Heyman Associates No. 5, L.P. et al. v. FelCor Trs. Guarantor, L.P. (2013)

MEMORANDUM OF DECISION RE MOTION FOR ENTRY OF JUDGMENT (281.00)

I. Background

Based on two decisions the court has rendered in this litigation, the plaintiffs ¹ have moved for entry of judgment.   On November 9, 2012 the court issued a decision declaring that restrictive covenants relating to the operations of a hotel property in Stamford, Connecticut contained in a sublease assignment and warranty deed were valid, effective and enforceable to July 12, 2011, and a notice of “Termination” of those covenants recorded by the defendant in 2006 was null and void [55 Conn. L. Rptr. 109].   On June 27, 2012 the court awarded three of the plaintiffs damages of $1,507,266.04 in attorneys fees and expenses incurred in the litigation pursuant to an indemnification provision in the sublease assignment agreement [56 Conn. L. Rptr. 520].   According to the plaintiffs, these two decisions decided all of the remaining counts (Nos. 1, 2 and 4) in their Second Amended Complaint, and the defendant FelCor does not dispute this.

Therefore, the plaintiffs seek the formal entry of judgment on these counts and the imposition of prejudgment interest pursuant to General Statutes § 52–192a based on their offer of compromise for $330,000.00 filed on December 6, 2010, and post-judgment interest, pursuant to General Statutes § 37–3a.   The plaintiffs also seek entry of judgment in their favor on the first, second and third counts of FelCor's counterclaim.

FelCor opposes the pending motion on several grounds.   It opposes offer of compromise interest on the grounds that (1) such remedy was not sought in the plaintiffs' pleadings, (2) the offer of compromise was improperly filed, and (3) the amount of prejudment interest sought is improperly calculated.   Post-judgment interest is also opposed because it was not enumerated as a remedy in the pleadings and, in any event must be lower than the ten percent rate sought by the plaintiffs.   Lastly, but importantly, FelCor, disagreeing with the plaintiffs that the decision upholding the validity of the restrictive covenants resolved the issues, objects to entry of a judgment of dismissal of their three counterclaims before they are tried to a jury.

II. Discussion

A. Interest

The court will first consider the opposing positions with respect to the plaintiffs' claims for interest.   FelCor's position that neither post- nor prejudgment interest is available because that relief was not specifically mentioned in the relief requested in the complaint has little legal support.   As FelCor's own opposition papers note, Practice Book § 10–28 unequivocably states:  “[i]nterest and costs need not be specifically claimed in the demand for relief, in order to recover them.”   In Charette v. City of Waterbury, Superior Court, judicial district of Waterbury, CV 01 0165185 S (May 9, 2005, Gallagher, J.), a case relied on by FelCor, prejudgment interest was denied because the plaintiffs “did not request it in their prayer for relief.”   Whatever the merits of that decision, it is not pertinent to this case because the Charette plaintiffs did not rely on the offer of compromise statute (then referred to as an offer of judgment).

In this case, the plaintiffs rely on Section 52–192a which states if an offer of compromise is filed by a plaintiff, and not accepted, and the plaintiff recovers “an amount equal to or greater than the sum certain specified in the plaintiff's offer of compromise, the court shall add to the amount so recovered eight per cent annual interest on said amount ․” The court finds this statute permits the plaintiffs to seek prejudgment interest.

FelCor argues that when the plaintiffs sought leave to amend their complaint in April 2011 to reflect that an original plaintiff, Heyman Associates, had been converted from a limited partnership to a limited liability company, and the plaintiff HD Hotel had been merged into a Delaware limited liability company, the resulting entities had to refile an offer of judgment that had been filed earlier, citing DiLieto v. County Obstetrics & Gynecology Group, P.C., 297 Conn. 105, 159 n.47 (2010) (party that is substituted as a plaintiff shall repudiate old offer of compromise, refile it, or file a new offer at its discretion).   FelCor points out that the subject offer of compromise was filed in December 2010 before the complaint was amended.

This argument is successfully refuted by the plaintiffs who note that after Heyman Associates' conversion to a limited liability company it “shall be deemed for all purposes the same entity that existed before the conversion.”   General Statutes § 34–200.   Further, they point out that HD Hotels did not pursue the claim for attorneys fees, although it did join in the offer of compromise, and was a plaintiff on the fourth count of the complaint seeking indemnification for attorneys fees.   This point is conceded by FelCor in its initial opposition papers where it correctly states that the plaintiffs “do not ․ make a claim that HD Hotels had any right to recover [attorneys fees].”   Def. Memorandum, July 18, 2013, 12;  Dkt. Entry 283.00.   Following the November 9, 2012 decision declaring the restrictive covenant valid, the proceeding to seek indemnification of fees was brought by the three plaintiffs who comprised the members of the original signer of the sublease assignment agreement containing the indemnification clause, BRS Realty Associates.   These plaintiffs are Heyman Associates, TRI II and AIM Management Corporation.

FelCor's last argument pertaining to offer of compromise interest would limit such interest so as to run only from the date of filing of the plaintiffs' second amended complaint, identifying the new statuses of Heyman Associates and HD Hotel, July 25, 2011, rather than the date of filing of the offer of compromise.   The court disagrees with this argument.   Since the three plaintiffs seeking offer of compromise interest were the same entities on both dates, there is no cogent reason not to compute interest from the date of filing the offer as set forth in Section 52–192a(c).  The court concludes that offer of compromise interest at the statutory rate of eight percent should be applied to the amount recovered, $1,507,266.04 from December 6, 2010 to the date of June 27, 2013.

FelCor contests the plaintiffs' request for post-judgment interest pursuant to General Statutes § 37–3a, and if such interest is imposed seeks to have the interest rate set substantially below the statutory maximum of ten percent.   The argument that no request for post-judgment interest was contained in the pleadings has been found wanting.   Another argument is that under the circumstances in this case, the plaintiffs did not really pay the fees and should not receive a “windfall” of post-judgment interest in the case which this court described as close.   Def. Memorandum, supra, 13.

The Connecticut Supreme Court recently clarified that a successful party does not have to establish that money has been wrongfully detained in order to be eligible for postjudgment interest.  DiLieto v. County Obstetrics and Gynecology Group, P.C., 310 Conn. 38, 50–54 (2013).   A court has discretion to award interest under Section 37–3a, but this is a legal discretion, exercised according to principles of equity.  Id., 54–55.   A “paramount factor” in awarding post-judgment interest is to compensate the prevailing party for the loss of the use of the money from the date of judgment until the date that judgment amount is paid.  Id., 59;  see also Id. n.18 and Id., 55 (quoting Thomas Talent, Ltd. v. Commission on Human Rights & Opportunities, 265 Conn. 127, 144 (2003).   A court, however, should identify other factors or considerations that “may militate for or against an award of post-judgment interest.”  DiLieto, supra, 310 Conn. 59.

The court has considered the arguments both for and against imposing post-judgment interest and concludes that such interest should be imposed.   The predominant factor considered is the policy to compensate the plaintiffs for the loss of the use of the money from the date of judgment until the date of payment, a policy repeatedly referred to in the recent DiLieto decision.   Other factors considered were plaintiffs' arguments concerning FelCor's perceived actions to delay the final resolution of this case and FelCor's contention that the three plaintiffs seeking fees did not really expend money to pay the fees.   The court is persuaded that these arguments are factually incorrect, or irrelevant, and should not alter the court's disposition to award post-judgment interest.

As to the rate of post-judgment interest, DiLieto said the trial court's discretion extends to determining a fair rate not to exceed the statutory maximum of ten percent per annum.  DiLieto, supra, 310 Conn. 59–60.   Predictably, the opposing parties urge rates that are about as far apart as possible.   The plaintiffs seek interest at the maximum ten percent;  FelCor urges a rate of eleven one-hundreths of one percent.

The court determines the rate of post-judgment interest should reflect the same policy of compensating the prevailing party for the loss of the use of the money.   To a lesser degree, it should reflect that the money comprising the unpaid judgment is being held by an entity or person not chosen by the judgment creditor.   It is well known that interest rates plunged between 2007 and 2009 and have remained low since that time, although some increase in rates has occurred in the last year.   The average prime rate has fallen from 8.05% in 2007 and stabilized at the present level of 3.25% in 2009.   Savings account interest and most CD rates available to individuals are markedly lower.   The ten-year Treasury note fell from 4.63% rate in 2007 to 1.80% in 2012, and its present level is around 2.5% after briefly reaching 3.0% in September.   Moody's Aaa bonds pay around 4.5% annual interest.   See generally, htpp:// federalreserve.gov/releases/h15. Based on the above factors and data, and in the exercise of its legal discretion, the court determines the post-judgment interest rate should be five percent per annum.

B. Counterclaims

Plaintiffs' motion seeks entry of judgment against FelCor on all three counts of its counterclaim.   The plaintiffs contend that this court's November 9, 2012 decision finding that the restrictive covenants limiting the type of operations at FelCor's Stamford, Connecticut hotel until July 2011 were valid, effective and enforceable conclusively disposed of FelCor's counterclaims.   FelCor disputes this contention stating their counterclaims allege the plaintiffs committed tortious interference and violations of the Connecticut Unfair Trade Practices Act, General Statutes §§ 42–110a et seq.  (CUTPA) “by engaging in tactics wholly unnecessary to enforce a restrictive covenant—including telephone calls and written communications ․ expressly designed and strategically timed so that Plaintiffs could profit by deliberately blocking FelCor's sale of the Stamford Holiday Inn ․ Their tactics went beyond legitimate attempts to enforce the restrictive covenant and included strategically timed letters and telephone calls which Plaintiffs admittedly knew would prevent FelCor and its buyers from closing the sale.”   Def. Surreply Memo., Dkt. Entry No. 286.00, p.3 and n.3. FelCor points out that it made a similar argument in October 2011 while opposing bifurcation of the trial.   See Def. Objection, Dkt. Entry No. 218.00, p. 7. This opposition was sustained.   Id., 218.86.   Nevertheless, the parties subsequently agreed to bifurcate, and confirmed that agreement in a December 1, 2011 letter from FelCor's counsel to Civil Presiding Judge Mintz.  Id., 244.00.   This letter stated that the issue to be tried before this court was whether “at the time Plaintiffs sought to enforce restrictive covenants against FelCor in 2006 were [they] valid, effective and enforceable ․ Once the aforementioned issue is decided, FelCor's counterclaims and Plaintiffs' and/or FelCor's claims for costs, expenses and attorneys fees ․ will be tried to a jury.”  Id., 244.00 Ex. I. In a memorandum filed in an effort to dismiss the plaintiffs' claims prior to the trial, FelCor declared that its counterclaims sought damages for “Plaintiffs' improper attempt to enforce invalid and unenforceable property restrictions.”  Id., 246.00, p. 10.

Based on what seemed to be a consensus that the validity and enforceability of the restrictive covenants were the critical elements of this case, this court's understanding at the time of trial (as it stated at oral argument of this motion, Tr. 8–1–13, p. 4) was that a determination that the restrictive covenants were valid and enforceable according to their terms would make FelCor's counterclaims moot, whereas a determination that they were not enforceable would allow FelCor to proceed on its claims of damages arising from the plaintiffs' attempts to enforce invalid or unenforceable restrictions.   A review of the actual counterclaims tends to support that view.   The gist of each of the counterclaims is that plaintiffs knew the restrictive covenants were invalid and unenforceable, yet that when they found out that FelCor was proposing to sell the hotel to an entity known as Davidson, they took steps to inform Davidson of the restrictions, including filing this suit.²  In light of this court's decision upholding the validity of the restrictive covenants (until July 2011) the strength of these counterclaims is certainly far less than had the outcome been otherwise, or if the decision is reversed.   Nevertheless, the court determines that FelCor did not explicitly waive proceeding on its counterclaims, regardless of the outcome of the first trial.   Therefore, the motion to enter judgment dismissing the counterclaim is denied.

III. Conclusion

For the reasons set forth above, the court issues the following ORDER:

(1) judgment is entered in favor of the plaintiffs on counts One and Two of their amended complaint consistent with this court's memorandum of decision dated November 9, 2012;

(2) judgment is entered in favor of the plaintiffs Heyman Associates, AIM and TRJ III on Count Four of their amended complaint consistent with this court's memorandum of decision dated June 27, 2013 in the amount of $1,507,266.04 plus prejudgment interest of 8% from December 6, 2010 through June 27, 2013, plus post-judgment interest thereafter at 5% until the judgment is satisfied;

(3) that part of the motion to dismiss FelCor's counterclaim is denied;

(4) counsel will confer with each other to discuss appropriate next steps in this case.   They will report their conclusions, if any, to civil caseflow within two weeks and suggest either a meeting or conference telephone call with the undersigned, or an on the record court proceeding.

TAGGART D. ADAMS

JUDGE TRIAL REFEREE

FOOTNOTES

FN1. The plaintiffs are Heyman Associates No. 5, L.P., TRJ II, AIM Management Corp., and HD Hotel, LLC..  FN1. The plaintiffs are Heyman Associates No. 5, L.P., TRJ II, AIM Management Corp., and HD Hotel, LLC.

FN2. The pertinent factual allegations are found in sixteen paragraphs of the counterclaim:H. FelCor Commerces Discussion To Assign The Hotel21.  Thereafter, FelCor commenced negotiations with Davidson Hotel Company LLC (“Davidson”) to transfer its leasehold interest in the Ground Lease.   It was Davidson's desire to covert the Holiday Inn Select into a Hilton Hotel.22. After almost a month of negotiation, FelCor and Davidson agreed to the terms of a sale and purchase agreement (“Sale and Purchase Agreement”).I. The Heyman Parties Learn Of Davidson's Plans23.  The Stamford Marriott is located in close proximity to the Holiday Inn Select.   According to allegations in the Complaint, the Heyman Parties own or operate the Stamford Marriott.24. In or before February 2006, the Heyman Parties became aware that FelCor planned to sell the Holiday Inn Select without the hotel being affiliated with any chain brand.   The Heyman Parties took no action to notify FelCor of their position that the hotel was subject to restrictive covenants that purported to prevent a re-branding as an upscale hotel.   In fact, by the Summer of 2006, the Heyman Parties knew that FelCor believed the Stamford Holiday Inn Select was not subject to a restriction on upscale operations.   During that same time period, the Heyman Parties represented to a broker, CB Richard Ellis, that they wished to purchase the Holiday Inn Select from FelCor and reviewed confidential due diligence information provided by CB Richard Ellis.   In or before Autumn 2006, the Heyman Parties became aware of the business negotiations between Davidson and FelCor.   Specifically, the Heyman Parties learned that Davidson intended to covert the Holiday Inn Select into an upscale hotel bearing the Hilton brand.25. Thereafter, the Heyman Parties schemed to acquire the Holiday Inn Select for a price significantly lower then FelCor's asking price.26. The Heyman Parties also knew or should have known that the purported restrictive covenants contained in both the July 12th Agreement and the Limited Warranty Deed were void ab initio because they purported to create encumbrances that are not recognized by, are prohibited under, and/or do not comply with the requirements for valid and enforceable restrictions under Connecticut common law.   In addition, the Heyman Parties knew of the alleged restrictions because they are the former members of BRS. The Heyman Parties also knew that they had not obtained the agreement of the sublessor or the ground lessor for the restrictions and know or should have known that the July 12th Agreement violated the terms of the sublease.   Of course, the Heyman Parties also knew, or should have known, that the purported restriction on the sublease estate, had it existed at all, would have been merged out of existence pursuant to the July 31st Agreement.   Moreover, because the July 31st Agreement merged the sublease estate, and all interests and estates thereunder, out of existence and contained no notice that BRS and Holiday Inn intended the purported restriction to survive the termination of the sublease estate, the Heyman Parties knew, or should have known, that FelCor was a bona fide purchaser without notice.27. Nonetheless, the Heyman Parties schemed to use the invalid and/or defunct restrictions as a pretext to interfere with FelCor's plans to sell its interest in the lease to Davidson.28. Specifically, the Heyman Parties improperly sought to enforce restrictive covenants they knew or should have known to be invalid, void ab initio, and/or defunct as a result of the merger of the Subleasehold estate into the Grand Leasehold estate.   The Heyman Parties also acted improperly by deliberately preventing the closing of FelCor's Sale and Purchase Agreement with Davidson.J. The Heyman Parties Interfere With The Purchase And Sale Transaction29.  By letter dated October 13, 2006, the Heyman Parties asserted that “the Restriction [against the Subleasehold estate in the July 12th Agreement] is ․ in full force and effect” despite their knowledge to the contrary.30. In response, FelCor's counsel promptly contacted the Heyman Parties' counsel to discuss the October 13, 2006 letter, and explained the effect of the July 31st Agreement on the restrictive covenant.31. Irrespective of these conversations, the Heyman Parties continued their effort to enforce the restrictive covenant and improperly sought to derail the closing of the Sale and Purchase Agreement.32. The Heyman Parties cynically and tactically waited to file a lawsuit until November 22, 2006, just days prior to the anticipated closing of the Sale and Purchase Agreement.   The Complaint falsely alleged that FelCor's leasehold estate is burdened by a restrictive covenant.33. Simultaneously, the Heyman Parties recorded a Notice of Lis Pendens in the real property records.   In addition, the Heyman Parties served copies of the Complaint and Notice of Lis Pendens on Davidson, maliciously intending that this publication would interfere with the contractual relations between Davidson and FelCor and the closing of the Purchase and Sale Agreement.K. The Heyman Parties' Plan Works—Davidson Changes The Purchase And Sale Agreement34.  Not surprisingly, even before the filing of the Complaint and the recording of the Notice of Lis pendens, Davidson withdrew its former offer.   Davidson stated that it was concerned about its ability to re-brand the hotel due to the possibility of becoming involved in litigation with the Heyman Parties.35. Thus, the Heyman Parties' scheme had its intended effect because the Heyman Parties will continue to reap the benefit of the Stamford Marriott's position as the only “upscale” hotel in downtown Stamford.36. As a result of the Heyman Parties' actions, FelCor lost millions of dollars in the sale proceeds..  FN2. The pertinent factual allegations are found in sixteen paragraphs of the counterclaim:H. FelCor Commerces Discussion To Assign The Hotel21.  Thereafter, FelCor commenced negotiations with Davidson Hotel Company LLC (“Davidson”) to transfer its leasehold interest in the Ground Lease.   It was Davidson's desire to covert the Holiday Inn Select into a Hilton Hotel.22. After almost a month of negotiation, FelCor and Davidson agreed to the terms of a sale and purchase agreement (“Sale and Purchase Agreement”).I. The Heyman Parties Learn Of Davidson's Plans23.  The Stamford Marriott is located in close proximity to the Holiday Inn Select.   According to allegations in the Complaint, the Heyman Parties own or operate the Stamford Marriott.24. In or before February 2006, the Heyman Parties became aware that FelCor planned to sell the Holiday Inn Select without the hotel being affiliated with any chain brand.   The Heyman Parties took no action to notify FelCor of their position that the hotel was subject to restrictive covenants that purported to prevent a re-branding as an upscale hotel.   In fact, by the Summer of 2006, the Heyman Parties knew that FelCor believed the Stamford Holiday Inn Select was not subject to a restriction on upscale operations.   During that same time period, the Heyman Parties represented to a broker, CB Richard Ellis, that they wished to purchase the Holiday Inn Select from FelCor and reviewed confidential due diligence information provided by CB Richard Ellis.   In or before Autumn 2006, the Heyman Parties became aware of the business negotiations between Davidson and FelCor.   Specifically, the Heyman Parties learned that Davidson intended to covert the Holiday Inn Select into an upscale hotel bearing the Hilton brand.25. Thereafter, the Heyman Parties schemed to acquire the Holiday Inn Select for a price significantly lower then FelCor's asking price.26. The Heyman Parties also knew or should have known that the purported restrictive covenants contained in both the July 12th Agreement and the Limited Warranty Deed were void ab initio because they purported to create encumbrances that are not recognized by, are prohibited under, and/or do not comply with the requirements for valid and enforceable restrictions under Connecticut common law.   In addition, the Heyman Parties knew of the alleged restrictions because they are the former members of BRS. The Heyman Parties also knew that they had not obtained the agreement of the sublessor or the ground lessor for the restrictions and know or should have known that the July 12th Agreement violated the terms of the sublease.   Of course, the Heyman Parties also knew, or should have known, that the purported restriction on the sublease estate, had it existed at all, would have been merged out of existence pursuant to the July 31st Agreement.   Moreover, because the July 31st Agreement merged the sublease estate, and all interests and estates thereunder, out of existence and contained no notice that BRS and Holiday Inn intended the purported restriction to survive the termination of the sublease estate, the Heyman Parties knew, or should have known, that FelCor was a bona fide purchaser without notice.27. Nonetheless, the Heyman Parties schemed to use the invalid and/or defunct restrictions as a pretext to interfere with FelCor's plans to sell its interest in the lease to Davidson.28. Specifically, the Heyman Parties improperly sought to enforce restrictive covenants they knew or should have known to be invalid, void ab initio, and/or defunct as a result of the merger of the Subleasehold estate into the Grand Leasehold estate.   The Heyman Parties also acted improperly by deliberately preventing the closing of FelCor's Sale and Purchase Agreement with Davidson.J. The Heyman Parties Interfere With The Purchase And Sale Transaction29.  By letter dated October 13, 2006, the Heyman Parties asserted that “the Restriction [against the Subleasehold estate in the July 12th Agreement] is ․ in full force and effect” despite their knowledge to the contrary.30. In response, FelCor's counsel promptly contacted the Heyman Parties' counsel to discuss the October 13, 2006 letter, and explained the effect of the July 31st Agreement on the restrictive covenant.31. Irrespective of these conversations, the Heyman Parties continued their effort to enforce the restrictive covenant and improperly sought to derail the closing of the Sale and Purchase Agreement.32. The Heyman Parties cynically and tactically waited to file a lawsuit until November 22, 2006, just days prior to the anticipated closing of the Sale and Purchase Agreement.   The Complaint falsely alleged that FelCor's leasehold estate is burdened by a restrictive covenant.33. Simultaneously, the Heyman Parties recorded a Notice of Lis Pendens in the real property records.   In addition, the Heyman Parties served copies of the Complaint and Notice of Lis Pendens on Davidson, maliciously intending that this publication would interfere with the contractual relations between Davidson and FelCor and the closing of the Purchase and Sale Agreement.K. The Heyman Parties' Plan Works—Davidson Changes The Purchase And Sale Agreement34.  Not surprisingly, even before the filing of the Complaint and the recording of the Notice of Lis pendens, Davidson withdrew its former offer.   Davidson stated that it was concerned about its ability to re-brand the hotel due to the possibility of becoming involved in litigation with the Heyman Parties.35. Thus, the Heyman Parties' scheme had its intended effect because the Heyman Parties will continue to reap the benefit of the Stamford Marriott's position as the only “upscale” hotel in downtown Stamford.36. As a result of the Heyman Parties' actions, FelCor lost millions of dollars in the sale proceeds.

Adams, Taggart D., J.T.R.