Dream Developers of Cape Cod v. Eastern Connecticut Regional Water Company, Inc. et al. (2011)

MEMORANDUM OF DECISION

This action was instituted by Complaint dated July 19, 2007 and involves a housing development located in East Hampton, Connecticut developed by plaintiff.   After significant motion practice, the case was claimed to the trial list on December 28, 2009.   A four-day trial of this matter was held before the court between October 28th and November 3rd, 2010.

I

Findings of Fact

1.  In 2001, Peter Carli, a real estate developer, established Laurel Ridge Development, LLC and caused plans to be created for a housing development, known as Laurel Ridge, along the east side of Route 66 in East Hampton, Connecticut.   The development was to be built in four phases and consist of approximately 90 homes for persons 55 and older.

2. Laurel Ridge was located in the exclusive service area of Eastern Connecticut Regional Water Company, which was a wholly owned subsidiary of AquaSource.

3. On June 5, 2002, the Connecticut Department of Public Health (“DPH”) approved a plan for providing water to Phases I and II of Laurel Ridge that involved connecting with AquaSource's existing system that serviced the Baker Hill subdivision (“Baker Hill”).   Baker Hill lies immediately south of Laurel Ridge along the eastern side of Route 66.

4. On or about June 6, 2002, Laurel Ridge Development, LLC and AquaSource entered into an agreement entitled “Memorandum of Understanding for Water Service Extension to Laurel Ridge Project” (“MOU”).

5. Pursuant to the MOU, Laurel Ridge Development, LLC agreed to pay AquaSource $88,000.00 plus rock excavation costs “for the water main extension from the Baker Hill Community Water System to the Laurel Ridge Development.”   AquaSource agreed to furnish all materials and install the water main.   The aforementioned language does not apply to the water distribution system inside Phases I and II of the development, which was the separate financial responsibility of the developer.

6. The MOU also provided that the water pumping facility for Phases III and IV would be located a 500 square foot area in the development's community center and that the pumping facility had to be completed prior to the initiation of construction on Phase III of the development.

7. Dream Developers could not begin construction of the water pumping facility in the community center until it received plans and specifications from BUI.

8. The necessary specifications for the water pumping facility could not be prepared without knowing the quantity and quality of the available water, which could only be determined after the wells had been drilled and the available water tested.

9. Pursuant to the MOU, the developer also agreed to pay AquaSource $90,000.00 for system upgrades that would result in water being provided to Phases III and IV of the development, such figure including a $25,000.00 credit to the developer for the space the pumping facility would occupy in the community center.

10. Attachment A to the MOU entitled “Schedule of Improvements” identifies the particular system upgrades for which the developer is financially responsible and further indicates that “additional system upgrades or increases above the scheduled values will be borne by AquaSource.”

11. Pursuant to the terms of the MOU, the water company had the “the right to modify the fees [for Phases III and IV] for any phase that has not been initiated three years of the execution of this agreement” [sic].   The court will hereinafter refer to this three-year period as the “Cost Lock–In Period.”

12. On or about April 15, 2003, Laurel Ridge Development, LLC sold its interest in Phases I and II of the development to Dream Developers of Cape Cod, Inc. (“Dream Developers”), including Laurel Ridge Development, LLC's rights and obligations under the MOU.

13. By letter to Peter Melien, attorney for Dream Developers, dated July 23, 2003 Christopher Till, a Manager for AquaSource, indicated that AquaSource had the ability to provide water service for the development.

14. On or about October 31, 2003, Birmingham Utilities, Inc. (“BUI”) purchased AquaSource's Connecticut operations and assumed AquaSource's rights and obligations under the MOU.

15. On September 10, 2004, BUI completed the water main extension between Baker Hill and Laurel Ridge.   Dream Developers eventually paid BUI all monies due under the MOU for the water main extension.

16. By letter dated November 30, 2004 to Steve Motto, President of Dream Developers, George Gager, then the General Manager of BUI's Eastern Division, indicated that BUI would “be happy to provide water service to the units in the remaining units in Phase I as well as those in Phases II, III and IV” of Laurel Ridge.

17. By internal email dated December 13, 2004, George Gager, indicated that the level of funding provided for in the MOU for providing water to Phases III and IV was “wholly inadequate.”   Gager also indicated that Dream Developer's principal, Steve Motto, “would like to see the planning [on Phases III and IV] begin immediately.”

18. On or about December 14, 2004, Dream Developers purchased Laurel Ridge Development, LLC's interest in Phases III and IV of Laurel Ridge.

19. On March 4, 2005, George Gager of BUI received a proposal from a contractor for conducting a hydrogeologic assessment of the development property to determine where the wells for providing water to Phases III and IV should be drilled.

20. On June 7, 2005, the three-year Cost Lock–In Period outlined in the MOU elapsed prior to any construction being commenced on Phases III and IV. Not long thereafter, BUI informed Dream Developers that it intended to increase the fees it would charge to provide water service to Phases III and IV pursuant to its right to do so under the MOU. Dream Developers immediately disputed BUI's right to increase its fees.

21. By letter dated June 21, 2005, BUI's attorney David Rintoul forwarded specifications for the water pumping facility to Dream Developer's counsel.

22. On July 1, 2005, BUI received the hydrogeologic assessment of the development property identifying eight potential well drilling sites.

23. In response to David Rintoul's June 21, 2005 letter, Dream Developers attorney Peter Melien sent a letter dated July 8, 2005 indicating that the specifications were inadequate to begin construction of the water pumping facility and that Dream Developers had been requesting the requisite information since January 2005.

24. On July 25, 2005, BUI received a proposal from a well drilling contractor and, in turn, filed five well drilling applications with DPH.

25.  On October 14, 2005, DPH approved the well drilling applications.

26. Work on the access roads to the well drilling sites began in October 2005.

27. Three wells were dug on the property, the third being completed on November 29, 2005.

28. On January 12, 2006, BUI received preliminary water testing results.

29. On January 20, 2006, BUI received a proposal from Lenard Engineering, Inc. (“Lenard”) regarding design of the water treatment system, including the water pumping facility.

30. Dream Developers applied for a building permit for the community center on April 27, 2006.

31. On May 30, 2006, Dream Developers began pulling building permits for the houses in Phases III and IV.

32. In June 2006, Lenard sent BUI drawings for the water pumping facility, which were forwarded to Dream Developers in a timely manner.   The pumping facility as constructed occupied 1236 square feet of the community center instead of the originally planned 500 square feet.

33. On August 18, 2006, Dream Developers and BUI entered into a Stipulation Agreement (hereinafter “the Stipulation”) in an effort to keep the project moving in the face of their dispute over BUI's fee increases for providing water service to Phases III and IV. Pursuant to the Stipulation, BUI agreed to provide water service to Phases III and IV of Laurel Ridge in exchange for a provisional payment of $85,856.59 from Dream Developers, subject to subsequent judicial determination of Dream Developers' actual liability for the work.

34. The actual cost for providing water service to Phases III and IV exceeded $400,000.00.

35. The MOU required the developer to pay connection fees, tapping fees and inspection fees at the beginning of each Phase of the development.   Dream Developers owes BUI $113,100.00 in unpaid connection, tapping and inspection fees.

36. The Laurel Ridge water system is now self-contained and no longer connected to the Baker Hill system.

37. Insufficient evidence exists to support the conclusion that BUI acted negligently, intentionally, in bad faith, deceptively, unfairly or in breach of the MOU in an attempt to delay the initiation of construction on Phases III and IV so that it would be able to raise its fees at the expiration of the Cost Lock–In Period.

38. Overwhelming evidence exists in support of the proposition that it would have been impossible for Dream Developers to initiate work on Phases III and IV by June 7, 2005, the expiration of the Cost Lock–In Period, even if BUI had done everything possible in furtherance of that goal.

39. Based on the foregoing findings, BUI was entitled to modify its fees for providing water service to Phases III and IV pursuant to the terms of the MOU.

II

Discussion of LawADream Developers' Claims Against BUI

Dream Developers claims that BUI failed to diligently perform its duties under the MOU resulting in Dream Developers being unable to initiate work on Phases III and IV until after the Cost Lock–In Period elapsed.   Dream Developers seeks recovery based on the following theories:  1) BUI breached the MOU;  2) BUI's breach of the MOU was in bad faith;  3) BUI breached an implied covenant of good faith and fair dealing;  4) BUI intentionally interfered with Dream Developers' existing business relations;  5) BUI intentionally interfered with Dream Developers' prospective business relations;  6) BUI's actions constituted violations of the Connecticut Unfair Trade Practices Act (“CUTPA”), 42a–110a et seq.   Based on the court's finding that BUI did not act negligently, intentionally, in bad faith, deceptively, unfairly or in breach of the MOU in relation to its dealings with Dream Developers, judgment shall enter in favor of defendant BUI on each of plaintiff's claims, subject to plaintiff's right of set-off against BUI's recovery on its claims.¹

B

BUI's Claims Against Dream Developers

BUI seeks recovery based on the following claims:  1) Dream Developers breached the Stipulation between the parties;  2) Dream Developers was unjustly enriched for work BUI performed that was not anticipated under the Stipulation;  and, 3) In the event the court finds that the MOU continues to govern the relationship between the parties, Dream Developers breached the MOU.

The threshold issue in resolving BUI's claims against Dream Developers is whether the MOU continues to be a valid contract or whether BUI's exercise of its rights to “modify” the fees at the expiration of the Cost Lock–In Period serves to invalidate the MOU, because it constitutes a significant unilateral change of an essential contract term.   Traditionally, contracts were deemed invalid for want of fixed price term, but the prevailing modern view is that “where the plaintiff and the defendant have agreed that the defendant will pay for the plaintiff's services but the agreement is silent as to the amount of compensation, the court may conclude that the defendant contemplated paying a reasonable fee.”   Prudential Capital Corporation v. Reale, 231 Conn. 500, 507 (1994).   See also, 1 Restatement (Second), Contracts § 33, comment (e), p. 94 (1981).

In this instance, where the parties originally agreed to a price term, but not one that would apply once BUI had the right to “modify” the costs, there is even less reason to invalidate the parties' contract.  “A modification is a change;  an alteration or amendment which introduces new elements into the details, or cancels, or cancels some of them, but leaves the general purpose and effect of the subject-matter intact.”  Simes v. Simes, 95 Conn.App. 39, 43 (2006).   In this case, the purpose and subject matter of the MOU, specifically the provision of water service to Phases III and IV, remain in effect after expiration of the Cost Lock–In Period.   As a result, the court finds that the MOU continues to be a valid contract even after BUI's exercise of its right to modify the cost of providing water service to Phases III and IV and that BUI may recover a reasonable fee for doing so pursuant to the terms and conditions contained in the MOU. In addition, Dream Developers was required to pay connection, tapping and inspection fees at the initiation of construction of each Phase totaling $113,100.00, which it failed to do.   The amount owed by Dream Developers will be reduced by the $85,856.59 it already paid BUI pursuant to the Stipulation and a $36,800.00 credit for the increased size of the pumping facility.²

However, in view of the court's finding that the MOU continues to govern the relationship of the parties, the court finds that Dream Developers is only responsible for the cost of those improvements specifically outlined in the Schedule of Improvements contained in Attachment A to the MOU, which provides that “any additional charges for additional system upgrades or increases above the scheduled values” are to be borne by BUI. While the MOU allowed BUI to increase the costs it charged Dream Developers for providing water to Phases III and IV, it does not allow BUI to expand the scope of the improvements for which Dream Developers is financially responsible and, as a result, the parties remain bound by the scope of work language contained in the MOU, however indistinct it may be.

Based on the evidence presented at trial, the court finds itself in a position where any attempt it would make to determine what specific activities within and without the scope of the MOU's Schedule of Improvements would be speculative at best.   As a result, the court will schedule a Hearing in Damages at the parties' convenience, where they will be allowed to present evidence and argument regarding their relative financial responsibility for the provision of water service to Phases III and IV based on the scope of work in the Schedule of Improvements contained in Attachment A of the MOU.³

James W. Abrams, Judge

FOOTNOTES

FN1. Dream Developers also seeks a declaratory judgment that the MOU is valid and enforceable.   The court deals with this issue in relation to BUI's claims against Dream Developers..  FN1. Dream Developers also seeks a declaratory judgment that the MOU is valid and enforceable.   The court deals with this issue in relation to BUI's claims against Dream Developers.

FN2. In view of the fact that the MOU provides for a $25,000.00 credit for the use of 500 square feet of community center space for the pumping facility ($50.00 per square foot), it logically follows that the Dream Developers should be compensated for the use of the additional 736 feet at the same rate (736 times 50 equals $36,800.00)..  FN2. In view of the fact that the MOU provides for a $25,000.00 credit for the use of 500 square feet of community center space for the pumping facility ($50.00 per square foot), it logically follows that the Dream Developers should be compensated for the use of the additional 736 feet at the same rate (736 times 50 equals $36,800.00).

FN3. While the Stipulation contains a detailed scope of work for the provision of water service to Phases III and IV, the clear intent of the parties was that the terms of the Stipulation would not be binding upon the parties if a court found the MOU to be valid and enforceable..  FN3. While the Stipulation contains a detailed scope of work for the provision of water service to Phases III and IV, the clear intent of the parties was that the terms of the Stipulation would not be binding upon the parties if a court found the MOU to be valid and enforceable.

Abrams, James W., J.