LLC v. LLC (2010)

MEMORANDUM OF DECISION ¹

The plaintiff, Milford Paintball, LLC, seeks damages against the defendant, Wampus Milford Associates, LLC, for breach of lease, fraud, restitution and a violation of the Connecticut Unfair Trade Practices Act (CUTPA).   The defendant filed a counterclaim in which it alleges an anticipatory breach of contract.   The plaintiff filed an affirmative defense to that counterclaim.   The defendant filed two special defenses.   First it asserts that it did not breach the lease because the plaintiff did not provide the defendant with an opportunity to cure its non-performance, in accordance with the terms of the lease.   In its second defense, the defendant argues that the plaintiff anticipatorily breached the lease.

Evidence presented at trial reveals the following facts.   On February 10, 2004, the plaintiff and defendant entered into a lease agreement (the lease) for a portion of a building owned by the defendant at 80 Wampus Lane, Milford, Connecticut (the premises).   On February 13, 2004, Kathleen Rorick, a member of the plaintiff and on its behalf, provided the defendant with a security deposit in the amount of $32,083.52.   The premises were to be used by the plaintiff as an indoor paintball field.   The execution of the lease followed extensive negotiations between the parties regarding the terms of the lease.   Under the lease, each party had certain obligations to be performed before the plaintiff could take occupancy.   The plaintiff was to apply for and obtain zoning approval.   In addition, § 3.06 of the lease provided that the defendant would undertake extensive renovations to the premises, referred to as “landlord's work.”   Such work was to be completed within ninety days of the plaintiff's receipt of zoning approval.   In the event that the landlord's work was not completed, the plaintiff was to provide the defendant with written notice of non-performance and, upon receipt of such notice, the defendant was required to perform the work, or to commence performance and complete the landlord's work within a reasonable amount of time.   On April 23, 2004, the plaintiff sent the defendant a letter notifying the defendant that it had received zoning approval.   The defendant never commenced performance of the landlord's work.   In the five months between May and October 2004, the plaintiff and the defendant had conversations regarding performance of the landlord's work.   The plaintiff did not send the defendant written notice of non-performance.   During these conversations the defendant indicated that commencement of the landlord's work would be forthcoming.   According to the provisions provided for in the lease, the landlord's work should have been completed by July 23, 2004.   In December 2004, the plaintiff informed the defendant that it would not fulfill the terms of the lease because the defendant failed to perform the landlord's work.   Despite requests, the defendant did not return the security deposit to the plaintiff.   Thereafter, the defendant leased the space to a third party at a substantially lower rate than that provided for in the lease with the plaintiff.

I

The plaintiff argues that the defendant breached the lease when it failed to perform the landlord's work.   It further argues that such breach was material because the “timely completion of the landlord's work before Fall 2004, was the primary benefit the plaintiff bargained for ․” In support of its counterclaim and affirmative defense, the defendant argues that its non-performance of the landlord's work did not provide sufficient grounds for the plaintiff's repudiation of the lease and that the plaintiff's refusal to undertake its obligations constituted an anticipatory repudiation of the lease.

“The elements of a breach of contract action are the formation of an agreement, performance by one party, breach of the agreement by the other party and damages.”  (Internal quotation marks omitted.)  Bouchard v. Sundberg, 80 Conn.App. 180, 189 (2003).   In construing the lease, this court is guided by “three fundamental principles:  (1) The intention of the parties is controlling and must be gathered from the language of the lease in the light of the circumstances surrounding the parties at the execution of the instrument;  (2) the language must be given its ordinary meaning unless a technical or special meaning is clearly intended;  (3) the lease must be construed as a whole and in such a manner as to give effect to every provision, if reasonably possible ․ Where contract language is clear and unambiguous, the question of contractual intent presents a question of law for the court;  otherwise, the question of contractual intent is one of fact for the ultimate fact finder.”  (Internal quotation marks omitted.)  Jo-Ann Stores, Inc. v. Property Operating Co., LLC, 91 Conn.App. 179, 189 (2005).

A review of the lease indicates that the terms at issue are clear and unambiguous.   Section 3.06 of the lease refers to the landlord's work and provides:  “Landlord will perform certain work at the Premises ․ Landlord's work will be completed on or before ninety (90) days following notice of Tenant's receipt of Zoning Approval ․” The defendant does not dispute that it had an obligation to perform the landlord's work, pursuant to that section.   However, the defendant's counterclaim and affirmative defense are based upon its reliance on § 14.07 of the lease.   Article Fourteen of the lease is entitled “Defaults and Remedies.”   Section 14.07 is entitled “Landlord Default” and provides in relevant part:  “if Landlord fails to perform its obligations in the manner prescribed under this Lease, Tenant shall give Landlord written notice of such non-performance, and Landlord shall have thirty (30) days following its receipt of such notice either (a) perform its obligations under this lease, or (b) commence performance of such obligations, if such obligations are not reasonable capable of completion within such thirty (30) day period and to thereafter diligently pursue the same to completion in good faith and in a commercially reasonable manner.   In the event Landlord fails to perform such obligations ․ within such thirty (30) days period, then Tenant shall be entitled to take reasonable actions on its own behalf to perform such landlord obligations and tenant shall be entitled to reimbursement of all ․ costs and expenses reasonably incurred in connection therewith ․”

The language of the lease makes it clear that, in the event that the defendant failed to perform its obligations under the lease, the plaintiff had an obligation to provide written notice of such failure.   The plaintiff does not dispute that it did not provide the defendant with written notice of its non-performance of the landlord's work, but argues that the defendant's conduct modified the lease, such that the plaintiff was relieved of its obligation to provide the defendant with written notice of non-performance.   The defendant has interpreted the plaintiff's argument as based upon a theory of waiver, and contends that the evidence does not support a finding by this court that it intentionally waived its right to written notice, as provided by § 14.07.

“The general rule is that a party for whose benefit a provision in a contract is intended may waive his rights under such provision.”  Lanna v. Greene, 175 Conn. 453, 458 (1998).  “Waiver is the intentional relinquishment or abandonment of a known right or privilege ․ [and] is based upon a species of the principle of estoppel and where applicable it will be enforced as the estoppel would be enforced ․ Estoppel has its roots in equity and stems from the voluntary conduct of a party whereby he is absolutely precluded, both at law and in equity, from asserting rights which might perhaps have otherwise existed ․ Waiver does not have to be express, but may consist of acts or conduct from which waiver may be implied ․ In other words, waiver may be inferred from the circumstances if it is reasonable to do so.”  (Internal quotation marks omitted.)  Wiele v. Board of Assessment Appeals, 119 Conn.App. 544, 549 (2010).

“To constitute waiver there must be both knowledge of the existence of the right and intention to relinquish it ․ Waiver involves the idea of assent, and assent is an act of understanding.   This presupposes that the person to be affected has knowledge of his rights, but does not wish to assert them.   Intention to relinquish must appear.”  (Citations omitted;  internal quotation marks omitted.)  Novella v. Hartford Accidental & Indemnity Co., 163 Conn. 552, 562 (1972).  “Whether conduct constitutes a waiver is a question of fact ․ [and is] dependent on all of the surrounding circumstances and the testimony of the parties.”  (Citation omitted;  internal quotation marks omitted.)  Roy v. Metropolitan Property & Casualty Ins. Co., 98 Conn.App. 528, 532 (2006).

This court is not persuaded by the defendant's argument that it did not relinquish its right to receive written notice and thus, cannot have waived such right.   In the context of waiver, “intentional relinquishment” has been interpreted as “something done designedly or knowingly to relinquish ․” Reinke v. Greenwich Hospital Assn., 175 Conn. 24, 27 (1978).   Implied waiver, however, is based upon a theory of estoppel, and while the two are theoretically different, “implied waivers and estoppels by conduct are so similar that they are nearly indistinguishable.”  (Internal quotation marks omitted.)  O'Hara v. State, 218 Conn. 628, 641 (1991);  Hanover Ins. Co. v. Fireman's Fund Ins. Co., 217 Conn. 340, 351-52 (1991).  “[A]ny claim of estoppel is predicated on proof of two essential elements:  the party against whom estoppel is claimed must do or say something calculated or intended to induce another party to believe that certain facts exist and to act on that belief, and the other party must change its position in reliance on those facts, thereby incurring some injury.”  (Internal quotation marks omitted.)   O'Sullivan v. Bergenty, 214 Conn. 641, 648 (1990).  “The party claiming an estoppel must show that [it] exercised due diligence to know the truth, and that [it] not only did not know of the true state of things but also lacked any reasonably available means of acquiring knowledge.”  (Internal quotation marks omitted.)  Edart Truck Rental Corp. v. B. Swirsky & Co., 23 Conn.App. 137, 141 (1990).

The court finds that, based upon the evidence before it, the defendant waived its contractual right to written notice of non-performance of the landlord's work.   Such waiver can be implied from the defendant's conduct;  specifically, its phone conversations with Kathleen Rorick.   In those conversations, representatives of the defendant affirmed their intention to complete the landlord's work, even after the ninety-day deadline imposed by the contract had passed, thereby inducing the plaintiff to believe that performance was forthcoming.   The evidence further demonstrates that the plaintiff relied on such representations and therefore, it refrained from providing written notice of non-performance.   In addition, the number of phone calls made by Kathleen Rorick to the defendants indicates that the plaintiff exercised due diligence in attempting to glean whether the defendant intended to undertake the necessary renovations to the property.   Moreover, this court finds that “[t]he rule is applicable that no one shall be permitted to deny that he intended the natural consequences of his acts and conduct.”  (Internal quotation marks omitted.)  Gagne v. Vaccaro, 80 Conn.App. 436, 445 (2003), cert. denied, 268 Conn. 920 (2004).   In the present case, the plaintiff's reliance on the defendant's representations and its decision not to provide written notice of non-performance was the natural consequence of the defendant's conduct.   Thus, the court finds that the defendant impliedly waived its contractual right to written notice of non-performance and it cannot assert that the plaintiff failed to perform its obligations under the lease.

Consequently, the defendant's counterclaim and special defenses must fail.   Moreover, the court finds that the evidence indicates that the defendant breached the lease when it failed to perform its obligation under § 3.06. Furthermore, the defendant was made aware that it was important to the plaintiff that the premises would be made ready by the fall so it could commence its paintball operations.   Judgment may enter in favor of the plaintiff on its breach of lease (contract) claim.²

II

CUTPA

In its complaint, the plaintiff bases its CUTPA claim on an alleged “scheme” on the part of the defendant to enhance the value of the property through long-term lease agreements and to improve the premises with funds paid by tenants.   The plaintiff argues that the defendant violated CUTPA because it made material misrepresentations to the plaintiff, which were intended to induce the plaintiff to execute the lease, pay a security deposit and pay for the renovations described as the landlord's work.   It asserts that the defendant delayed performance of the landlord's work until November 2004, “when the Defendant knew the Plaintiff could not execute its business plan.”   The plaintiff contends that these circumstances demonstrate that the defendant's conduct was “unfair, unscrupulous, and resulted in substantial loss to the [p]laintiffs.”

The defendant argues that its conduct does not rise to the level of a CUTPA violation.   It contends that the lease would contain a reference to the plaintiff's need to begin business by September 2004 if that date had actually been of material importance to the plaintiff.   It also asserts that the plaintiff's decision not to exercise the remedies provided for in the lease should factor into this court's decision regarding the defendant's conduct.

CUTPA provides in relevant part that “[n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”  General Statutes § 42-110b(a).   In determining whether a practice violates CUTPA, Connecticut courts are guided by the criteria set out in the cigarette rule, as established by the Federal Trade Commission:  “(1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise-in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness;  (2) whether it is immoral, unethical, oppressive, or unscrupulous;  (3) whether it causes substantial injury to consumers, [competitors or other businesspersons] ․ All three criteria do not need to be satisfied to support a finding of unfairness.   A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three.”  (Internal quotation marks omitted.)   Ventres v. Goodspeed Airport, LLC, 275 Conn. 105, 155 (2005), cert. denied, 547 U.S. 1111, 126 S.Ct. 1913, 164 L.Ed.2d 664 (2006).  “[A] violation of CUTPA may be established by showing either an actual deceptive practice ․ or a practice amounting to a violation of public policy ․ Whether a practice is unfair and thus violates CUTPA is an issue of fact ․ The facts found must be viewed within the context of the totality of circumstances which are uniquely available to the trial court.”  (Internal quotation marks omitted.)  De La Concha of Hartford, Inc. v. Aetna Life Insurance Co., 269 Conn. 424, 434 (2004).   A breach of contract does not constitute “a violation of CUTPA unless there are additional facts from which one can infer that the defendant's conduct was also characterized by actions that were unethical, unscrupulous, willful or reckless.”   Cappellino v. People's United Bank, Superior Court, judicial district of New Britain, Docket No. CV 09 6002124 (October 13, 2010, Pittman, J.).

The defendant's conduct cannot be characterized as a mere breach of the lease agreement.   Rather, the evidence demonstrates that the defendant engaged in willful conduct that appears to have been calculated to mislead the plaintiff to believe the landlord's work would be completed.   In addition, the defendant falsely represented to the plaintiff that it would return its security deposit and reimburse the plaintiff for expenses incurred in anticipation of taking occupancy of the premises.   Despite demands by the plaintiff, it never received these payments.   Such conduct constitutes unfair, unethical and unscrupulous conduct and resulted in the plaintiff suffering a significant monetary loss.   Thus, the court finds that the defendant's conduct meets each of the criteria as set forth in Ventres v. Goodspeed Airport, LLC, supra.   Consequently, the court finds that the defendant's conduct falls within the type of conduct contemplated by CUTPA.   Judgment may enter for the plaintiff on its CUTPA claim.

III

Damages

The court orders the parties to file supplemental briefs on the damages to which the plaintiff is entitled to on its breach of contract claim and CUTPA, together with updated interest calculations and attorneys fees, within three weeks of the date of the decision.   The defendant may, if it chooses to do so, file an answering brief on this claim three weeks thereafter.   The court will then set a date on which the parties will be given the right to present evidence and oral argument on the claim for damages.

Robert I. Berdon

Judge Trial Referee

FOOTNOTES

FN1. This case was initially decided on May 31, 2008 in favor of the plaintiff.   The court (Skolnick, JTR) found that there was no agreement but that the defendant's conduct violated the Connecticut Unfair Trade Practices Act. The defendant was ordered to pay the plaintiff restitution and attorneys fees.   The defendant appealed to the Appellate Court and that judgment was reversed on the grounds there was a lease agreement and the case was remanded for a new trial.  117 Conn.App. 86 (2009)..  FN1. This case was initially decided on May 31, 2008 in favor of the plaintiff.   The court (Skolnick, JTR) found that there was no agreement but that the defendant's conduct violated the Connecticut Unfair Trade Practices Act. The defendant was ordered to pay the plaintiff restitution and attorneys fees.   The defendant appealed to the Appellate Court and that judgment was reversed on the grounds there was a lease agreement and the case was remanded for a new trial.  117 Conn.App. 86 (2009).

FN2. Because this court has found that judgment may enter in favor of the plaintiff on its breach of contract claim, it need not reach the plaintiff's fraud and restitution claims since they are pleaded as alternative theories of recovery..  FN2. Because this court has found that judgment may enter in favor of the plaintiff on its breach of contract claim, it need not reach the plaintiff's fraud and restitution claims since they are pleaded as alternative theories of recovery.

Berdon, Robert I., J.T.R.