LLC v. Service Road Corporation (2013)

MEMORANDUM OF DECISION

Introduction

This matter involves two consolidated actions.   In the first, the plaintiff, Uncle Al's LLC, seeks payments due under a consulting agreement between it and the defendant, Service Road Corporation.   In the second, Uncle Al's seeks possession of the premises at 145 and 147 West Service Road in Hartford claiming that the leases for those premises provided that a default under the consulting agreement was a default under the leases.

Trial to the court was held on April 23, 2013.   At that time the court heard testimony from Alan Tannenbaum, a shareholder of Uncle Al's;  and Alfred Ciraldo and Paul Genna both 25% shareholders of Service Road. The holder of the remaining 50% of Service Road is Uncle Al's. Post-trial briefs were filed on May 24, 2013 and reply briefs were filed on June 7, 2013.

Findings of Fact

The court finds the following facts from the evidence presented:  Service Road was started in 1984 by Tannenbaum and others to operate a club called Uncle Al's at 145 West Service Road. In 1992 they opened another club, Cousin Vinnie's Backroom, at 147 West Service Road. Although the clubs had different addresses they were both located in the same building.   In 1998 Service Road and its shareholders sold 50% of their shares in Uncle Al's and Cousin Vinnie's to Matthew and Elizabeth Furnelli.   As part of the stock purchase agreement for Uncle Al's, Service Road was to enter into a consulting agreement with an LLC formed pursuant to the agreement “wherein the Corporation (Service Road Corp. d/b/a Uncle Al's) shall pay the LLC consulting fees of $3,600.00 per week for consulting services to be rendered to the Corporation by the managing members of the LLC.” (Exhibit 3.) The agreement also provided that “[f]ailure of Corporation to pay the said weekly sum of $3,600.00 for four (4) weeks in the aggregate shall be a breach of the Consulting Agreement by Corporation ․ A breach by Corporation in the Consulting Agreement shall be an event of default in the Sublease between the Corporation and the LLC.” (Exhibit 3.) The sublease referred to was for the premises at 145 West Service Road. The agreement also stated that:  “A default in the Sublease with the LLC shall be an event of default in a certain other sublease of premises known as 147 West Service Road, Hartford, Connecticut between the LLC and Cousin Vinnie's Back Room, Inc.” (Exhibit 3.) As required by the stock purchase agreement, a consulting agreement was then entered into between Uncle Al's, LLC and Service Road which provided that Uncle Al's would render services as needed by Service Road on a weekly basis.   The agreement provided that Service Road would pay Uncle Al's $3,600.00 per week for services “so rendered.”  (Exhibit 5.) It also provided that:  “Both parties acknowledge that there will be instances at any given point in time when the Consultant's services may not be needed on a weekly basis.   Nevertheless, the payment of the $3,600.00 shall continue to be made by Corporation to Consultant.”  (Exhibit 5.) The agreement provided that it “shall terminate upon the cessation or termination of the business of the Corporation presently known as Uncle Al's Café and located at 145 West Service Road, Hartford, Connecticut.   A breach of this Agreement shall cause a default of (i) a certain sublease by and between the Corporation and the Consultant which said sublease was executed on even date hereof and (ii) a certain sublease between Cousin Vinnie's Back Room, Inc. and Consultant.”  (Exhibit 5.)

In 1999 Alfred Ciraldo and Paul Genna purchased the Furnellis' share of the business of Service Road and Cousin Vinnie's Back Room, Inc. In 2004, to resolve certain litigation, Ciraldo and Genna agreed that the payment of $3,600 per week to Uncle Al's would remain in full force and effect in accordance with the consulting agreement.   In that settlement, Ciraldo and Genna agreed “that they have no set offs or defenses to the Consulting Agreement.”  (Exhibit 18.)   Payments to Uncle Al's under the consulting agreement were made by Service Road through 2008 even though no services were provided by Uncle Al's to Service Road during 2008.   In 2009 no services were provided under the agreement but 47 payments were made.   Service Road ceased making payments under the agreement in 2010.   Service Road claims it terminated the agreement in July 2010.   Service Road has been current in its lease payments under both subleases and was at that time of the service of the notices to quit.

Discussion

The plaintiff claims that the consulting agreement requires that Service Road pay Uncle Al's $3,600.00 per week as long as Service Road conducts a business such as Uncle Al's Café at 145 West Service Road in Hartford.   There is no dispute that Service Road continues to operate a business at that location now known as the Gold Club. The defendant claims that the consulting agreement is terminable at will because it contains neither a starting nor an end date.

The defendant cites the decision in 64 Wall Street, LLC v. City of Norwalk, Superior Court Judicial District of Stamford–Norwalk at Stamford, Docket No. FST CV 04 4000084 (Nadeau, J., Aug. 26, 2005) [39 Conn. L. Rptr. 902].   There the court stated “the 2 Restatement (Second), Contracts, § 33(d), p. 94 (1981) notes that duration is not always an essential contract term and therefore, in most circumstances there will be an enforceable contract.   The missing term of time, however, can make the contract terminable at will.   The 2 Restatement (Second) explains that ‘[w]hen the contract calls for successive performances, but is indefinite in duration, it is commonly terminable by either party, with or without a requirement of reasonable notice.’  Id. (See also 1 S. Williston, Contracts (4th Ed.1990) § 4.19, p. 443–44, determining that ‘a promise contemplating continuing performance for an indefinite time is to be interpreted as stipulating only for performance at the will of either party.   Thus, an agreement to lease, without limitation of time, imposes a tenancy at will ․’).”  However the court's decision does not provide a clear elucidation of the facts in that case such that a comparison to the facts here can be made.   In addition, the court in 64 Wall Street notes that this principle has been applied to cases in the employment and landlord tenant area, which are clearly distinguishable from the facts here.   In any event, this court agrees with the plaintiff that the consulting agreement does set forth a termination event.   In fact, in its reply brief, the defendant agrees that “[t]he language of the Consulting Agreement is clear in providing that ․ the Consulting Agreement will terminate upon the cessation or termination of the business of the Corporation presently known as Uncle Al's Café and located at 145 West Service Road ․” (Reply to Plaintiff's Post–Trial Brief p. 2.) However the defendant appears to argue that the court should not interpret this provision as a termination date because it essentially requires that the defendant go out of business in order to terminate the consulting agreement.   This may be so, but it is not the court's job to rewrite the parties' contract.  “A contract must be construed to effectuate the intent of the parties, which is determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction ․ [T]he intent of the parties [to a contract] is to be ascertained by a fair and reasonable construction of the written words and ․ the language used must be accorded its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the contract ․ Where the language of the contract is clear and unambiguous, the contract is to be given effect according to its terms.   A court will not torture words to import ambiguity where the ordinary meaning leaves no room for ambiguity ․ [C]ourts do not unmake bargains unwisely made.   Absent other infirmities, bargains moved on calculated considerations, and whether provident or improvident, are entitled nevertheless to sanctions of the law ․ Although parties might prefer to have the court decide the plain effect of their contract contrary to the agreement, it is not within its power to make a new and different agreement ․” (Internal quotation marks and citation omitted.)   Neubig v. Luanci Construction, LLC, 124 Conn.App. 425, 432 (2010).   It is clear from a review of the relative complexities of the transaction between the parties that the consulting agreement, and the payments thereunder, were to be in effect during the duration of the operation of the defendant's businesses at the West Service Road premises.   The agreement did not provide for the right of either party to unilaterally terminate the consulting agreement.   Therefore the defendant's claim that it did so is unavailing.   The agreement, by providing a terminating event, was not terminable at will.

The defendant also claims that even if the court finds that the consulting agreement was not terminated the plaintiff is not entitled to the payments it seeks because it failed to provide services to the defendant under the agreement in consideration of the payments.   Yet the agreement itself states that “[b]oth parties acknowledge that there will be instances at any given point in time when the Consultant's services may not be needed on a weekly basis.   Nevertheless, the payment of the $3,600.00 shall continue to be made by Corporation to Consultant.”  (Exhibit 5.) Thus, by its terms, the agreement required Service Road to pay Uncle Al's even if no services were provided.   In fact, the defendant did so for extended periods of time.   To paraphrase the language of the court in Warner–Lambert Pharmaceutical Company, Inc. v. John J. Reynolds, Inc. 178 F.Sup. 655, 663 (S.D.N.Y.1959), cited by the plaintiff, whether or not the obligation continues under the consulting agreement is in the control of the defendant itself.   For the defendant has the right to terminate its obligation to pay whenever in good faith it desires to cease the operation of its businesses.   In Warner–Lambert the plaintiff was required to pay a royalty to the defendant as long as it manufactured Listerine.   The court stated that:  “If plaintiff wishes to avoid its obligations under the contract it is free to do so, and, indeed, the contract itself indicates how this may be done.   The fact that neither the plaintiff nor its predecessors have done so, and that the plaintiff continues to manufacture and sell Listerine under the Lawrence formula with great success, indicates how valuable the rights under the contract are and how unjust it would be to permit it to have its cake and eat it too.”  Id., at 667.   Similarly here the defendant's obligations under the consulting agreement are part and parcel of the larger transaction involving the sale of the businesses of Uncle Al's and Cousin Vinnie's, and as long as those types of businesses are operated by the defendant at the subject premises, its obligations under the consulting agreement continue.

The plaintiff claims that the defendant breached the agreement by ceasing to pay the weekly consulting fee in 2010.   The court agrees.   It is undisputed that the defendant did in fact fail to make a significant amount of payments.   Through the date of trial the total amount due is $543,600.00.   An additional 22 weeks since that date is now due totally $79,200.00.   Therefore the total due as of this date is $622,800.00.

The plaintiff also seeks prejudgment interest pursuant to General Statutes § 37–3a.   Recently our Supreme Court reiterated that “Section 37–3a provides in relevant part:  (a) Except as provided in sections 37–3b, 37–3c and 52–192a, interest at the rate of ten per cent a year, and no more, may be recovered and allowed in civil actions or arbitration proceedings under chapter 909, including actions to recover money loaned at a greater rate, as damages for the detention of money after it becomes payable ․ Like the version of § 37–3b in effect before the 1997 amendment, § 37–3a provides that interest may be recovered and, therefore, does not require an award of interest in every case in which money has been detained after it has become payable.   Rather, an award of interest is discretionary.”  (Footnotes, internal quotation marks and citations omitted.)  Dilieto v. County Obstetrics and Gynecology Group, P.C., 310 Conn. 38, 50 (2013).  “[A]n award of interest under § 37–3a ․ is discretionary with the trial court.   Interest is awarded ․ when the court determines that such an award is appropriate to compensate the plaintiff for the loss of the use of his or her money.   Basically, the question is whether the interests of justice require the allowance of interest as damages for the loss of use of money ․” Id., at 54.   In light of the fact that the plaintiff was entitled to the payments under the consulting agreement since the 27th week of 2010, which were not made, interest from that date is allowed in the amount of 10% per annum.

Lastly, Service Road argues that the provision of the agreement that a breach of the agreement would constitute a default of certain subleases constitutes an unenforceable penalty which is against public policy, yet it agrees that “a breach of the Consulting Agreement shall cause a default of the subleases to Service Road and Cousin Vinnie's Backroom, Inc.” (Reply to Plaintiff's Post–Trial Brief p. 2.) From the evidence presented, in particular the contracts between the parties, it is apparent that the consulting agreement was to be in effect as long as a club such as Uncle Al's was being operated on the premises subject to the lease.   If the consulting agreement was terminated prior to the cessation of the business, because of Service Road's breach, then the effect is to terminate the subleases which effectively terminates the businesses of both Uncle Al's and Cousin Vinnie's.   As the court noted in Savin Gasoline Properties, LLC v. CCO, LLC, Superior Court, Judicial District of Hartford at Hartford, Docket No. CV 09 4046751 S (Prescott, J., Nov. 17, 2010):  “Without a doubt, the cross default provisions exposed CCO to a high risk of losing its leasehold estates.   However, that was the risk it bargained for voluntarily.”   Similarly here, the loss of its businesses if it defaulted on the consulting agreement was a risk the defendant bargained for voluntarily.  “There is a strong public policy in Connecticut favoring freedom of contract:  It is established well beyond the need for citation that parties are free to contract for whatever terms on which they may agree.   This freedom includes the right to contract for the assumption of known or unknown hazards and risks that may arise as a consequence of the execution of the contract.   Accordingly, in private disputes, a court must enforce the contract as drafted by the parties and may not relieve a contracting party from anticipated or actual difficulties undertaken pursuant to the contract, unless the contract is voidable on grounds such as mistake, fraud or unconscionability ․ If a contract violates public policy, this would be a ground to not enforce the contract ․ A contract, or in this instance, a partnership agreement, however, does not violate public policy just because the contract was made unwisely ․” (Footnotes, internal quotation marks and citations omitted.)  Schwartz v. Family Dental Group, P.C., 106 Conn.App. 765, 772–3, cert. denied, 288 Conn. 911, 954 A.2d 184 (2008).

Conclusion

For the reasons stated above, judgment shall enter for the plaintiff in Docket No. CV10–5035133–S against the defendant in the amount of $622,800.00 plus 10% interest calculated from the 27th week of 2010 to this date.   Judgment of possession shall enter in favor of the plaintiff in Docket No. CV11–4056324–S.

Jane S. Scholl, J.

Scholl, Jane S., J.