The Chandlery at Essex, Inc. v. Philip Schonberger et al. (2010)

MEMORANDUM OF DECISION RE MOTION FOR SUMMARY JUDGMENT # 130

BACKGROUND

On June 13, 2008, the plaintiff, the Chandlery at Essex, Inc., commenced this action by service of process against the defendants, Philip Schonberger, d/b/a Albermarle Equities, LLC (Schonberger), Albermarle Equities, LLC (Albermarle) ¹ and the Chicago Title Insurance Company (Chicago Title).   In the operative pleading, which is the revised complaint dated January 20, 2010, the plaintiff alleges the following facts.   On December 7, 2006, the plaintiff, as the seller, entered into a commercial real estate contract with Schonberger and Albermarle for the purchase of a parcel of land located at 9 Novelty Lane in Essex.   A copy of the subject contract is attached to the original complaint.   The agreement set forth a purchase price of $3.75 million for the premises.   Paragraph four of the contract provides, in relevant part, as follows:  “Earnest Money Deposit.   Contemporaneously with its execution and delivery of the Agreements, as an Earnest Money deposit for the Transactions, Buyer shall make an initial deposit, in escrow, with (Title company to be named) (“Escrow Agent”) the total sum of THIRTY-SIX THOUSAND SEVEN HUNDRED DOLLARS ($36,700.00) ․ which sum shall be held pursuant to an Escrow Agreement ․ An additional Earnest Money deposit in the amount of ONE HUNDRED TEN THOUSAND ONE HUNDRED DOLLARS ($110,100.00) shall be made upon the same terms and provisions as the initial Earnest Money Deposit within (5) business days of the conclusion of the Buyer's Due Diligence period ․” The contract further provided that the remaining balance of the purchase price would be paid at the closing on January 12, 2007.

Pursuant to the terms of the contract, on December 7, 2006, the defendants deposited $36,700 with Chicago Title, an escrow agent.   On December 12, 2006, the plaintiff provided Schonberger with a phase I environmental assessment for the premises, which was required by the subject agreement.   In a letter dated December 19, 2006, the plaintiff revealed to Schonberger that the assessment indicated that the property had an elevated lead level in one of the test borings that exceeded the residential, but not the commercial/industrial standard.   This letter further stated that the plaintiff had advised its environmental consultant to conduct additional testing, which would not occur until January 2007.   Accordingly, the plaintiff suggested that the parties should postpone the closing until this testing was completed.   Schonberger did not object to this change in closing date.   By letter dated February 21, 2007, the plaintiff provided Schonberger with a phase III subsurface investigation of the premises and requested that the parties schedule a closing.   The plaintiff made similar requests to schedule a closing in writing on February 27, 2007, March 5, 2007 and March 18, 2007, to which the defendants failed to respond.   On March 5, 2007, the plaintiff's counsel wrote to the defendants' counsel and indicated that “unless assurances are provided that your client intends to close forthwith, The Chandlery at Essex, Inc. will declare Albermarle Equities, LLC to be in default and proceed accordingly.”   On April 30, 2007, Schonberger advised the plaintiff that he would not be able to proceed with the closing and that the contract must be terminated.   Consequently, the plaintiff attempted to secure another buyer for the premises.   On March 11, 2008, the plaintiff sold the premises to River Properties East, Inc. for $3.4 million.

The plaintiff has brought a two-count complaint against the defendants for interpleader and breach of contract.   In count one, interpleader, the plaintiff alleges that Chicago Title maintains possession of the $36,700 deposit, and the plaintiff requests that the court enter an interlocutory judgment requiring the parties to interplead together regarding their respective claims for these funds.   The plaintiff's breach of contract count requests “money damages.”

On October 23, 2009, the defendants filed a motion for summary judgment, as well as a memorandum of law in support of their motion.   The defendants move for summary judgment on the ground that there are no genuine issues of material fact in this matter, and, therefore, they are entitled to judgment as a matter of law.   Attached to the defendants' motion are:  (1) a copy of the plaintiff's responses to the defendants' requests for admissions dated October 6, 2009;  (2) a copy of the subject real estate contract;  (3) a copy of the escrow agreement with Chicago Title;  (4) a copy of the phase III environmental report for the 9 Novelty Lane property dated February 13, 2007;  (5) a copy of a letter from Attorney Alan R. Spirer to Attorney John L. Senning dated February 21, 2007;  (6) a copy of an email from Attorney Spirer dated March 16, 2007;  (7) a copy of the phase II environmental report for the 9 Novelty Lane property dated March 15, 2007;  (8) a copy of a letter from Schonberger to Attorney Spirer dated March 18, 2007;  (9) a copy of an email from Attorney Senning dated March 23, 2007;  (10) a copy of a handwritten facsimile from Schonberger to Attorney Sprirer dated April 27, 2007;  (11) a copy of an email from Attorney Senning dated April 30, 2007;  (12) a copy of a phase I environmental report for the 9 Novelty Lane property dated April 30, 2007;  (13) a copy of a letter from Attorney Spirer to Attorney Senning dated April 30, 2007;  (14) a copy of a letter from Attorney Spirer to Chicago Title dated April 30, 2007 and (15) the deposition transcript of John S. Johnson, who is the plaintiff's president.²

On November 24, 2009, the plaintiff filed a memorandum of law in opposition to the defendants' motion.   The plaintiff has attached Johnson's sworn affidavit, as well as the April 27, 2007 facsimile from Schonberger.   The defendants filed a reply memorandum on December 23, 2009.   In support, the defendants have attached copies of the plaintiff's post-trial brief in Spirer v. Ayotte, Docket No. CV 07 4012975 (the Ayottte case), as well as Judge Tierney's memorandum of decision in that case.   The court heard this matter at short calendar on April 19, 2010.

DISCUSSION

“Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.   In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party.”  (Internal quotation marks omitted.)  Provencher v. Enfield, 284 Conn. 772, 790-91, 936 A.2d 625 (2007).  “[S]ummary judgment is appropriate only if a fair and reasonable person could conclude only one way ․ [A] summary disposition ․ should be on evidence which a jury would not be at liberty to disbelieve and which would require a directed verdict for the moving party.”  (Citations omitted, internal quotation marks omitted.)   Dugan v. Mobile Medical Testing Services, Inc., 265 Conn. 791, 815, 830 A.2d 752 (2003).   The burden is on the moving party to demonstrate an absence of any triable issue of material fact ․ Once the moving party has met its burden, however, the opposing party must present evidence that demonstrates the existence of some disputed factual issue ․ It is not enough, however, for the opposing party merely to assert the existence of such a disputed issue.   Mere assertions of fact ․ are insufficient to establish the existence of a material fact and, therefore, cannot refute evidence properly presented to the court under Practice Book § [17-45].”  (Internal quotation marks omitted.)   Zielinski v. Kotsoris, 279 Conn. 312, 318-19, 901 A.2d 1207 (2006).

In their memorandum of law, the defendants argue that they are entitled to summary judgment because the liquidated damages provision in the real estate contract is unenforceable as a matter of law.   Specifically, the defendants contend that the court cannot enforce the liquidated damages clause because the plaintiff did not suffer any damages as a result of the defendants' alleged breach of contract and there is no evidence before the court that the defendants' breach was willful.   The defendants also argue that enforcement of the liquidated damages clause would unjustly enrich the plaintiff because the plaintiff cannot recover liquidated damages in an amount in excess of the actual deposit.

The plaintiff responds that there are outstanding issues of fact that preclude the court form granting summary judgment.   Specifically, the plaintiff argues that the parties entered into a legally enforceable agreement providing for liquidated damages, which the defendants breached.   As the plaintiff contends that it suffered damages as a result of the defendants' breach of this real estate contract because it sold the subject premises for less than the amount provided in the parties' contract, the plaintiff states that it is entitled to either liquidated or actual damages.   The plaintiff also argues that there is nothing in the defendants' motion that indicated the defendants are moving for summary judgment on count one for interpleader.

In their reply memorandum, the defendants argue that the plaintiff's memorandum of law in opposition fails to raise any disputed fact.   The defendants also contend that the plaintiff cannot recover any damages because it had the opportunity to sell the subject premises at a higher price following the defendants' breach of the sales contract.   Furthermore, the defendants argue that the plaintiff's position regarding the recovery of liquidated damages is inconsistent with arguments that the plaintiff raised in the Ayotte case.   For all of these reasons, the defendants believe they are entitled to judgment as a matter of law.

At the outset, the court must determine precisely what type of damages the plaintiff is seeking in the present case.   Although earlier versions of the plaintiff's complaint referenced the liquidated damages provision from the parties' contract, the operative complaint fails to allege explicitly that the plaintiff is entitled to liquidated damages.   Instead, the operative complaint seems to suggest that the plaintiff can obtain $350,000 in money damages, which is the difference between the contract price and the amount that the plaintiff received from the sale of the property to River Properties East, Inc. At oral argument before this court, the defendants stated that this omission from the complaint precludes the plaintiff from recovering any liquidated damages pursuant to the contract.   The defendants provided no authority in support of this proposition.   As the subject contract was attached to the original complaint, and, therefore, considered part of the complaint;  see Practice Book § 10-29;  and the plaintiff is seeking damages for breach of a contract that provides for liquidated damages, the plaintiff is not absolutely barred from recovering liquidated damages.   Nevertheless, in Connecticut, “it is ․ well settled that a non-breaching party may not retain a stipulated sum as liquidated damages and also recover actual damages ․ If a liquidated damages provision is found to be a penalty, the plaintiff may recover actual damages, but if actual damages are not proven, then none may be recovered.”  (Citation omitted.)   Webster Insurance, Inc. v. Levine, Superior Court, complex litigation docket at Waterbury, Docket No. X06 CV 074016194 (April 29, 2009, Stevens, J.), citing Camp v. Cohn, 151 Conn. 623, 626, 201 A.2d 187 (1964).   Consequently, the plaintiff's recovery is limited to either liquidated or actual damages, but not both.

“[T]he law is well established in this jurisdiction, as well as elsewhere, that a term in a contract calling for the imposition of a penalty for the breach of the contract is contrary to public policy and invalid, but a contractual provision fixing the amount of damages to be paid in the event of a breach is enforceable if it satisfies certain conditions.”  (Internal quotation marks omitted.)  American Car Rental, Inc. v. Commissioner of Consumer Protection, 273 Conn. 296, 306, 869 A.2d 1198 (2005).  “A clause fixing damages for a contractual breach ․ may be a permissible liquidated damages clause, rather than an illegal penalty clause, if three conditions are satisfied:  (1) The damage which was to be expected as a result of a breach of the contract was uncertain in amount or difficult to prove;  (2) there was an intent on the part of the parties to liquidate damages in advance;  and (3) the amount stipulated was reasonable in the sense that it was not greatly disproportionate to the amount of the damage which, as the parties looked forward, seemed to be the presumable loss which would be sustained by the contractee in the event of a breach of the contract.”  (Internal quotation marks omitted.)  HH East Parcel, LLC v. Handy and Harman, Inc. 287 Conn. 189, 205, 947 A.2d 916 (2008).  “A liquidated damages clause allowing the seller to retain 10 percent of the contract price as earnest money is presumptively a reasonable allocation of the risks associated with default ․ The presumption of validity that attaches to a clause liquidating the seller's damages at 10 percent of the contract price in the event of the purchaser's unexcused nonperformance is, like most other presumptions, rebuttable.   The purchaser, despite his default, is free to prove that the contract, or any part thereof, was the product of frauds or mistake or unconscionability ․ In the alternative, the purchaser is free to offer evidence that his breach in fact caused the seller no damages or damages substantially less than the amount stipulated as liquidated damages.”   (Citations omitted.)  Vines v. Orchard Hills, Inc. 181 Conn. 501, 512-13, 435 A.2d 1022 (1980).   Our Supreme Court has repeatedly refused to enforce a liquidated damages provision if the seller did not suffer any damages because “neither justice nor the intent of the parties is served by enforcement.   To enforce it would amount in reality to the infliction of a penalty.”  Norwalk Door Closer Co., Inc. v. Eagle Lock & Screw Co., 153 Conn. 681, 689-90, 220 A.2d 263 (1966).  “A breaching party seeking to nullify a contract clause that fixes an amount as damages for the breach bears the burden of proving that the agreed upon amount so far exceeds any actual damages as to be in the nature of a penalty.”  American Car Rental, Inc. v. Commissioner of Consumer Protection, supra, 273 Conn. 314.

An examination of the evidence provided by the parties reveals the following undisputed facts.   On December 7, 2006, the plaintiff and the defendants entered into a contract for the sale of the plaintiff's property at 9 Novelty Lane. Paragraph four of this agreement indicates that the defendants were to deposit $36,700 with an escrow agent as an earnest money deposit, which the defendants did on the date they signed the contract.   The defendants further had to deposit $110,100 within five business days of the conclusion of the buyer's due diligence period.   Pursuant to paragraph seventeen of the contract:  “In the event that the Seller has substantially complied with all of the terms, conditions, covenants and agreements contained in the Agreements on its part to be then performed, and the Buyer shall fail or refuse to substantially perform all of the terms ․ it is agreed that the Earnest Money shall be forfeited to and retained by the seller as liquidated damages ․” The contract provided for a closing date of January 12, 2007.   Following an inspection that revealed environmental problems with the property, the plaintiff suggested via a letter dated December 19, 2006, that the parties should postpone the closing so that the plaintiff could attempt to address these environmental concerns.   The defendants raised no objection to this proposal.

Throughout the spring of 2007, the plaintiff attempted to remediate the environmental problems at the property as well as schedule a new closing date.   The defendants either failed to respond to these requests to schedule a new closing date, or an agreement could not be reached.   On April 30, 2007, Schonberger sent a handwritten letter dated April 27, 2007, via fax to the plaintiff's counsel wherein he indicated that the defendants “cannot proceed to a closing dated at this time and must terminate the contract.”   By letter dated April 30, 2007, the plaintiff indicated that the defendants were in breach of contract and demanded that the defendants tender the remaining $110,100 deposit.   The plaintiff then attempted to secure another purchaser for the property.   On September 4, 2007, the plaintiff entered into an agreement with Rick Ayotte to sell the property for $3.8 million.   This transaction was also not completed.   The plaintiff then sold the property to River Properties, Inc. on March 11, 2008, for $3.4 million.

When determining whether the plaintiff can enforce the liquidated damages provision under these facts, the court first notes that the liquidated damages clause is presumptively reasonable because it is less than 10 percent of the purchase price of the subject property.   The defendants do not argue that the liquidated damages provision was inserted into the contract as a result of fraud, mistake or unconscionability.   Therefore, the defendants have the burden of proving that the liquidated damages clause amounts, as a matter of law, to an unenforceable penalty.   The crux of the defendants' argument in favor of unenforceability is that the plaintiff had an opportunity to sell the property for more than the amount provided in the parties' contract.   Therefore, the defendants contend that the plaintiff suffered no damages.   The plaintiff claims that it suffered damages because, when it eventually sold the property in the spring of 2008, the sales price was $350,000 less than the contract between the plaintiff and the defendants.

Our Supreme Court's opinion in Vines v. Orchard Hills, Inc., supra, 181 Conn. 501, provides guidance in deciding the issues presented in this motion.   In Vines, the plaintiff purchasers put down a deposit for a condominium unit.   The contract between the parties provided that the seller could keep the deposit as liquidated damages in the event of a breach.   The purchasers failed to complete the transaction, and the sellers refused to return the deposit.   The trial court determined that the seller had suffered no damages because the seller eventually sold the condominium unit for more than the contract price.   The Supreme Court determined that this conclusion was in error because “[t]he relevant time at which to measure the seller's damages is the time of breach ․ Benefits to the seller that are attributable to a rising market subsequent to breach rightfully accrue to the seller ․ There was no evidence before the court to demonstrate that the seller was not injured at the time of the purchasers' breach by their failure then to consummate the contract.”   (Citations omitted.)  Id., 513-14.   Nevertheless, the Supreme Court remanded the case in order to afford the purchasers the opportunity to demonstrate that the seller was not damaged.   As stated by the Supreme Court, “[t]he purchasers may be able to demonstrate that the condominium could, at the time of their breach, have been resold at a price sufficiently higher than their contract price to obviate any loss of profits and to compensate the seller for any incidental damages.”  Id., 514.

Vines establishes that the defendants are correct in their contention that they only need to establish that the plaintiff could have sold the property at a price higher than the contract price.  Vines also states that it is insufficient for the defendants simply to demonstrate that the property eventually could have been sold at a higher price.   The operative date for determining whether the plaintiff suffered damage is the time of the defendants' breach, which at the latest, was April 2007.   Consequently, in order to establish that the plaintiff suffered no damages as a matter of law, the defendants need to show that the property could have been resold in April 2007 at a sufficiently higher price such that the plaintiff would have suffered no lost profits and consequential or incidental damages.   As the defendants have only demonstrated that the property could have been sold at a net profit in September 2007, the defendants have failed to meet their burden to establish that the plaintiffs suffered no damages as a matter of law.   Accordingly, there is a genuine issue of material fact regarding whether the plaintiff was damaged by the defendants' breach of contract, which precludes a finding that the liquidated damages provision is an unenforceable penalty clause.

The defendants also argue that they are entitled to summary judgment because Connecticut law precludes recovery of liquidated damages in an amount greater than the amount that the buyers paid as a deposit.   As authority for this position, the defendants cite Fiorilla v. Moore, 151 Conn. 710, 200 A.2d 488 (1964).   A close examination of the Fiorilla opinion, however, reveals that this case does not stand for the blanket proposition that an unpaid deposit cannot be recovered as liquidated damages.   In Fiorilla, our Supreme Court only upheld a trial court's determination that an unpaid check did not constitute “payment” of liquidated damages under the terms of the contract at issue.   Nevertheless, even if the court were to determine that the plaintiff can only recoup the amount that the defendants actually paid as deposit, there is no dispute that the defendants have already put down $36,700 towards their deposit.   These funds are currently held in escrow by Chicago Title and are the foundation of the plaintiff's interpleader cause of action.   At trial, the plaintiff could potentially demonstrate that it suffered damages in that amount due to the defendants' breach of the parties' real estate agreement, which is the basis for the plaintiff's cause of action in count two.   Therefore, the defendants have failed to meet their burden to establish that they are entitled to judgment as a matter of law because there is a genuine issue of material fact regarding whether the plaintiff suffered damages as a result of the defendants' breach of contract.

CONCLUSION

For the reasons stated above, the defendants' motion for summary judgment is denied.

THE COURT

Brazzel-Massaro, J.

FOOTNOTES

FN1. The complaint alleges that Philip Schonberger d/b/a Albermarle Equities, LLC and Albermarle Equities, LLC, are both named as party defendants because “[u]pon information and belief Albermarle Equities, LLC is not a duly formed Connecticut limited liability company and the Agreement was entered into by Defendant Phillip Schonberger d/b/a Albermarle Equities.”   Any references to “the defendants” in this memorandum will refer to both Schonberger and Albermarle collectively, as they are the defendants who are parties to the motion for summary judgment that is presently before the court..  FN1. The complaint alleges that Philip Schonberger d/b/a Albermarle Equities, LLC and Albermarle Equities, LLC, are both named as party defendants because “[u]pon information and belief Albermarle Equities, LLC is not a duly formed Connecticut limited liability company and the Agreement was entered into by Defendant Phillip Schonberger d/b/a Albermarle Equities.”   Any references to “the defendants” in this memorandum will refer to both Schonberger and Albermarle collectively, as they are the defendants who are parties to the motion for summary judgment that is presently before the court.

FN2. None of the evidence offered in support of the defendants' motion for summary judgment is certified or otherwise authenticated.   Under Connecticut law, “before a document may be considered by the court in support of a motion for summary judgment, there must be a preliminary showing of [the document's] genuineness, i.e., that the proffered item of evidence is what its proponent claims it to be.”  (Internal quotation marks omitted.)  New Haven v. Pantani, 89 Conn.App. 675, 679, 874 A.2d 849 (2005).   Despite this rule, a court has discretion to consider unauthenticated documentary evidence when no objection has been raised by the opposing party.  Barlow v. Palmer, 96 Conn.App. 88, 92, 898 A.2d 835 (2006).   As the plaintiff has not objected to the defendants' use of unauthenticated documentary evidence, the court can consider this evidence when ruling on the motion for summary judgment..  FN2. None of the evidence offered in support of the defendants' motion for summary judgment is certified or otherwise authenticated.   Under Connecticut law, “before a document may be considered by the court in support of a motion for summary judgment, there must be a preliminary showing of [the document's] genuineness, i.e., that the proffered item of evidence is what its proponent claims it to be.”  (Internal quotation marks omitted.)  New Haven v. Pantani, 89 Conn.App. 675, 679, 874 A.2d 849 (2005).   Despite this rule, a court has discretion to consider unauthenticated documentary evidence when no objection has been raised by the opposing party.  Barlow v. Palmer, 96 Conn.App. 88, 92, 898 A.2d 835 (2006).   As the plaintiff has not objected to the defendants' use of unauthenticated documentary evidence, the court can consider this evidence when ruling on the motion for summary judgment.

Brazzel-Massaro, Barbara, J.