Dream Developers of Cape Cod v. Eastern Connecticut Regional Water Company, Inc. et al. (2012)

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.   A four-day trial of this matter was held before the court between October 28th and November 3rd, 2010.   The court issued a Memorandum of Decision dated March 23, 2011 regarding issues of liability.

A Hearing in Damages was held on September 16, 2011 and the parties filed post-hearing briefs dated October 24, 2011.   The issue before the court in the Hearing in Damages was which specific activities fell within and without the scope of the June 6, 2002 Memorandum of Understanding's Schedule of Improvements regarding provision of water service to Phases III and IV of the development.   The only witness at the Hearing in Damages was Jack Keefe, former Vice President of BUI, who set out the rationale underlying the calculation of the costs incurred on the project and the share of those costs assessed to Dream Developers.   The court found Mr. Keefe's testimony very credible and gave it great weight.

I

Findings of Fact 1

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 in 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 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 1,236 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 MOU required the developer to pay connection fees, tapping fees and inspection fees at the beginning of each Phase of the development.   Dream Developers did not pay BUI these fees.

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

36. 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.

37. 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.

38. 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.

39. BUI has demonstrated, by a preponderance of the evidence, that the following costs incurred on the project pursuant to the MOU are attributable to Dream Developers:

Sources of Supply:  $238,767.46

Water Storage:  $ 45,677.54

Water Treatment:  $ 57,225.74

Emergency Power Transfer Switch:  $ 24,270.86

VFD Booster Pump Controllers:  $ 8,543.96

Supervisory Pump Station Controls:  $ 11,711.00

Work Includable in More than One Category:  $119,208.33

Total:  $505,404.89 ²

II

Discussion of LawA. BUI's Counterclaims

BUI asserts four Counterclaims against Dream Developers:  The First Counterclaim alleges that Dream Developers breached the Stipulation between the parties, the Second Counterclaim alleges that Dream Developers was unjustly enriched for work it performed on the project that the court found was covered by the MOU, the Third Counterclaim alleges that Dream Developers was unjustly enriched for work it performed not covered by the MOU, and the Fourth Counterclaim alleges that Dream Developers breached the MOU. In view of the court's prior ruling that the MOU continues to govern the relationship between the parties, judgment shall enter in Dream Developers' favor on the First and Second Counterclaims.

1) Breach of MOU

Based on the court's finding that the MOU governs this dispute and that Dream Developers is liable to pay BUI the modified fees under the MOU, the court finds that Dream Developers has breached the MOU by failing to pay those fees.   The court also finds, based on the foregoing finding of facts, that BUI's damages for the breach are $505,404.87.   However, as set forth in the court's March 23, 2011 Memorandum of Decision, this amount shall be reduced by the $85,856.59 that Dream Developers already paid to BUI and a $36,800.00 credit for the increased size of the pumping facility.   As a result, the court finds for BUI on the Fourth Counterclaim and assesses damages stemming from Dream Developers' breach at $382,748.28.

2) Unjust Enrichment

BUI also claims that Dream Developers has been unjustly enriched by the provision of a pressure reducing valve for the water system valued at $22,169.06 and a water main to the community center valued at $1,083.81.   Neither item was included in the MOU. However, these claims ignore the language of the MOU indicating that “[a]ny additional charges for additional system upgrades or increases shall be borne by AquaSource,” BUI's predecessor in interest.   As a result, these additional charges are BUI's responsibility pursuant to the plain language of the MOU and judgment shall enter in Dream Developers' favor on the Third Counterclaim.

B. BUI's Claim for Prejudgment Interest

BUI seeks prejudgment interest on the court's award at the statutory rate of ten percent (10%) as provided for in § 37–3a of the General Statutes.   “[I]nterest at the rate of ten per cent a year, and no more, may be recovered and allowed in civil actions ․ as damages for the detention of money after it becomes payable ․” General Statutes § 37–3a.  “We have construed the statute to make the allowance of interest depend upon whether the detention of the money is or is not wrongful under the circumstances ․ The allowance of interest as an element of damages is, thus, primarily an equitable determination and a matter lying within the discretion of the trial court.”   (Internal quotation marks omitted.)  McCullough v. Waterside Associates, 102 Conn.App. 23, 33, cert. denied, 284 Conn. 905 (2007).  “Before awarding interest [under § 37–3a], the trial court must ascertain whether [the party against whom interest is sought] has wrongfully detained money damages due [the aggrieved party] ․ Interest on such damages ordinarily begins to run from the time it is due and payable to [the aggrieved party] ․ The determination of whether or not interest is to be recognized as a proper element of damage is one to be made in view of the demands of justice rather than through the application of an arbitrary rule ․” Advanced Financial Services, Inc. v. Associated Appraisal Services, Inc., 79 Conn.App. 22, 31 (2003).

The court must determine whether Dream Developers' detention of money from BUI was wrongful.   Finding the detention of the money wrongful “requires more than demonstrating that the opposing party detained money when it should not have done so.   The fact that an award of such interest is discretionary and subject to equitable considerations, rather than automatic, reflects the reality that not all improper detentions of money are wrongful.”  Maloney v. PCRE, LLC, 68 Conn.App. 727, 756 (2002).  “Although bad faith is one factor that the court may look at when deciding whether to award interest under § 37–3a, we note that, in the context of the statute, ‘wrongful’ is not synonymous with bad faith conduct.   Rather, wrongful means simply that the act is performed without the legal right to do so.”  Ferrato v. Webster Bank, 67 Conn.App. 588, 596, cert. denied, 259 Conn. 930 (2002).

The court finds that the evidence presented at trial clearly supports a finding that Dream Developers did not wrongfully retain the funds due and owing to BUI as Dream Developers' liability for payment of the funds was subject to a good faith dispute of an extremely complicated nature.   As a result the court declines to award BUI prejudgment interest.

III

Conclusion

Judgment shall enter in Dream Developers' favor on BUI's First, Second and Third Counterclaims.   Judgment shall enter in BUI's favor on its Fourth Counterclaim, entitling it to recovery from Dream Developers in the amount of $382,748.28.³

James W. Abrams, Judge

FOOTNOTES

FN1. For the purposes of clarity, the Finding of Facts includes most of the court's findings from the liability phase of this matter..  FN1. For the purposes of clarity, the Finding of Facts includes most of the court's findings from the liability phase of this matter.

FN2. Dream Developers is not responsible for the connection fees, tapping fees and inspection fees referred to in the MOU..  FN2. Dream Developers is not responsible for the connection fees, tapping fees and inspection fees referred to in the MOU.

FN3. This decision is not intended to be a bar to any future claim by Dream Developers or its successors or assigns against The Connecticut Water Company or its successors or assigns for partial reimbursement under the MOU for the main extension along Connecticut Route 66 if adjacent property developments are connected to the Baker Hill Division along the Laurel Ridge Main Extension..  FN3. This decision is not intended to be a bar to any future claim by Dream Developers or its successors or assigns against The Connecticut Water Company or its successors or assigns for partial reimbursement under the MOU for the main extension along Connecticut Route 66 if adjacent property developments are connected to the Baker Hill Division along the Laurel Ridge Main Extension.

Abrams, James W., J.