Heyman Associates No. 5, L.P. et al. v. TRS (2009)

MEMORANDUM OF DECISION RE DEFENDANT-COUNTERCLAIM PLAINTIFF FELCOR TRS GUARANTOR L.P.'s MOTION FOR SUMMARY JUDGMENT ON THE PLEADINGS DATED JUNE 4, 2009 (# 134.00 )

At issue in this lawsuit is the effect of a recorded restrictive covenant concerning two hotel properties in downtown Stamford, Connecticut.   The Motion for Summary Judgment filed by the defendant-counterclaim plaintiff, FelCor TRS Guarantor, Limited Partnership, states:  “Defendant-Counterclaim Plaintiff FelCor TRS Guarantor, L.P. (“FelCor”), hereby moves the Court, pursuant to Practice Book § 17-44, to enter summary judgment on the pleadings in its favor against Plaintiffs, who seek a declaratory judgment and injunctive relief regarding an expired land use restriction.   As the complaint on its face, demonstrates that it is legally insufficient, and because an opportunity to amend it would not cure the defect, FelCor is entitled to judgment as a matter of law, dismissing all Plaintiff's claims.”   The Motion for Summary Judgment was supported by a Memorandum dated June 4, 2009 (# 135.00).   It was opposed by the plaintiffs' Objection dated July 22, 2009 (# 137.00), which Objection contains two affidavits and thirteen exhibits and a Memorandum of Law in Opposition to Defendant's Motion for Summary Judgment on the Pleadings dated July 22, 2009 (# 138.00).   The defendant filed a Reply in Support of its Motion for Summary Judgment on the Pleadings dated September 1, 2009 (# 140.10).   The parties appeared in court on September 8, 2009 and argued their respective positions.   The defendant claims that a Restrictive Covenant contained in two July 12, 1996 documents terminated as a matter of law under the merger doctrine by reason of a July 31, 1996 recorded document.

The operative complaint is dated November 22, 2006 in three counts.   The First Count is a claim for declaratory judgment by three of the four plaintiffs, Heyman Associates No. 5, Limited Partnership, AIM Management Corporation and TRJ II. The Second Count is a claim for declaratory judgment by the fourth plaintiff, HD Hotel, LLC. The Claims for Relief for those two counts are as follows:  “1. A declaration that the Restrictive Covenant contained in the Assignment and Assumption of Sublease Agreement is in full force and effect;  2. A declaration that the Purported Termination is null and void.”   The Third Count seeks Injunctive Relief for the four plaintiffs.   The Claims for Relief for the Third Count are as follows:  “1. A mandatory injunction ordering Defendant to record a termination or cancellation of the Termination dated April 26, 2006 and recorded in Volume 8566 at page 86 of the Stamford Land Records;  2. An injunction prohibiting the Defendant, its successors and assigns from violating the Restrictive Covenants;  3. An injunction prohibiting Defendant, its successors and assigns from taking any future action to unilaterally terminate the Restrictive Covenant.”   The plaintiffs supported their complaint by filing a Notice of Filing Exhibits to Complaint dated January 26, 2007 (# 103.10) attaching five documents;  (1) Purchase and Sale Agreement dated June 1996;  (2) Assignment and Assumption of Sublease dated July 12, 1996;  (3) Limited Warranty Deed dated July 12, 1996;  (4) Assignment and Assumption of Lease Agreement and of Sublease Agreement dated July 31, 1996 and (5) Termination of All Restrictions dated April 27, 2006.   The Purchase and Sale Agreement in the file does not contain the day of the month.   The complaint alleges that date to be June 21, 1996.   The defendant's Answer admits the attached Purchase and Sale Agreement.   Therefore, the court will refer to June 21, 1996 as the date of the Purchase and Sale Agreement.

The operative Answer is the Revised Answer, Special Defenses and Counterclaims of the defendant, FelCor TRS Guarantor, L.P. dated March 21, 2007 (# 107.00).   The four Special Defenses claim:  (1) the Heyman parties do not have any interests in the Ground Lease or the Sublease and therefore lack standing to enforce the restrictive covenant described in the July 12, 1996 Agreement;  (2) the relief sought in the complaint is barred by the merger doctrine by reason of the fact that the Sublease and all interests and estates thereunder were merged out of existence pursuant to terms of the July 31, 1996 Agreement;  (3) the relief sought in the complaint is barred by the doctrine of release since BRS assigned all of its interest in the Ground Lease and Sublease to Holiday Inn, Inc. in the July 31, 1996 Agreement;  (4) the complaint fails to state a claim upon which relief can be granted, since the Sublease and all interests and estates thereunder were merged out of existence pursuant to the terms of the July 31, 1996 Agreement.   The defendant FelCor also filed a three-count counterclaim against all four plaintiffs.   The first count is tortuous interference with existing contractual relations, the second is slander of title and the third is a violation of the Connecticut Unfair Trade Practices Act. FelCor is seeking money damages, punitive damages and attorneys fees pursuant to CUPTA.   The four plaintiffs replied to these four Special Defenses and the three-count Counterclaim by a Reply dated March 17, 2008 (# 125.10) essentially denying each of the allegations.   The four plaintiffs filed one Special Defense to the Counterclaims:  “Defendant's Counterclaims fail to state a claim upon which relief can be granted.”   FelCor filed a Reply dated March 31, 2008 (# 126.10) denying the plaintiff's one special defense.   The pleadings were closed on March 31, 2008.   Although pleadings have been closed since March 31, 2008, neither party has filed a claim for the trial list.   No claim for a jury has been claimed by either party.   The matter has yet to be assigned for trial.   Neither party moved to strike the two special defenses of failure to state a claim upon which relief can be granted.   This Motion for Summary Judgment (# 134.00) was filed on June 4, 2009.

This case involves the Stamford Marriott Hotel and the Stamford Ramada Inn, both full service hotels located in the downtown business district of Stamford.   Both were owned and operated by the Heyman, Meyer and Jabara families as of 1996 through two Connecticut limited liability companies.   HD Hotel, LLC was the owner and operator of the Marriott.   BRS Realty Associates, LLC was the owner and operator of the Ramada.   Located within two blocks of each other, the Marriott had superior facilities and higher room rates than the Ramada.   Both hotels did not impinge on each other's customer base.   In 1996 the national hotel chain Holiday Inns, Inc. (HII) and the families negotiated the sale of the Ramada with the intention of substantially rehabilitating the Ramada and converting it to a Holiday Inn. The families were concerned about the potential impact of HII's plans on the business of the Marriott, which the families continued to own after investing millions of dollars in renovation costs in the Marriott.   To insure that the conversion of the Ramada to a Holiday Inn would not harm the business of the Marriott, the parties agreed in a June 21, 1996 Purchase and Sale Agreement attached to the plaintiffs' Complaint as Exhibit A, that a Restrictive Covenant would be included in the documents conveying the Ramada to HII. This Purchase and Sale Agreement was signed and the closing on the Ramada to HII occurred on July 12, 1996 pursuant to an Assignment and Assumption of a Sublease and a Limited Warranty Deed both of which incorporated the language of the Restrictive Covenant that was contained in the Purchase and Sale Agreement.   That Restrictive Covenant is at issue in this lawsuit.   The Ramada property was then converted into a Holiday Inn and was operated as a Holiday Inn for approximately 10 years.

The above transaction involved two contiguous parcels.   The larger parcel upon which the Ramada Inn was built was and continues to be owned by the Scalzi family.   Effective November 1, 1979 the Scalzi family entered into a ground lease that was duly recorded in the Stamford Land Records.   The Scalzi family members are not parties to this lawsuit.   Upon information and belief the ground lease is still in full force and effect.   The lessee under the Scalzi ground lease was Richard J. Nair, Trustee.   Effective November 1, 1979 Richard S. Nair, Trustee as lessee subleased his interest in the Scalzi ground lease pursuant to a document entitled Agreement of Sublease.   In later recorded documents both the lessees' interest in the Scalzi ground lease and the sublease were conveyed to BRJ Realty Associates, Inc. by documents recorded in the Stamford Land Records.

The smaller parcel, also part of the hotel property, was not part of the Scalzi ground lease.   That smaller parcel is referred to by the parties as the fee simple parcel.   Both that fee simple parcel and the larger Scalzi ground lease parcel were the subject of the June 21, 1996 Purchase and Sale Agreement and the contested Restrictive Covenant.   Schedule 1.1 of the Purchase and Sale Agreement contains the legal description of the fee simple parcel and Schedule 1.2 describes the leasehold parcel.   The Purchase and Sale Agreement contemplated the sale of nine assets in paragraphs 1.1 through 1.9:  the fee simple parcel, the Scalzi ground lease parcel, the buildings and improvements on both parcels, appuretances on both parcels, personal property in the hotel, inventory in the hotel such as food and liquor, leases to agencies doing business in the hotel, and agreements and permits.   The total purchase price under paragraph 4 of the Purchase and Sale Agreement was $8,300,000 to be paid at a scheduled July 11, 1996 closing.   The fee simple parcel is 5,616 square feet and the Scalzi ground lease parcel is 84,256 square feet.   In addition, paragraph 21 of the Purchase and Sale Agreement contemplated a separate transaction:  to wit, if the ground lease was acquired by BRS within one year BRS would convey its interest in the ground lease for an additional $1,600,000.   Paragraph 21 did not state that the Restrictive Covenant would then be void upon the later ground lease conveyance.   BRS did acquire the ground lease on July 18, 1996 and conveyed its interest in the ground lease on July 31, 1996 pursuant to an Assignment and Assumption of Lease Agreement and of Sublease Agreement.

Following the July 12, 1996 and July 31, 1996 conveyances, BRS Realty Associates, Inc., no longer owned any interest in the above two parcels of real property.   The respective plaintiff's ownership interests in the Marriott appear to continue to date in the same fashion that the Mariott ownership existed in 1996.   The Heyman, Meyer and Jabara families owned the Ramada property and the Marriott property when the Restrictive Covenant was created and they continue to own the Marriott property.

The current owner of the Stamford Holiday Inn is the defendant, FelCor TRS Guarantor, Limited Partnership.   A document dated April 27, 2006 entitled Termination was signed and recorded by FelCor on the Stamford Land Records on May 25, 2006 without notice to the Heyman, Meyer and Jabara families or any of the plaintiffs.   The plaintiffs' complaint in paragraph 7 alleges that this recorded termination document was a “unilateral declaration that the Restrictive Covenant contained in the Assignment and Assumption of Sublease Agreement is no longer in effect.”   Paragraph 8 of the Complaint states:  “Upon information and belief, Felcor has entered into an agreement to convey the Stamford Holiday Inn to another hotel operator who intends to convert the Stamford Holiday Inn into a Hilton Hotel in direct violation of the Restrictive Covenant.”

Paragraph 15 of the Purchase and Sale Agreement states:  “In both the Quit-Claim Deed to the Land, and the Assignment and Assumption of Sublease Agreement, Seller shall have the right to include a provision in substantially the following form:

The Grantee herein by acceptance hereof covenants and agrees that it will not operate nor permit the operation of an “upscale” hotel on the premises herein conveyed.  “Upscale hotel” as used herein shall mean a hotel which caters to an upscale market, including, without limitation hotels currently catering to an upscale market such as Marriott Hotels, Sheraton Hotels, Hilton Hotels, Omni Hotels, Crowne Plaza, Wyndham Hotels, DoubleTree Hotels and Suites, and Embassy Suites.   This restriction shall not permit the Grantee from operating or permitting the operation of a Holiday Inn Hotel, a Holiday Inn Select Hotel, a Holiday Inn Express Hotel, a Radisson Hotel, or other hotels catering to the same market currently served by these hotels.   This restriction is intended to run with the land and shall be binding upon the Grantee, its successors and assigns.   This restriction shall expire fifteen (15) years from the date of this deed.

This Restrictive Covenant is found in substantially the same language in the Limited Warranty Deed and the Assignment and Assumption of Sublease both dated July 12, 1996.   The variance is slight in each version.   For example, “Grantee” was changed to “Assignee” in the Assignment and Assumption of Sublease.   The parties agree that the Restrictive Covenant in all the documents are the same.

On July 12, 1996 pursuant to the June 12, 1996 Purchase and Sale Agreement, BRS Realty Associates, LLC conveyed the Ramada Inn to HII by executing the Assignment and Assumption of Sublease and Limited Warranty Deed. On or about July 18, 1996 BRS Realty Associates, LLC purchased the subleasor's interest under the sublease.   On July 31, 1996 BRS Realty Associates, LLC conveyed to HII its subleasor's interest under the sublease in accordance with BRS's obligation under the Purchase and Sale Agreement.   This conveyance of July 31, 1996 and the recordation of the Assignment and Assumption of Lease Agreement and Sublease Agreement both were contemplated and were performed in accordance with the terms of the June 21, 1996 Purchase and Sale Agreement.   This July 31, 1996 Agreement provided that:  “The Sublease and interests and estates thereunder are hereby fully and completely merged, and declared to be merged, out of existence, without the necessity of any further action by any party.”   The July 31, 1996 Agreement contains no reference to the Restrictive Covenant contained in the prior three documents:  Purchase and Sale Agreement, Limited Warranty Deed and Assignment and Assumption of Sublease.   There was no reference in the July 31, 1996 Agreement to the fee simple parcel that was conveyed on July 12, 1996 pursuant to the Limited Warranty Deed, which also contains the Restrictive Covenant.

The defendant's Fourth Special Defense states that the operative complaint dated November 22, 2006 fails to state a cause of action.   The same issue was also raised in the Motion for Summary Judgment:  “As the complaint, on its face, demonstrates that it is legally insufficient ․” Such claims should be raised by a Motion to Strike.  “Whenever any party wishes to contest (1) the legal sufficiency of the allegations of any complaint, counterclaim or cross claim, or of any one or more counts thereof, to state a claim upon which relief can be granted, ․” P.B. § 10-39(a).   This claim forms the basis for the defendants' Motion for Summary Judgment.   The defendants had the opportunity to file a motion to strike prior to filing an answer, special defenses and the three-count counterclaim.   The order of pleadings P.B. § 10-6 states that a motion to strike is the fourth in the order of pleading and the answer is the fifth in order.  P.B. § 10-7 states that:  “․ the filing of any pleading provided for by the preceding section will waive the right to file any pleading which might have been filed in due order and which precedes it in the order of pleading provided in that section.”   For years this rule prevented the filing of a motion for summary judgment on the basis that the pleadings on their face failed to state a cause of action.

The granting of a motion for summary judgment is the death sentence to a plaintiff's cause of action since it does not permit the plaintiff to plead over.  American Progressive Life & Health Ins. Co. v. Better Benefits, LLC, 292 Conn. 111, 119-20 (2009).   The granting of the motion to strike permits the plaintiff to plead over.  P.B. § 10-44.

“In general, the office of a motion for summary judgment is not to test the legal sufficiency of the complaint, but is to test the presence of contested factual issues.”  Arnone v. Connecticut Light & Power Company, 90 Conn.App. 188, 203-04 (2005).  “There is a substantial difference between a motion for summary judgment and a motion to strike or a request to revise.   The granting of a motion for summary judgment puts the plaintiff out of court ․ The granting of a motion to strike or a request to revise allows the plaintiff to replead his or her case.”  Id., 204-05.   Arnone and the later cited Larobina case were both officially released on July 12, 2006.   The above rule cited in Arnone remains the applicable law.

This rule to some extent was changed in 2005.  “With these authorities in mind, we conclude that the use of a motion for summary judgment to challenge the legal sufficiency of a compliant is appropriate when the complaint fails to set forth a cause of action and the defendant can establish that the defect could not be cured by repleading ․ If it is clear on the face of the complaint that it is legally insufficient and that an opportunity to amend it would not help the plaintiff, we can perceive no reason why the defendant should be prohibited from claiming that he is entitled to judgment as a matter of law and from invoking the only available procedure for raising such a claim after the pleadings are closed.”  Larobina v. McDonald, 274 Conn. 394, 401-02 (2005).   FelCor was aware of this procedure and briefed Larobina v. McDonald, claiming that the plaintiffs could not possibly replead to cure the defect.

The defendants seek to end this case despite the fact that the merger clause and the Restrictive Covenant both emanate from the same June 21, 1996 Purchase and Sale Agreement and despite the fact that one transaction concluded on July 12, 1996 and the second on July 31, 1996, a mere nineteen (19) days later.   The defendants are claiming that the plaintiffs entered into a Restrictive Covenant that would last for fifteen (15) years in order to protect their investment in the Marriott and yet within nineteen (19) days terminated that very Restrictive Covenant due to the legal effect of the recorded documents.

The plaintiffs claim that on the face of the documents, the Purchase and Sale Agreement, the July 12, 1996 transaction and July 31, 1996 transaction, there is a material issue of fact as to the intention of the plaintiffs in extinguishing the Restrictive Covenant.   The plaintiffs argue that all of the recorded documents and the July 31, 1996 $1,600,000 transaction all came from the same source, the Purchase and Sale Agreement.   The plaintiffs after July 31, 1996 continued to own the Marriott and are still the owners of the Marriott to this very date.   Any owner of such a large investment would have to be wary of future competition and this was and remains the reason for the continued viability of the 1996 Restrictive Covenant.   The plaintiffs argue that it would be inconsistent for the plaintiffs to insist on a Purchase and Sale Agreement providing for a Restrictive Covenant that would last for fifteen (15) years and then nineteen (19) days thereafter extinguish that very Restrictive Covenant that was carefully negotiated.

Although the defendant claims that the issue in this case can be determined by the documents themselves, the intent of the parties to the real estate transaction is the ultimate question in this Motion for Summary Judgment.   The determination of the question of intent of a party to a transaction is an issue of fact.   Intent is an issue for the trier of fact.  Knower v. Cadden Clothing Co., 57 Conn. 202, 221-22 (1889).  “Where, however, the inferences which the parties seek to have drawn deal with the questions of motive, intent and subjective feelings, summary judgment procedure is particularly inappropriate.”  Town Bank and Trust Co. v. Benson, 176 Conn. 304, 308 (1978).  Town Bank and Trust Co. involved a determination of a certain conveyance documents.   The trial court set aside the conveyance and declared it null and void.   The trial court did so on a motion for summary judgment.  “We conclude, therefore, that, viewing the pleadings and affidavits before the trial court in a light most favorable to the defendants, there were genuine issues as to material facts which should have been resolved in a trial.   Accordingly, the trial court's decision that the conveyance be set aside and declared null and void as to the plaintiff was erroneous.”  Id. 309.  “It is only when the witnesses are present and subject to cross examination that their credibility and the weight to be given to their testimony can be appraised.”   Id., 309.

“The intent of the parties as expressed in a contract is determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction ․” Genua v. Logan, 118 Conn.App. 270, 274 (2009).   The defendants only want this court to consider the language of the recorded documents in determining the intent of the parties.   This is contrary to the above principle.  “In ascertaining intent, we consider not only the language used in the contract but also the circumstances surrounding the making of the contract, the motives of the parties and the purposes which they sought to accomplish.”  Honulik v. Greenwich, 293 Conn. 698, 729 (2009).  “The individual clauses of a contract, however, cannot be construed by taking them out of context and giving them an interpretation apart from the contract of which they are a part.”  Levine v. Advest, Inc., 244 Conn. 732, 753 (1998).

In a case involving a failed real estate development venture, a lawsuit was filed against the lawyers who had served as legal counsel to the general partner and the special limited partnership in the real estate venture.   Other lawsuits were brought by investors.   Those cases were consolidated and transferred to the complex litigation docket.   The court granted the defendant's motion for summary judgment.   The Appellate Court reversed the trial court;  “In ruling on a motion for summary judgment, the court must decide whether there is a genuine issue of material fact.   If there are issues of fact, the court may not resolve them without giving the parties a full hearing ․ Summary judgment is not appropriate in cases involving mixed questions of law and fact, such as negligence actions ․ Summary judgment should not be used in cases that are complex;  ․ in cases that concern important issues or questions of inference as to motive or intent ․ or in ones that involve subjective feelings and reactions ․ Although there may be instances where complex litigation may be resolved by means of summary judgment, the teachings of our Supreme Court instruct us that summary judgment is generally disfavored in complex cases.   Because these appeals concern complicated financial transactions, the interpretation of various documents, the intent and motives of the parties as well as an issue of public policy, the trial court should not have resolved the dispute by means of summary judgment.”  Gould v. Mellick & Sexton, 66 Conn.App. 542, 556-57 (2001).

“Litigants have a constitutional right to have genuine issues of fact determined by the jury, not by the court.”  Nelson v. Steffens, 170 Conn. 356, 363 (1976).

This case involves a substantial issue of public policy since it deals with a viability of documents recorded on the public land records.  “It has also been the policy of our law that the land records should be the authentic oracle of title on which a bona fide purchaser ․ might safely rely.”  Stankiewicz v. Miami Beach Association, Inc., 191 Conn. 165, 171 (1983);  Peckheiser v. Tarone, 186 Conn. 53, 57 (1982);  Safford v. McNeil, 102 Conn. 684, 687 (1925).

The court finds:

(1) The defendant has not proven to this court's satisfaction that the plaintiffs cannot replead the original complaint dated November 22, 2006 upon which the parties are relying.

(2) It is a matter of public policy that the court should consider all the evidence as to the intent of the parties before it makes a determination on the validity of documents recorded on public land records.

(3) The intent of the parties is a material issue of fact.   The disputed documents that were recorded within nineteen days of each other arise out of a common Purchase and Sale Agreement.

(4) The July 31, 1996 Assignment and Assumption of Lease Agreement and of Sublease Agreement affects only the 84,576 square feet parcel.   Whether or not the merger provision of the July 31, 1996 Agreement terminates the separate Restrictive Covenant on the 5,616 fee simple parcel is a material issue of fact.

(5) It is a material issue of fact as to whether the July 31, 1996 merger provisions merged only the Sublease with the ground lease and thus could not affect the Restrictive Covenant that is not contained in either of those two documents.

The defendant-Counterclaim Plaintiff, FelCor TRS Guarantor, LP's Motion for Summary Judgment dated June 4, 2009 (# 134.00) is denied.

THE COURT

Hon. Kevin Tierney

Judge Trial Referee

Tierney, Kevin, J.T.R.