Anthony Salce, Sr. v. Walter Wolczek (2011)

MEMORANDUM OF DECISION RE MOTION FOR JUDGMENT

This matter arises out of claimed breach of contract, specifically, a buyout agreement between the parties.   Under the terms of the buyout agreement the plaintiff sold his 50% interest in their jointly held limited liability company to the defendant.   The corporation owned commercial real estate located at 2 Corporate Drive, Trumbull, Connecticut.   The buyout agreement contemplated an additional contingent purchase price under certain circumstances.

The plaintiff claimed that those circumstances came to pass and that he is therefore entitled to an additional $1,000,000.00 under the buyout agreement.   The defendant denied any such contractual obligation.   By Memorandum of Decision dated October 26, 2010, the court granted the plaintiff's motion for summary judgment as to liability on the breach of contract claim.   Thereafter, the plaintiff filed a motion for judgment.   The defendant objected.   At issue is the amount of damages to be awarded.

The plaintiff claims:  (1) damages of $1,000,000 as the funds owed him under the contingency purchase price provision of the buyout agreement;  (2) prejudgment interest pursuant to the offer of compromise statute;  (3) prejudgment and postjudgment interest pursuant to Conn. Gen.Stat. § 37–3a;  (4) attorneys fees in the amount of $98,712.80;  (5) costs of $1,140.83.

The defendant argues that the initial damages under the terms of the contract should be measured well below $1,000,000, under alternative theories.   If the court accepts the defendant's valuation, no interest would accrue under the offer of compromise statute.   He further argues that equity mandates that no prejudgment nor postjudgment interest should accrue regardless of the amount of damages assessed.

The defendant accepts as reasonable an award of attorneys fees of $98,712.80.   The defendant agrees that the costs are $1,140.83.

Undisputed Facts

The facts accepted by the court, and agreed upon and stipulated to by the parties, are set forth below.

Prior to April 13, 2007, the plaintiff Anthony H. Salce, Sr., and the defendant, Walter Wolczek, were business partners, each owning a 50% interest in a limited liability company named “Anwalt, LLC.” Anwalt LLC owned property at 2 Corporate Drive, Trumbull, Connecticut.   In April 2007, the plaintiff agreed to sell his 50% interest in Anwalt to the defendant for a purchase price of $1,750,000.00.   The buyout agreement (the Agreement) contained a contingency clause which provides, in its entirety as follows:

(b) Contingent Addition to Purchase Price.

If within one year of the closing hereunder any ownership interest in the Premises or any entity that owns the Premises is transferred to a “non-Wolczek Person” based on a whole property value of more than $3,500,000, the Buyer shall pay Seller an additional purchase price equal to one-half the excess at the same time as the transfer.   The “excess” is the amount by which the whole property value for the transfer exceeds $3,500,000.   The “Whole value” for any sale is the 100% value on which any percentage interest being transferred is based.   For example, a one-quarter interest transferred for $1,000,000 would equate to a whole property value of $4,000,000.   A “Non–Wolczek Person” is someone other than Walter Wolczek or his immediate family member of lineal descendant.

The “Premises” refers to the property at 2 Corporate Drive, Trumbull, Connecticut.   The Agreement was executed on April 13, 2007 and the buyout “closed” on May 31, 2007.   The one-year contingency period therefore began on May 31, 2007 and would have expired as of May 31, 2008.   Thereafter, the Premises were transferred to “Corporate Drive Office Center LLC,” an entity whose membership is comprised of family members of the defendant.   There has been no claim that this transfer was to a “Non–Wolczek Person” or that it triggered the contingency clause in any fashion.

On March 19, 2008, Corporate Drive Office Center LLC, through the defendant as a Member thereof, entered into a contract for the sale of the Premises to Brian Vaughn or an entity designated by him, with a stated purchase price of $5,500,000.   Brian Vaughn then created the entity “Corporate Drive, LLC” to take title to the Premises under the contract.   The closing of the real estate transaction for the Premises occurred on July 1, 2008.

Discussion

In granting the motion for summary judgment, this court held that the contingency price provision of the contract was triggered under the doctrine of equitable conversion upon the signing of the sale contract with Vaughn.   The court does not herein include further explanation of the basis upon which summary judgment was granted as it is outlined in the court's memorandum of decision dated October 26, 2010.

A. Damages for Breach of Contract

The plaintiff argues that the unequivocal measure of damages for breach of the contingency purchase price provision is $1,000,000.00.   This figure is reached by taking 50% of the difference between $3,500,000 and the re-sale price to Brian Vaughn, $5,500,000.

The defendant argues that the amount due and owing should be measured by the value of the equitable interest transferred at the time the contract for the sale to Vaughn was signed.   He argues that the value of the equitable interest is $550,000.00 which is the amount identified in the liquidated damages provision of the agreement.   He argues that this is the “value” of the equitable interest transferred because in the event of default by the purchaser, the seller would have no other recourse but to keep the $550,000 deposit.

The court does not accept this valuation.   First, if the value of the transfer is less than $3,500.000.00, then no breach of the agreement would have occurred.   That issue is already decided.¹  More critically, the process for determining the amount owed is spelled out, unequivocally, in the contract.

(b) Contingent Addition to Purchase Price.

If within one year of the closing hereunder any ownership interest in the Premises or any entity that owns the Premises is transferred to a “non-Wolczek Person” based on a whole property value of more than $3,500,000, the Buyer shall pay Seller an additional purchase price equal to one-half the excess at the same time as the transfer.   The “excess” is the amount by which the whole property value for the transfer exceeds $3,500,000.   The “Whole value” for any sale is the 100% value on which any percentage interest being transferred is based.   For example, a one quarter interest transferred for $1,000,000 would equate to a whole property value of $4,000,000.

Under this very clear directive, “one-half the excess,” the amount owed to the plaintiff, is $1,000,000.00.   The defendant sold a 100% property interest to Vaughn for $5.5 million.

The defendant next asserts, in the alternative, that the court should construe the contract to permit a reduction, prior to calculating the 50% of the excess, for the costs of the sale.   He argues that the intent of the parties was to split the “profit” from a resale of the property.

“Although ordinarily the question of contract interpretation, being a question of the parties' intent, is a question of fact ․ [w]here there is definitive contract language, the determination of what the parties intended by their contractual commitments is a question of law ․ Levine v. Massey, 232 Conn. 272, 277, 654 A.2d 737 (1995);  see Mulligan v. Rioux, 229 Conn. 716, 740, 643 A.2d 1226 (1994), on appeal after remand, 38 Conn.App. 546, 662 A.2d 153 (1995);  Bank of Boston Connecticut v. Schlesinger, 220 Conn. 152, 158, 595 A.2d 872 (1991).”  Tallmadge Brothers, Inc. v. Iriquois Gas Transmission Systems, L.P., supra, 252 Conn. at 495.  (Internal quotes omitted.)

The clear and unambiguous language of the buyout agreement give instruction on how to calculate the “excess.”   It does not include any allowance or reduction for costs incurred in connection with the resale of the property.   Had the parties wanted to include such a provision, they surely could have.   See, Bank of Boston Connecticut v. Schlesinger, supra, 220 Conn. at 158.

The amount due under the buyout agreement is $1,000,000.

B. Offer of Compromise Interest

The award of attorneys fees in addition to the $1,000,000.00 in damages from the breach of the agreement, brings the total damages above the amount of the plaintiff's offer of compromise of $1,000,000.00.   The complaint in this matter was filed with the court on June 19, 2008.   Within eighteen months thereof, on December 15, 2009, the plaintiff filed his offer of compromise.   As a result, the plaintiff is entitled to interest at the annual rate of 8% commencing on the date the complaint was filed, June 19, 2008.   See, Conn. Gen.Stat. § 52–192a(c).

C. Prejudgment Interest and Postjudgment Interest

The plaintiff also seeks an award of both prejudgment and postjudgment interest pursuant to Conn. Gen.Stat. § 37a–3.

“The decision of whether to grant interest under § 37–3a is primarily an equitable determination and a matter lying within the discretion of the trial court.”  Chapman Lumber, Inc. v. Tager, 288 Conn. 69, 99–100 (2008).   General Statutes § 37–3a(a) provides in relevant part:

“Except as provided in sections 37–3b, 37–3c and 52–192a, interest at the rate of ten percent a year, and no more, may be recovered and allowed in civil actions ․ as damages for the detention of money after it becomes payable.”   As recently noted by our Supreme Court, the statute does not “clearly and unambiguously set forth the factors that a trial court must consider in exercising its discretion to award interest.”  Sosin v. Sosin, 300 Conn. 205 (2011).   Therefore, the Supreme Court conducted an exhaustive review of both legislative policy implicated by the statute as well as its relationship to existing legislation and common-law principles governing the same general subject matter.  Id. at 228.

“[t]he court's determination [as to whether interest should be awarded under § 37–3a] should be made in view of the demands of justice rather than through the application of any arbitrary rule ․ Whether interest may be awarded depends on whether the money involved is payable ․ and whether the detention of the money is or is not wrongful under the circumstances.”   (Citations omitted;  internal quotation marks omitted.)

Id. at 229, citing, Stephan v. Pennsylvania General Ins. Co., 224 Conn. 758, 765 (1993).

Although withheld in good faith, the retention of money after it becomes payable may still be wrongful.   See General Electric Supply Co. v. Southern New England Telephone Co., 185 Conn. 583, 605 (1981).   Further, the court is not required to find bad faith in order to determine that the detention of money was wrongful.  Ferrato v. Webster Bank, 67 Conn.App. 588, 596 (2002).

The Sosin decision also instructs us that the trial court is not required to find that the retention of funds was “unreasonable or without justification in order to find that it was “wrongful.”  Sosin v. Sosin, supra, at 229.   In reviewing the legislative policy behind the statute, the Sosin Court noted that “the primary purpose of § 37–3a, ․ is not to punish persons who have detained money owed to others in bad faith but, rather, to compensate parties that have been deprived of the use of their money.”  Sosin v. Sosin, supra, at 229.

Therefore, simply because the defendant may have had (and still has) a good faith belief that he was not required to pay money to the plaintiff, does not foreclose an order of prejudgment or post-judgment interest.   However, whether a defendant pursued a defense of the claim in good faith belief as to the merits of the defense may be a factor considered by the court in determining whether the retention of the money was “wrongful.”   See, e.g. MedValUSA Health Programs, Inc. v. MemberWorks, Inc., 273 Conn. 634, 665–66 (2005) (trial court's denial of motion for interest pursuant to § 37–3a was not abuse of discretion when trial court found that defendant had not wrongfully withheld money because its arguments in support of motion to vacate arbitration award were not frivolous);  O'Hara v. State, 218 Conn. 628, 644 (1991) (trial court's denial of request for award of interest pursuant to § 37–3a was not abuse of discretion when trial court found “no evidence of bad faith or wrongdoing on the party of the defendant in detaining the money”).

This case involved a complex dispute which implicated the somewhat esoteric legal doctrine of equitable conversion.   The application of that doctrine to these facts remains in dispute.   The court accepts that the defense is pursued in good faith.   This court has no evidence from which to discern any bad faith by the defendant in the withholding of funds.   This court is also mindful that since the date of the closing on the sale to Vaughn, the defendant has had the benefit of $1,000,000.00 which this court has determined should have been paid to the plaintiff.   The plaintiff has therefore been deprived of these funds.

Notwithstanding those factors which militate in favor of an award of prejudgment interest, and guided by the parameters outlined above, given the totality of the record in this case, this court exercises its discretion to deny the request for prejudgment interest.

However, the issues in dispute have now been resolved in the plaintiff's favor by this court.   Although there may be appellate review of this court's decision, the equities as to an award of postjudgment interest tip in favor of the plaintiff.   Post judgment interest is awarded at an annual rate of 8%.

Judgment will enter in accordance with the following award of damages.   Damages for breach of contract:  $1,000,000.00

Attorneys fees:  $98,712.80

Offer of Compromise Interest—8% annually on $1,098,712.80 commencing as of June 19, 2008 through the date of Judgment, June 21, 2011:  $264,172.69 (3 years plus 2 days @ $240.81 per diem).

Costs in the amount of $1,140.83

Total Judgment:  $1,364,026.20

Post-judgment interest will accrue at the annual rate of 8%.

So Ordered.

K. DOOLEY, J.

FOOTNOTES

FN1. The court notes that in the opposition to the motion for summary judgment, the defendant did not argue that no breach had occurred by virtue of this value assessment..  FN1. The court notes that in the opposition to the motion for summary judgment, the defendant did not argue that no breach had occurred by virtue of this value assessment.

Dooley, Kari A., J.