Opinion
No. X06-CV00-0164799 S
August 4, 2004
MEMORANDUM OF DECISION
The plaintiff Leisure Resort Technologies, Inc. ("Leisure Resort") has brought this action against the defendants Trading Cove Associates, Waterford Gaming, L.L.C. ("Waterford Gaming") and Waterford Group, L.L.C. ("Waterford Group") claiming that the defendants committed a breach of fiduciary duties and fraud when they failed to disclose the existence of material facts related to the purchase of the plaintiff's interest in Trading Cove Associates. The defendants have moved for summary judgment on each of the three remaining counts of the plaintiff's complaint.
Trading Cove Associates is a partnership which was formed on July 27, 1993 for the purpose of providing services to the Mohegan Tribe in connection with the development of the Mohegan Sun casino and resort, which included gaming, hotel, food and entertainment facilities. The plaintiff initially held a 10% partnership interest in Trading Cove Associates. The plaintiff's partnership interest was reduced to a 5% partnership interest on September 21, 1994. On February 3, 1995, the plaintiff withdrew as a partner and its 5% partnership interest was exchanged for a 5% beneficial interest in Trading Cove Associates. Pursuant to the parties' Acknowledgment and Release Agreement, the plaintiff's "beneficial interest" consisted of a partner's interest in profits, loss, distributions of excess cash and distributions of the organizational and administrative fee related to the business of the partnership with the Mohegan Tribe. In 1996, Waterford Gaming became a 50% owner and managing general partner of Trading Cove Associates. Waterford Group is the parent company of Waterford Gaming.
On August 30, 1995, the Mohegan Tribe and Trading Cove Associates entered into an Amended and Restated Gaming Facility Management Agreement ("Gaming Management Agreement") whereby Trading Cove Associates agreed to operate, manage and market gaming operations at the Mohegan Sun facility for seven years. The Gaming Management Agreement included a provision CT Page 11927-ep entitled "Nation's Buy Out Option" which allowed the Tribe to buy out Trading Cove Associates' gaining management rights after five years.
Trading Cove Associates and the Mohegan Tribe were also parties to a Hotel/Resort Management Agreement dated February 28, 1994 which granted to Trading Cove Associates the exclusive right and obligation, for a period of fourteen years, to manage, operate and maintain any hotel, resort or other commercial non-gaming enterprise located on land described in the agreement.
On August 6, 1997, the plaintiff filed a lawsuit against Trading Cove Associates in which it claimed that Trading Cove Associates failed to make financial payments and disclose financial information to the plaintiff concerning the partnership as required by the terms of the Acknowledgment and Release Agreement. Soon after the action was filed, the parties began negotiations to settle the dispute. A Settlement and Release Agreement ("Settlement Agreement") was eventually executed on January 6, 1998. Pursuant to the agreement, Waterford Gaming paid the plaintiff $5 million for the relinquishment of the plaintiff's rights to its 5% beneficial interest in Trading Cove Associates. The plaintiff further released any claim arising from or relating to its beneficial interest. In addition, paragraph 5 of the agreement provided that Trading Cove Associates agreed to notify and pay the plaintiff an additional $2 million should it enter into an agreement with the Mohegan Tribe "pursuant to which [Trading Cove Associates'] management or operation of, or any other involvement of any kind with, the Mohegan Tribe's gaming facilities or other related facilities or enterprises is amended, restated, extended or renewed, or if a new agreement or arrangement relating to the foregoing is entered into between [Trading Cove Associates] and the Mohegan Tribe . . ."
On February 7, 1998, Trading Cove Associates and the Mohegan Tribe entered into two new agreements: a Relinquishment Agreement and a Development Services Agreement. Pursuant to the Relinquishment Agreement, Trading Cove Associates agreed to terminate the Gaming Management Agreement and the Hotel/Resort Management Agreement in exchange for 5% of the gross revenues generated by all aspects of the Mohegan Sun Casino and Resort. Pursuant to Development Services Agreement, Trading Cove Associates received the right to provide development services with regard to the construction of a new casino, a luxury hotel and a convention/events center.
As a result of the February 7, 1998 Relinquishment Agreement between Trading Cove Associates and the Mohegan Tribe, the plaintiff accepted, on March 18, 1999, a payment of $2 million in satisfaction of Trading Cove CT Page 11927-eq Associates' obligations under paragraphs of the Settlement and Release Agreement.
The plaintiff has filed this action which asserts three remaining counts against the defendants. The first count asserts a claim of breach of fiduciary duties; the second count asserts a claim of fraudulent nondisclosure; and the fourth count asserts a claim of unjust enrichment. The gravamen of each of the counts is that the defendants failed to disclose to the plaintiff at the time that the parties were negotiating the relinquishment of the plaintiff's 5% beneficial interest in Trading Cove Associates ongoing negotiations between Trading Cove Associates and the Mohegan Tribe concerning the buy out of Trading Cove Associates' Gaming Management Agreement with the Mohegan Tribe. The plaintiff claims that the possible buy out of the Gaming Management Agreement was potentially very lucrative and constituted material information that should have been disclosed to them during their own negotiations with Trading Cove Associates.
The court (Gordon, J.) previously dismissed the third count of the plaintiff's complaint which asserted a claim of violation of the Connecticut Unfair Trade Practices Act.
The defendants have moved for summary judgment on the grounds that the undisputed evidence establishes that (1) the plaintiff knew of the negotiations between Trading Cove Associates and the Mohegan Tribe concerning a buy out of the Gaming Management Agreement; (2) the plaintiff knowingly waived through the Settlement Agreement its right to any further payments related to the buy out of the Gaming Management Agreement; and (3) the plaintiff can not satisfy its burden of proving the diminution in value of its beneficial interest caused by the defendants' alleged non-disclosure. The plaintiff maintains that the entry of summary judgment is not appropriate because there exists genuine issues of material fact concerning each of the matters advanced by the defendants. I agree with the defendants that summary judgment should enter because the plaintiff has not submitted evidence establishing the amount of its damages.
Accordingly, I need not address the defendants' first two grounds for the entry of summary judgment.
"Summary judgment is a method of resolving litigation when pleadings, affidavits, and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law . . . Scrapchansky v. Plainfield, 226 Conn. 446, 450 (1993). In ruling on a motion for summary judgment, the court's function is not to decide issues of material fact, but rather, to determine whether any such issues exist. Cortes v. Cotton, 31 Conn.App. 569, 575 (1993). [I]n deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party . . . Johnson v. Meehan, 225 Conn. 528, 535 (1993). Once the moving party has presented evidence in support of the motion for summary judgment, the opposing party must present evidence CT Page 11927-er that demonstrates the existence of some disputed factual issue . . . Hammer v. Lumberman's Mutual Casualty Co., 214 Conn. 573, 578 (1990)." (Internal quotation marks omitted.) Warner v. Lancia, 46 Conn.App. 150, 158 (1997). See also Practice Book § 17-49. The test is whether a party would be entitled to a directed verdict on the same facts. Suarez v. Dickmont Plastics Corp., 229 Conn. 99, 105-06 (1994).
The defendants contend that they are entitled to the entry of summary judgment because the plaintiff is unable to meet its burden of proving damages resulting from the alleged fraudulent nondisclosure. The defendants assert that, in light of our Supreme Court's decision in Pacelli Bros. Transportation, Inc. v. Pacelli, 189 Conn. 401 (1983), the plaintiff is obligated to establish the diminution in value of its bargain with the defendants caused by the defendants' failure to disclose their ongoing negotiations with the Mohegan Tribe concerning a buyout of the Gaming Agreement. The defendants maintain the plaintiff can not meet this burden because it can not show what the Settlement Agreement would have been had the disclosure been made.
In their memorandum in support of their motion for summary judgment, the defendants assert that the Supreme Court in Pacelli imposed on a plaintiff seeking damages for fraudulent nondisclosure the burden of establishing the "exact diminution" in the value of their bargain caused by the nondisclosure. Pacelli does not require an exact computation of damages. The Supreme Court held that such plaintiffs "bear the burden of proving the amount of the diminution in the value of their bargain which was suffered because of the nondisclosure." Pacelli Bros. Transportation, Inc. v. Pacelli, 189 Conn. 401, 410 (1983). The Court merely recognized the established rule that damages are an essential element of a plaintiff's recovery. See Falco v. James Peter Associates, Inc., 165 Conn. 442, 445 (1973). The standard for establishing damages is that they be proved with "reasonable certainty." Id. See also Conaway v. Prestia, 191 Conn. 484, 493-94 (1983). "Although damages often are `not susceptible of exact pecuniary computation and must be left largely to the sound judgment of the trier'; Johnson v. Flammia, supra; this situation does not invalidate a damage award as long as `the evidence afforded a basis for a reasonable estimate by the [trier] of that amount.' Paiva v. Vanech Heights Construction Co., 159 Conn. 512, 517, 271 A.2d 69 (1970)." Conaway v. Prestia, supra, 191 Conn. 493-94.
The plaintiff argues that summary judgment is inappropriate because it has offered evidence establishing the amount of the damages it suffered as a result of the defendants' fraudulent nondisclosure. The plaintiff contends that, because it would not have sold its 5% beneficial interest had there been disclosure of the negotiations, the appropriate measure of its damages is the current value of its 5% beneficial interest. The plaintiff has proffered a report of an expert witness, Richard Royston, which shows the present net value of a 5% beneficial interest in the partnership based on the payments received by the defendants pursuant to the buyout of the Gaming Management Agreement.
I agree with the defendants that our Supreme Court's decision in Pacelli Bros. Transportation, Inc. v. Pacelli, 189 Conn. 401 (1983), controls this case. As in Pacelli, the plaintiff here has expressly elected not to rescind the parties' Settlement Agreement and seek specific restitution of its 5% beneficial interest. Rather, the plaintiff has affirmed the Settlement Agreement and seeks an award of damages. As a result, the plaintiff is asking a fact finder to speculate about what different terms might have been agreed upon in the parties' Settlement Agreement had there been full disclosure; a task which the court specifically rejected as inappropriately speculative in Pacelli.
To better understand the holding in Pacelli, it is helpful to briefly review the law of damages generally as it relates to fraud. A plaintiff may not assert an action for fraud unless he can establish that he has been damaged or injured. Rizzo Pool Co. v. Del Grosso, 232 Conn. 666, 683 CT Page 11927-es (1995). Such a plaintiff has the right to rescind the fraudulent agreement and seek restitution or affirm the agreement and seek to recover damages. EF Construction Co. v. Stamford, 114 Conn. 250, 258 (1932). See also Duksa v. Middletown, 173 Conn. 124, 129 (1977), and 37 Am.Jur.2d, Fraud and Deceit § 359. In the appropriate case, a plaintiff may also seek the equitable remedy of the imposition of a constructive trust on the property obtained by means of a fraudulent misrepresentation of fact. Harper v. Adametz, 142 Conn. 218, 225 (1955). Rescission is an unmaking of the contract and restitution seeks to place the parties, as nearly as possible, in the same situation as existed just prior to the execution of the contract. Wallenta v. Moscowitz, 81 Conn.App. 213, 240 (2004). Where the defrauded party is the seller of the property, as is the case here, and chooses to bring an action for damages, the measure of damages is the difference between the price received by the seller for the property and its actual value at the time of the sale. Helming v. Kashak, 122 Conn. 641, 644 (1937). See also Dobbs, Remedies (1973) § 9.4, p. 598 and 37 Am.Jur.2d, Fraud and Deceit § 434.
The essential facts in Pacelli for the purposes of reviewing the defendants' motion for summary judgment are as follows. Two brothers, Clarence and Guido Pacelli, sued a third brother, Torino Pacelli, for damages resulting from fraudulent misrepresentations claimed to have been made when they purchased his interests in three corporations. The purchase of Torino's shares of the corporations was effectuated through a settlement agreement of two lawsuits: one brought by Torino against Clarence and Guido to enjoin a move to oust him as a director and president of the corporations and to dissolve the corporations and one brought by Clarence and Guido against Torino for diverting assets and customers of one of the corporations. Under the terms of the settlement agreement, Clarence and Guido agreed to buy Torino's interest in the corporations for $300,000, together with a withdrawal of the lawsuits and a general release. One year later, Clarence and Guido discovered that Torino during his management of the business had diverted substantial corporate funds to himself. Clarence and Guido brought the subject action against Torino for fraud for failing to disclose the diversion of corporate funds. Rather than seeking rescission of the settlement agreement, Clarence and Guido sought an award of damages under the agreement.
In Pacelli, the trial court entered judgment for the defendant Torino Pacelli on the plaintiffs' complaint for fraudulent misrepresentation. Although the Supreme Court determined that fraud had been committed by Torino with respect to his settlement agreement with the plaintiffs, the court affirmed the trial court's judgment in Torino's favor because it found that the plaintiffs were unable to prove the damages caused by the CT Page 11927-et misrepresentation. Specifically, the Court concluded that the plaintiffs were asking a fact finder to impermissibly speculate as to what the different terms of the settlement agreement might have been agreed upon by Torino if there had been full disclosure. Pacelli Bros. Transportation, Inc. v. Pacelli, supra, 189 Conn. 410-11. The critical factor emphasized by the Supreme Court which led to the denial of relief to the plaintiffs was their decision to forego their right to rescind the settlement agreement and seek restitution. Id., 411.
The plaintiff in the case now before this court has placed itself in exactly the same position as the plaintiffs did in Pacelli. Although the plaintiff here was arguably not required to elect its remedies until submission of the case to a jury, see Treglia v. Zanesky, 67 Conn.App. 447 (2001), and 37 Am.Jur.2d, Fraud and Deceit § 362, for whatever reason it has unequivocally chosen to make that election now. In both its memorandum in opposition to the defendants' motion for summary judgment and again at argument on the motion, the plaintiff has declared that it has elected not to seek recission of the Settlement Agreement in this case. The plaintiff has expressly chosen to affirm the Settlement Agreement and sue for damages. Because the plaintiff has chosen to limit its remedies to an action for damages and has forsaken the remedy of restitution, the measure of its damages for fraudulent nondisclosure is the difference between the price it received from the defendants for its 5% beneficial interest and the actual value of the beneficial interest at the time of the sale. Helming v. Kashak, 122 Conn. 641, 644 (1937). See also Dobbs, Remedies (1973) § 9.4, p. 598 and 37 Am.Jur.2d, Fraud and Deceit § 434. But, just as in Pacelli, the actual value of the plaintiff's beneficial interest is speculative because it depends on what different amount would have been agreed upon by the parties in their Settlement Agreement if there had been full disclosure of the ongoing buyout negotiations between the defendants and the Mohegan Tribe.
To the extent that the plaintiff claims that the actual value of its 5% beneficial interest was enhanced by the nondisclosed buyout negotiations between the defendants and the Mohegan Tribe, the actual value of that beneficial interest is also speculative because it is dependent on the likelihood at the time of the sale of those ongoing negotiations bearing fruit. The plaintiff does not claim that the defendants and the Mohegan Tribe had reached a deal on the buyout of the Gaming Agreement at the time of the Settlement Agreement; only that negotiations were ongoing. Therefore, the actual value of the plaintiff's beneficial interest is a function both of the chances of those negotiations being successful and the substantive results of those negotiations. At the time of the sale of the plaintiff's beneficial interest, the future result of the negotiations between the defendants and the tribe would be mere CT Page 11927-eu speculation.
The plaintiff must claim that the existence of the ongoing buyout negotiations increased the market value of its beneficial interest in the partnership, otherwise there is no evidence to suggest that the price it received from the defendants was other than a fair price and it can not claim that it was damaged by the nondisclosure.
The plaintiff contends that it can satisfy its burden of establishing damages by showing the current value of its 5% beneficial interest in the partnership. The plaintiff argues that it has proffered evidence that it would not have sold its interest to the defendants had it known of the ongoing negotiations and that the proper measure of damages is the current value of its beneficial interest. The plaintiff has proffered expert testimony to demonstrate that value.
I do not agree that the proper measure of damages, given the choice of remedies that the plaintiff has expressly and unequivocally made, is the current value of its beneficial interest. The plaintiff has chosen to affirm the Settlement Agreement with the defendants and seek damages for the allegedly fraudulent nondisclosure of the buyout negotiations with the Mohegan Tribe. The proper measure of damages in an action for damages for fraud by the vendor of property is "the difference between the price received [by the seller for the property] and its actual value at the time of the sale." (Emphasis supplied.) Helming v. Kashak, 122 Conn. 641, 644 (1937). See also Dobbs, Remedies (1973) § 9.4, p. 598 and 37 Am.Jur.2d, Fraud and Deceit § 434.
The plaintiff has not chosen to rescind the Settlement Agreement and seek specific restitution, that is, a restoration to it of its 5% beneficial interest. The plaintiff has also not sought to establish a constructive trust over its beneficial interest for purposes of seeking an order that the defendant return that interest to the plaintiff. See Dobbs, Remedies (1.973) § 4.3, p. 241. Under both of these remedies, the plaintiff could have sought a transfer back to it of its 5% beneficial interest in Trading Cove Associates and claimed that it was entitled to its share of the payments received by the partnership in the interim under the buyout agreement with the Mohegan Tribe.
Restitution can take different forms. Specific restitution involves the restoration to the plaintiff of the very thing that is taken. Substitutionary restitution requests some substitute, usually money, for the property that is taken. See Dobbs, Remedies (1973) § 4.4, p. 256.
"The restitution claim stands in flat contrast to the damages action in this respect. The damages recovery is to compensate the plaintiff, and it pays him, theoretically, for his losses. The restitution claim, on the other hand, is not aimed at compensating the plaintiff, but at forcing the defendant to disgorge benefits that it would be unjust for him to keep." Dobbs, Remedies (1973) § 4.1, p. 224. The plaintiff's disavowal of its right of rescission and its remedy of restitution have foreclosed as a proper measure of damages the current value of the beneficial interest received by the defendants.
This action has an added twist not present before the court in Pacelli. Here, the plaintiff has asserted, in addition to its claims for CT Page 11927-ev fraud and breach of fiduciary duties, a claim of unjust enrichment. The defendants contend that summary judgment should enter on this claim as well because the plaintiff has failed to offer appropriate evidence of its damages and, in accordance with the court's ruling in Pacelli, those damages remain speculative. I agree.
An unjust enrichment claim has been variously denominated an implied-in-law claim, a quasi contract claim, and a claim in restitution. Meaney v. Connecticut Hospital Ass'n, Inc., 250 Conn. 500, 511 (1999). "Unjust enrichment is a very broad and flexible equitable doctrine that has as its basis the principle that it is contrary to equity and good conscience for a defendant to retain a benefit that has come to him at the expense of the plaintiff. The doctrine's three basic requirements are that (1) the defendant was benefitted, (2) the defendant unjustly failed to pay the plaintiff for the benefits, and (3) the failure of payment was to the plaintiff's detriment." (Citations omitted.) Gagne v. Voccaro, 255 Conn. 390, 409 (2001).
The appropriate measure of recovery in quasi contract is the value of the property at the time of the conversion or transfer. 1 G. Palmer, The Law of Restitution (1978) § 2.2, p. 56 and 2.12, p. 157. See also Dobbs, Remedies (1973) § 5.14, p. 403 and 66 Am.Jur.2d, Restitution and Implied Contracts, § 183. Accordingly, the proper measure of the benefit conferred on the defendants under a claim of unjust enrichment in this case is the actual value of the plaintiff's 5% beneficial interest at the time of its transfer to the defendants.
The plaintiff in its opposition to the defendants' motion for summary judgment has proffered no evidence to establish the value of its beneficial interest at the time of the transfer. The only evidence it has offered, the report of its expert, Richard Royston, shows the net present value of a 5% beneficial interest in the partnership. The current value of the partnership interest is substantially greater than its value at the time of the parties' Settlement Agreement as it is based on a buyout agreement between the defendants and the Mohegan Tribe that had not yet been reached at the time of the Settlement Agreement.
Moreover, the value of the plaintiff's 5% beneficial interest at the time of its transfer to the defendants is speculative. As noted previously, since the buyout negotiations between the defendants and the Mohegan Tribe were ongoing at the time of the Settlement Agreement, the value of the beneficial interest in the partnership at the time was dependent on the likelihood of successful negotiations and the final results of those negotiations. It would be speculation to try to determine, as of the time of the transfer, those odds and those CT Page 11927-ew results. See Pacelli Bros. Transportation, Inc. v. Pacelli, supra, 189 Conn. 410-11.
Hindsight, obviously, provides a fact finder with definitive answers to both of these issues. The issue for a fact finder however is what was the value of the plaintiff's beneficial interest at the time of its transfer to the defendants. At that time, the results of the negotiations between the defendants and the Mohegan Tribe were not known.
In the absence of any appropriate evidence as to the damages sustained by the plaintiff as a consequence of the alleged fraudulent nondisclosure by the defendants, the defendants are entitled to the entry of summary judgment. See Beik v. Thorsen, 169 Conn. 593, 595 (1975) in which the court affirmed a directed verdict for the defendant in an action for damages for fraud in the absence of any evidence of damage. Accordingly, the defendants' motion for summary judgment is hereby granted as to each of the remaining three counts of the plaintiff's complaint.
BY THE COURT
Jon M. Alander
Judge of the Superior Court