Opinion
FBTCV156049593
11-02-2016
RK-Fairfield 1, LLC v. Michael J. Knight & Co. et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION
Edward T. Krumeich, J.
This lawsuit between R-K Fairfield 1, LLC (" Landlord') and Michael J. Knight (" Knight") and his partnership Michael J. Knight & Company (" Tenant") was tried to the Court.
The Landlord sued to collect rent due on office space rented by the Tenant located at 1499 Post Road in Fairfield, Connecticut (the " Premises"). There is no dispute that the Tenant failed to pay the full amount called for in its lease entered into on October 1, 2011 (the " Lease"). Defendants' defense and counterclaim are based on the contention that the Tenant was entitled to off-set the rent with monies due under a separate agreement dated August 1, 2011 entered into between the Tenant and the then-landlord Kleban Holding Company, LLC (" Kleban Holding"), that required Kleban Holding to guarantee fees to Tenant for accounting services to the then-landlord or customers referred by it (" Engagement and Referral Agreement").
For the reasons stated below, I find that the Tenant defaulted on its obligations under the Lease by failing to pay rent when it was due and that no set-off is permitted under the Lease or the Engagement and Referral Agreement. As a general partner in the Tenant, Knight is personally liable for the shortfall.
Kleban Holding, the Landlord's predecessor-in-interest, is not party to this case. R-K Fairfield is not party to the Engagement and Referral Agreement. There is no evidence Kleban Holdings assigned that agreement to R-K Fairfield or that the latter entity agreed to assume liabilities for its performance when it became owner of the Premises. On this ground alone there is no basis for setoff.
The Court denied a motion to implead Kleban Holding as a counterclaim-defendant.
In the answer, defendants counterclaimed against plaintiff asserting breach of contract, negligent misrepresentation and fraud. No special defenses were pleaded. Although Knight testified that there have been shortfalls in guaranteed fees in 2015 and 2016, defendants have failed to prove that R-K Fairfield is responsible to make up that loss. As noted above, there is no basis for finding R-K Fairfield liable for breach of a contract to which it was not a party or assignee and for which it has not assumed liability. Nor can R-K Fairfield, as a separate legal entity, be held liable for any alleged misconduct by Kleban Holdings even though the entities are related and the same person managed both entities.
The Court has not decided whether Kleban Holdings has defaulted under the Engagement and Referral Agreement or if there were shortfalls in guaranteed revenue that may be recouped from that non-party entity.
Fraud in the inducement of a lease could affect a successor landlord's ability to enforce a lease. Although fraud is not alleged as a special defense and the counterclaims do not contain a request for relief, such as rescission, at trial and in their post-trial brief defendants assert that fraud in the inducement renders the lease unenforceable. Assuming that fraud could result in a judgment to rescind the agreement, the Court finds that defendants have failed to prove they were defrauded by clear, satisfactory and convincing evidence. See Kilduff v. Adams, Inc., 219 Conn. 314, 330, 593 A.2d 478 (1992).
" Fraud vitiates all contracts, written or otherwise . . ." Harold Cohn & Co. v. Harco International, LLC, 72 Conn.App. 43, 49-50, 804 A.2d 218 (2002). " A defrauded party has the option of seeking rescission or enforcement of the contract and damages. Fraud in the inducement of a contract ordinarily renders the contract merely voidable at the option of the defrauded party, who also has the choice of affirming the contract and suing for damages . . . If he pursues the latter alternative, the contract remains in force . . ." Whitney v. J.M. Scott Associates, Inc., 164 Conn.App. 420, 431-32, 137 A.3d 866 (2016).
The Lease and the Engagement and Referral Agreement were negotiated at the same time by the same people. Although the two agreements have different dates in their preambles, Knight's testimony that they were entered into at the same time and that entering into the Engagement and Referral Agreement was integral to the Tenant's entry into the Lease is credible. The guaranteed fees were intended to provide a revenue source to induce the Tenant to enter into the Lease at a higher rental rate. There is no evidence the parties intended to off-set rents under the Lease by any shortfall in fees guaranteed under the Engagement and Referral Agreement. To the contrary, the Lease signed by the parties provides in paragraph 5(c) that " [a]ll rent shall be paid without demand, set-off or deductions of any kind." The Engagement and Referral Agreement states: " [n]othing in this Agreement shall operate to give [the Tenant] any right of abatement, set-off or deduction under the Lease." Later on when R-K Fairfield was becoming the successor owner to Kleban Holdings, Knight provided an estoppel certificate signed by him on behalf of the Tenant that declared " [t]here are no written or oral agreements between Tenant and Landlord [Kleban Holding]. Tenant neither expects nor has been promised any inducement, concession or consideration for entering into the Lease, except as stated therein, and that there are no side agreements or understandings between Landlord and Tenant." The definitive contractual language quoted above leaves no room for interpretation. See Whitney, 164 Conn.App. at 432.
The signed estoppel certificate is undated but it refers to the monthly minimum rental " as of" December 6, 2003, so presumably that was its approximate date.
The above plain and unambiguous provisions in documents signed by Knight on behalf of Tenant contradict defendants' argument that there was supposed to be a right of set-off against the rents for shortfalls in the guaranteed fees. Knight testified that an earlier draft of the Engagement and Referral Agreement included a right of set-off and he assumed the fee schedule still allowed for off-sets. The Tenant was represented by counsel in the drafting of the agreements. There is no evidence to suggest any conduct by Kleban Holdings, its agents or attorneys to disguise the fact that the right to off-sets was expressly disclaimed in both the Lease and the Engagement and Referral Agreement.
The Supreme Court stated the general rule applicable to signed agreements in G.& R. Tire Distributors Co. v. Allstate Ins. Co., 177 Conn. 58, 61, 411 A.2d 31 (1979):
(t)he general rule is that where a person of mature years who can read and write signs or accepts a formal written contract affecting his pecuniary interests, it is his duty to read it, and notice of its contents will be imputed to him if he negligently fails to do so; but this rule is subject to qualifications, including the intervention of fraud or artifice, or Mistake not due to negligence, and applies only if nothing has been said or done to mislead the person sought to be charged or to put a man of reasonable business prudence off his guard in this matter.
As noted above, defendants have not satisfied their burden of proving any qualifying circumstances to the general rule and the agreements signed by Knight, which may be enforced against Tenant. See Phoenix Leasing v. Kosinski, 47 Conn.App. 650, 654, 707 A.2d 314 (1998).
R-K Fairfield has established that it is owed $43, 329.83 in rents and late fees due under the Lease for which defendants are liable. The parties agreed that any award of attorneys fees would be decided after the trial.