Opinion
HFHCV135001318S
08-16-2016
31 Tobey Road, LTD. v. Dana J. Wright et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION
Carl J. Schuman, Judge
The plaintiff landlord, 31 Tobey Road, Ltd., filed this action for rent and other damages against defendant tenants, Dana J. Wright and Lewis Street Holding Company, LLC (Lewis Street). The defendants have filed denials, special defenses, and counterclaims. The court conducted a bench trial on July 25, 26, 27, and 28. Based on the discussion below, the court now enters judgment for the defendants on the complaint and for defendant Lewis Street on certain counterclaims in the amount of $92,000.
I
A
The court finds the following facts. On June 2009, the parties entered into a written lease for some 10, 240 square feet of space inside a large building at 31 Tobey Road in Bloomfield. The plaintiff's principal partner and, for all practical purposes, the landlord was Steven Kaplan. The lease was for the five-year period from July 1, 2009 to June 30, 2014. The defendants' purpose in renting the premises was to operate, as a business called " Next Level, " an individual fitness training center for established elite athletes or young athletes with high potential. The business would operate by having professional trainers pay Next Level to bring their own clients to train at the facilities.
Almost from the start, problems with the premises arose. The defendants were unable to commence operations until October 2009, as both the plaintiffs and the defendants worked on improvements. These improvements included adding a second " torched down" layer to the existing, twenty-five-year-old roof. Shortly after occupancy, the roof began leaking. Over time, the leaks became worse. The roof would leak both during precipitation events and on sunny days. The leakage necessitated the placement of rain buckets on the gym floor, which detracted from the functioning and appearance of the gym. At times, there were as many as a dozen buckets and seven garbage cans spread across the floor to catch the leakage. In addition, the defendants had to mop the floor and use a water vacuum. Water leakage also became apparent on the floor matting, walls, and equipment. Eventually, the facility developed a mildew smell.
The defendants complained verbally to Kaplan or his agent and Kaplan would usually send repair personnel to patch the roof. But these measures did not solve the problem. There were also problems that developed from a trench that the plaintiff had cut in the facility's floor, from potholes in the parking lot, and from the lack of adequate lighting in the parking lot.
Beginning in February 2013, the defendants told Kaplan that they would not pay rent until Kaplan fixed the roof or let them do so on their own. In April, however, the defendants paid their rent, including their back rent, based on Kaplan's promise that he would repair the roof. Kaplan took no effective action and the leaks continued. The defendants refused to pay rent during May, June, July, and August 2013. In September 2013, the defendants vacated the premises and closed their business. Only in late 2013 or early 2014 did Kaplan put a completely new roof on the facility.
B
The plaintiff's amended complaint alleges unjust enrichment and breach of contract against both Wright and Lewis Street. The gravamen of the allegations is that the defendants breached their lease by failing to pay rent from May 2013 through the end of the term.
The defendants deny the material allegations of the complaint and assert the special defenses of constructive eviction, breach of the lease, and breach of the covenant of quiet enjoyment. Lewis Street also filed counterclaims seeking damages for breach of the lease, constructive eviction, breach of the covenant of quiet enjoyment, breach of the covenant of good faith and fair dealing, tortious interference with business expectancies, and violations of the Connecticut Unfair Trade Practices Act (CUTPA). See General Statutes § 42-110a et seq. Defendant Wright did not file any counterclaims.
II
Defendant Wright initially denies the plaintiff's allegations of unjust enrichment and breach of contract on the ground that he was only a guarantor and not a tenant. He relies on a handwritten note at the end of the lease, initialed by both parties, stating: " The personal guarantee for this lease shall be for the rental period of 1 year after such guarantee shall expire." The plaintiff claims, in opposition, that the " personal [guarantor]" in question was Lewis Street and that Wright was the actual tenant.
The court credits Wright's contrary testimony that he requested that Kaplan add this language to the lease to insure that Wright--not Lewis Street--would not be personally liable for rent after the first year, as Wright could not individually afford to pay rent for a longer period of time. The language chosen by Wright confirms this purpose, as one would expect that Wright, a layman, would use the phrase " personal guarantee" to refer to a natural person--himself--rather than a corporate entity such as Lewis Street. Nor would Wright likely insist on adding a clause that would increase his personal liability, which would have been the case if the clause had established or clarified that Wright was the tenant.
The plaintiff also relies on the introduction to the lease which describes the tenant in the following terms: " DANA J. WRIGHT (the 'Tenant') having an address at 205 Girard Avenue, Hartford, Connecticut 06105 DBA Lewis Street Holding Company LLC; 100 Elizabeth Street, Hartford, Connecticut 06105." This phrase is at best ambiguous, as it includes both Wright's name followed by the label " Tenant" and then the name of his business. Adding to its ambiguity is the misuse of the phrase " DBA, " as Wright did business as Next Level, not Lewis Street.
The court must construe the lease as a whole. See Fairchild Heights, Inc. v. Dickal, 305 Conn. 488, 515-16, 45 A.3d 627 (2012). Based on the testimony and the language chosen, the additional handwritten final sentence of the lease so clearly refers to Wright as the guarantor that it resolves the ambiguity of the introduction in favor of the conclusion that Lewis Street, rather than Wright, was the sole tenant. Because there are no claims against Wright in his capacity as guarantor of rent for the first year of the lease, the court enters judgment for Wright on the complaint.
In its brief, the plaintiff contends that a prior ruling of the court, Woods, J., denying the defendant's motion to strike the counts against Wright as tenant constitutes the law of the case, Of course, under the law of the case doctrine, a prior ruling is not absolutely binding on the court now. See Breen v. Phelps, 186 Conn. 86, 99, 439 A.2d 1066 (1982). In any event, Judge Woods held only that the plaintiff's allegations against Wright as a tenant were " sufficiently plead." (May 5, 2014 Notice of Judgment or Disposition.) Judge Woods did not address the issue here of whether the plaintiff had in fact proved that Wright was anything more than a guarantor. Therefore, Judge Woods's ruling has no effect on the current issue.
III
In addressing the unjust enrichment and breach of contract claims against defendant Lewis Street, the court turns to the special defense of constructive eviction, because the court finds this defense to be dispositive. " [A] constructive eviction arises where a landlord, while not actually depriving the tenant of possession of any part of the premises leased, has done or suffered some act by which the premises are rendered untenantable, and has thereby caused a failure of consideration for the tenant's promise to pay rent . . . In addition to proving that the premises are untenantable, a party pleading constructive eviction must prove that (1) the problem was caused by the landlord, (2) the tenant vacated the premises because of the problem, and (3) the tenant did not vacate until after giving the landlord reasonable time to correct the problem . . . [w]hether the premises are untenantable is a question of fact for the trier, to be decided in each case after a careful consideration of the situation of the parties to the lease, the character of the premises, the use to which the tenant intends to put them, and the nature and extent by which the tenant's use of the premises is interfered with by the injury claimed . . ." (Citations omitted; internal quotation marks omitted.) Welsch v. Groat, 95 Conn.App. 658, 662, 897 A.2d 710 (2006).
Because defendant Wright asserts an identical special defense, and the relevant facts are the same, the following analysis would also apply to defendant Wright if an appellate court were to disagree with the court's conclusion that Wright was not a tenant.
Wright testified that, by late August or early September 2013, he decided that his business could not continue at the premises. The court must first consider whether at this point the premises had become " untenantable." (Internal quotation marks omitted.) Id. In doing so, the court must consider various factors including " the use to which the tenant intends to put [the premises] . . ." (Internal quotation marks omitted.) Id. Here, the defendants sought to use the premises as a fitness center for elite athletes and athletic prospects, many of whom were young. That use required a much better appearance and a higher level of safety than would use of the premises as, for example, an auto body shop or an industrial warehouse. The defendants' business was more akin to a restaurant, hotel, or private school. As Wright testified, the defendants could not afford to have the premises appear abandoned.
In the following discussion., the court frequently uses the plural term " defendants" even though defendant Lewis Street is the sole tenant because, in describing the activities of the business, it is generally not possible to distinguish between the two defendants.
Yet, by April 2013, the premises had begun to look that way. The regular presence of buckets on the floor to collect water leaking from the roof created a basement-like appearance as well as a safety hazard that athletes would have to avoid. It was embarrassing to Wright, and detrimental to business, that the center had a mildew smell. Two attendees were slightly injured in the area over the trench, which had an inadequate cover. Trainers had expressed reluctance to take their athletes to the facility or to pay full fare for them due to the deteriorating conditions. The defendants had attempted repeatedly to have the roof repaired or replaced, but the patchwork measures that the plaintiff provided did not solve the problem.
The plaintiff points to evidence showing that the number of athletes logging in for training actually peaked in early 2013. (Exhibit (Ex.) 550.) These figures, however, may also reflect the devotion and hard work of the defendants and do not reveal what the attendance would have been if the physical conditions had been problem-free.
These conditions rendered the premises unfit for their intended purpose as a high level athletic training center. The tenants correctly believed that they could no longer expect paying customers to train in an unprofessional atmosphere. The space was no longer good for business. Under these circumstances, the court finds that, as of September 1, 2013, the premises were untenantable. See id., 663-64 (court properly found that tenant's residence was untenantable because, due to water damage and the presence of mold and mildew, tenant was unable to use that area as a bedroom for his children, as he originally had intended).
There is little dispute over the next two elements of constructive eviction. Under § 4.2 of the lease, the plaintiff as landlord, had the responsibility to " repair and maintain the structural portions of the Premises, including the exterior walls, foundation, and roof . . ." There is no evidence that the defendants caused the problem. In fact, they offered to help fix it. Further, there is no suggestion that the defendants left for any reason other than the deteriorating physical conditions.
The final element of constructive eviction requires proof that the tenants gave " the landlord reasonable time to correct the problem . . ." (Internal quotation marks omitted.) Id., 662. In one sense, defendant Lewis Street easily proved this element by showing that the defendants had complained regularly about the leaky roof from the start of their tenancy. Ultimately, their withholding of rent in February and March 2013, and their apparent agreement with Kaplan in April 2013 that they would pay rent if Kaplan would permanently fix the roof gave Kaplan ample notice that matters had reached a critical juncture and that he needed to take meaningful action.
The plaintiff's principal response is that the defendants breached its lease by failing to comply with the requirement in § 4.1(s) that any claim of constructive eviction take written form. Section 4.1(s) of the lease provides that " [t]enant shall not be entitled to claim a constructive eviction from the premises unless Tenant shall have first notified Landlord in writing by certified mail, return receipt requested, of the condition or conditions giving rise thereto, and, unless Landlord shall fail to commence taking action to correct the conditions within 60 days of the receipt of such notice." See also § 4.1(cc) (" Tenant shall notify Landlord in writing immediately upon any signs of mold or mildew becoming visible and/or otherwise apparent in the Premises, including but not limited to water stains on ceiling tiles and/or discoloration of the walls"); § 16.13 (" All notices, demands, legal or otherwise, incidental to this lease or other communications hereunder shall be in writing with a copy thereof by registered mail return receipt requested and shall be given to Landlord . . ."). The defendants reply that courts can and should find a waiver of a requirement in a lease of written notice--here of constructive eviction--when the landlord has actual notice of the claim and takes at least some action on it.
Although no Connecticut appellate court has found a waiver of a requirement of written notice of constructive eviction, our appellate courts have applied the waiver principle in other, similar situations. Thus, the Supreme Court has held that the parties can waive a requirement of a written request for extension of a lease. See Adam v. Consolini, 135 Conn. 321, 324-25, 64 A.2d 44 (1949). The Appellate Court has endorsed a waiver of a mortgage requirement that the mortgagee provide written notice of the borrower's right to reinstate a mortgage after acceleration. See Fidelity Bank v. Krenisky, 72 Conn.App. 700, 709-13, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002). Similarly, appellate courts in other jurisdictions, facing nearly identical factual situations, have held that the parties can waive a requirement that the tenant provide the landlord written notice of a request to repair. See Huffman v. Saul Holdings Limited Partnership, 194 F.3d 1072, 1083 (10th Cir. 1999) (reversing summary judgment for landlord because tenant's failure to give required written notice not dispositive on question of landlord's responsibility to repair leaky roof); Re/Max Specialists, Inc. v. National Life Insurance Co., 207 Ga.App. 624, 428 S.E.2d 654, 656 (1993) (in case involving request to repair leaky roof, it was reversible error to refuse to instruct the jury that " a lease provision requiring written notice by tenant to landlord of defects which landlord is bound to repair is waived by the landlord when oral notice of defects is given and landlord acts upon such notice . . . without insisting upon written notice"); Coleman-Lyons 2800 v. Bryan, 566 So.2d 665, 666, 668 (La.App. 1990) (commercial tenant's oral notification of leaky roof sufficient to trigger's landlord's duty to repair and tenant's vacating of premises justified under the circumstances).
These cases rest on the principle that we should not exalt form over substance. The Appellate Court has stated in the mortgage foreclosure context: " In deciding whether proper notice was given, we therefore look primarily to the actual notice received rather than asking whether there has been a punctilious adherence to formality . . . Although generally contracts should be enforced as written, we will not require mechanistic compliance with the letter of notice provisions if the particular circumstances of a case show that the actual notice received resulted in no prejudice and fairly apprised the noticed party of its contractual rights . . . In light of these precedents, we conclude that, in this case as well, literal enforcement of the relevant notice provision would serve no purpose because the defendant had actual notice of his right to cure his default prior to acceleration . . . Literal enforcement of notice provisions when there is no prejudice is no more appropriate than literal enforcement of liquidated damages clauses when there are no damages." (Citations omitted; internal quotation marks omitted.) Mortgage Electronic Registration Systems, Inc. v. Goduto, 110 Conn.App. 367, 375-76, 955 A.2d 544, cert. denied, 289 Conn. 956, 961 A.2d 420 (2008).
There is no logical reason why this rationale should not apply to a requirement in a lease of written notice of constructive eviction. In the present case, the evidence is overwhelming that the plaintiff had actual notice from the defendants' many verbal complaints of the leaky roof and its need for repair. The plaintiff never insisted on written notice and instead took action, however insufficient, to patch the roof. The defendants' ultimate resort in withholding rent and then attempting to negotiate a final resolution of the problem gave the plaintiff clear notice of the gravity of the situation and one last opportunity to remedy it. Under these circumstances, the court finds that it would serve no purpose to enforce a technical requirement that notice of constructive eviction be in writing. Because defendant Lewis Street has established the other elements of constructive eviction, the court concludes that the defendant has proven its special defense to the plaintiff's claims and that the plaintiff cannot recover.
IV
The court now addresses the counterclaims. Defendant Lewis Street's first three counterclaims are entitled breach of the lease agreement, constructive eviction, and breach of the covenant of quiet enjoyment. The breach of the lease counterclaim makes the following material allegations: the plaintiff's action in covering the trench with plywood created an uneven surface and caused injuries to people training at Next Level in violation of § 3.2(g) of the lease; the roof of the premises leaked on multiple occasions and damaged Lewis Street's fitness equipment and facility in violation of § 4.2 of the lease; and the plaintiff repeatedly refused to repair the numerous potholes and poorly patched areas of the parking lot and keep the parking areas properly lit, as required by § 15.1. The constructive eviction count alleges that the plaintiff's " numerous and repeated breaches of its Lease obligations" ultimately amounted to a constructive eviction. The count claiming breach of the covenant of quiet enjoyment alleges that the landlord's " numerous and repeated breaches of its Lease obligations" breached § 3.10 of the lease.
Section 3.2(g) provides for the " [e]xisting concrete floor to remain throughout, patched as necessary, and covered with a cemetious coating."
Again, § 4.2 provides in part that the landlord had the responsibility to " repair and maintain the structural portions of the Premises, including the exterior walls, foundation, and roof . . ."
Section 15.1 provides in part that " Common Area" includes " parking areas" and " lighting facilities" and states that " Common Area shall be under the exclusive control and management of Landlord (including the hours that parking lights are kept on)."
Section 3.10 provides: " Tenant shall peacefully and quietly hold and enjoy the Leased Premises during the term of this Lease and any renewal terms without hindrance or interruption by Landlord, its successors, or assigns."
The discussion above has established that the plaintiff breached the lease primarily by failing to repair the roof and that, as a result, the defendants were constructively evicted. A constructive eviction can also provide the basis for a breach of the covenant of good faith and fair dealing. See Frankel v. Gomes, No. N.H. 9504, 1996 WL 412004, at *2 (Conn.Super.Ct. June 3, 1996). See also Sullivan v. Nameaug Walk-in Medical Center, P.C., 35 Conn.App. 185, 190, 644 A.2d 398, app. dismissed, 233 Conn. 213, 657 A.2d 639 (1994) (" The covenant of quiet enjoyment is the obligation of the landlord to protect his tenant relative to the tenant's right to quiet and peaceful possession and enjoyment extends only to evictions and disturbances caused by himself or by someone with a paramount title . . .") [Internal quotation marks omitted.] Accordingly, the court finds the plaintiff liable to defendant Lewis Street on the first three counts of the counterclaim.
At the conclusion of the trial, Lewis Street withdrew its fourth and fifth counterclaims alleging breach of the covenant of good faith and fair dealing and tortious interference with business expectancies. These counterclaims had alleged that the plaintiff solicited the defendants' trainer-customers and induced them to end their business relationship with the defendants and rent space at the plaintiff's premises.
The final counterclaim alleges CUTPA violations. The CUTPA count rests on the other claims of breach of the lease and interference with the defendants' business relations. The court finds no liability. As mentioned, there was no proof of interference with the defendants' business relationship. The claim essentially reduces to one of breach of the lease. Although CUTPA can apply to private landlord-tenant transactions, there usually must be some nexus with the public interest, such as a code violation, or particularly unscrupulous or illegal behavior. See Quintero v. Milltown Primitives, LLC, No. KNL CV14 6021510S, 2015 WL 4880254, at *4-5 (Conn.Super.Ct. July 15, 2015). See also Conaway v. Prestia, 191 Conn. 484, 491-93, 464 A.2d 847 (1983) (CUTPA creates a private cause of action for tenants to recover damages based upon violations by landlords of state statutes barring recovery of unpaid rents during period of unlawful occupation for lack of certificate of occupancy). In the present case, there is no evidence of code violations. While the plaintiff's conduct in failing to repair the roof was hardly exemplary, the standard of conduct in this case was lowered somewhat by the defendants' own failure to abide by the lease and pay their February and March rent on time or pay their May, June, July, and August 2013 rent at all. See also General Statutes § 47a-14h(a), (h) (providing that " any tenant who claims that his landlord has failed to perform his legal duties" may institute an action and " shall deposit with the clerk of the court an amount equal to the last agreed-upon rent"). In sum, the court does not find that the plaintiff's conduct rose to the level of a CUTPA violation.
V
A
The court turns to damages. The purpose of damages in a breach of contract or lease case is to " place the injured party in the same position as he would have been in had the contract been performed [by the breaching party]." (Internal quotation marks omitted.) Whitney v. J.M. Scott Associates, Inc., 164 Conn.App. 420, 428, 137 A.3d 866 (2016). The defendants claim several elements of damages. The first involves loss of revenues. The defendants introduced evidence establishing that their best month was January 2013, when they had 544 customers paying $10 a session, for a total of $5,440 in gross revenue. The defendants claimed that their actual business volume was much greater but that trainers understated the correct number of athletes that they brought in, apparently as a form of protest against the leaky roof and other poor physical conditions at the facility. While the defendants' point has some validity, part of the problem was that they had a poor business model. Specifically, the defendants did not have a reception area or method of scanning in customers as they arrived. The reality is that their system allowed for a form of cheating. Thus, proof that the defendants' revenues would have been much greater than $5,440 per month is speculative.
The defendants claim loss of revenue for the length of their constructive eviction, which the court has found runs from September 1, 2013 until the end of the lease on June 30, 2014. However, during that time, if the defendants had been in the position for which they bargained, they would have had to pay rent of $5,817 and common charges of $1,493 per month. (Plaintiff's Damages Summary, Dkt. #114.00.) Thus, even assuming, favorably to the defendants, that their business would have continued at the maximum reported rate of 544 customers per month or even at a somewhat higher rate, the defendants would not have generated enough revenue to outpace the monthly rent and common charges. Accordingly, the court cannot award damages for loss of business revenue.
The defendants also claim that they would have been able to franchise their business model and obtain significant amounts of income from selling franchises. The proof of this claim was speculative. There was no evidence of any specific opportunity that the defendants had to sell their business model. Accordingly, the court declines to award damages for loss of business value.
B
The defendants did prove that they had made investments and other expenditures in the building that they did not fully recover because of their constructive eviction. Wright testified credibly that he spent $100,000 on gym equipment and $95,000 on artificial turf and other flooring for the facility. The defendants used these materials for essentially the four years between September 2009 and September 2013. They had a five-year lease with an option to renew for a total of a ten-year stay. (Ex. 1, § 1.2b.) Based on this evidence, the court finds that the defendants received the benefit of approximately four out of the ten years, or 40%, of the useful life of the equipment and flooring and that they lost 60% of their investment. Sixty percent of $195,000 is $117,000. The defendants were able to sell their equipment at auction for $25,000. Therefore, their net loss was $92,000.
The defendant also seeks the return of the $12,000 security deposit that it provided to the plaintiff Under § 16.11 of the lease, the deposit acts as " security for the full and faithful performance by the Tenant of all the terms, covenants and conditions of this lease . . ." There is, of course, no evidence that the defendant did any damage to the premises. However, the defendant did, in violation of the lease, withhold rent in early 2013 and decline to pay rent at all from May through August 2013. These amounts, including late fees, total more than $42,000. (Plaintiff's Damages Summary, Dkt. #114.00.) This amount more than offsets the $12,000 security deposit. Accordingly, the court limits the defendants' damages to $92,000.
VI
Judgment shall enter for the defendants on the complaint. Judgment shall enter for defendant Lewis Street on the first three counterclaims in the amount of $92,000.
It is so ordered.