plude’s documents in Monroe,
Connecticut, which defendants to date have failed to do.
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On March 4, 2013, plaintiff moved for, among other things,
an order of discovery sanctions, “precluding defendants from
introducing or relying on any evidence or documentation not
provided in response to [Garnet’s] discovery requests, and from
introducing or relying on any expert testimony from certain
purported experts not adequately disclosed by defendants, or, in
the alternative, for an order directing defendants to cure the
defects in their discovery responses and experts disclosures by
a date certain.” [Doc. #96].

The history of defendants’ failure

to produce timely and/or meaningful responses to plaintiff’s
discovery requests is set forth in the Affidavit of Counsel
attached to plaintiff’s motion. [Doc. #28]. Defendants have yet
to respond to the sanctions motion, and the Court does not think
it fair to permanently preclude any evidence of their defenses,
set-offs and counterclaims. However, to avoid the demonstrated
prejudice to plaintiff which would be caused by adjourning these
proceedings pending defendants’ discovery compliance, the most
appropriate sanction for defendants’ failure to provide timely
discovery is to condition any further PJR proceeding on the
defendants’ production of responsive discovery that will enable
plaintiff to cross examine defendants’ witnesses and respond to
their defenses, counterclaims and set-offs at a continued
hearing, and to rule now on the existing record subject to
reconsideration.
Before any further hearing, defendants will be required to
provide copies of their pre-numbered exhibits to plaintiff with
two copies to the Court, fourteen days in advance of the
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scheduled hearing date. Witness and exhibit lists must accompany
the submission. Failure to comply may result in the cancellation
and rescheduling of the hearing to a later date.
The Court reserves decision on Counts 2 through 7 to give
defendants an opportunity to complete their evidence.

AMOUNT OF THE PJR ATTACHMENT
Because defendants agreed that they owe some amount for
Garnet’s past services but made no counter proposal on damages,
the Court considers plaintiff’s showing of contract damages,
having found the existence of an agreement and its breach.
“The general rule of damages in a breach of contract
action is that the award should place the injured party in the
same position as he would have been in had the contract been
performed . . . . Damages for breach of contract are to be
determined as of the time of the occurrence of the breach.”
Gazo v. City of Stamford, 255 Conn. 245, 264-65 (2010) (citation
omitted).
The Court has carefully weighed the credibility of the
witnesses and finds the testimony of Michael Plude and Denise
Plude regarding the unpaid Garnet invoices credible. For the
completed TETR claims, the Court awards compensation as
calculated under the 20 percent cap, as set forth in plaintiff’s
exhibit Q. For the TETR claims in progress, the Court awards
compensation calculated at an hourly rate, as set forth in
plaintiff’s exhibit S, as it is less than the alternative amount

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proposed by Garnet based on a 20 percent cap calculation, and
some evidence has been adduced to show that DSI subsequently
used Garnet’s work.

The Court notes that on cross-examination

of Denise Plude, defendants declined to question the billing on
each of the seventeen clients listed on plaintiff’s exhibit S
and objected to the admission of plaintiff’s exhibit T which
contained the supporting documentation.
and T are not full exhibits.

Plaintiff’s exhibits S

The Court, however, credits the

witnesses’ testimony that the claimed hours were calculated
using the methodology demonstrated in the more extensive
exhibits N and O for Clients One and Two.
The Court declines, at this time, to award prejudgment
interest or punitive damages, without prejudice to
reconsideration upon a further record, including further
testimony by defendants’ witnesses.

TETR claims filed

$1,095,452.77

TETR claims in progress

$

TOTAL

507,137.50

$1,602,690.27

Based on the evidence presented, the Court finds probable
cause to believe that a judgment in the amount of at least
$1,602,690.27 will be rendered in favor of plaintiff in a trial
on the merits. Calfee v. Usman, 224 Conn. 29, 36-37 (1992); see
Conn. Gen. Stat. §52-278c(a)(2).
The Court declines to award a PJR for future attorneys'
fees and costs at this time. Plaintiff may file a motion to
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increase the PJR with supporting documentation on a more
developed record as additional fees and costs are incurred.

CONCLUSION
Based on the foregoing, plaintiff‛s Application for a
Prejudgment Remedy [Doc. #27] is GRANTED in the amount of
$1,602,690.27 against defendant DSI. Plaintiff's Motion for
Disclosure of Assets as to defendants DSI, Michael Lundy and
Brian Sol [Doc. #29] is GRANTED. Defendants will comply with
this ruling and order within fourteen (14) days.
Plaintiff’s Motion Pursuant to Fed. R. Civ. P. 37 for
Failure to Respond to Discovery [Doc. #96] is GRANTED in part as
set forth in the opinion. The Court RESERVES on the remainder of
the relief requested until defendants file their brief in
opposition. Defendants’ response is due on March 25, 2013.
This is not a recommended ruling.

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This is a ruling on an

Application for Prejudgment Remedy which is reviewable pursuant
to the “clearly erroneous” statutory standard of review. 28
U.S.C. §636(b)(1)(A); Fed. R. Civ. P. 72(a); and D. Conn. L.
Civ. R. 72.2. As such, it is an order of the Court unless

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See Aetna Life Ins. Co. v. Toothsavers Dental Serv., No. 96 CV
570 (GLG), 1997 WL 102453 (D. Conn. Feb. 4, 1997) (finding
referral to Magistrate Judge "for the purpose of a hearing on
prejudgment remedy" was a request for a determination of the
prejudgment remedy pursuant to 28 U.S.C. §636(b)(1)(A) and was
not a recommended ruling effective only upon a District Court
Judge’s review and adoption, pursuant to 28 U.S.C.
§636(b)(1)(B)).
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reversed or modified by the district judge upon motion timely
made.
Dated at Bridgeport this 14th day of March 2013.

_______/s/__________________
HOLLY B. FITZSIMMONS
UNITED STATES MAGISTRATE JUDGE

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