Opinion
Nos. UWY X10 CV-04-4010223-S, UWY-(X10)CV-04-4010567-S
March 6, 2007
MEMORANDUM OF DECISION
Before the court are two consolidated cases for court trial. The matters involve business ventures for the development and operation of assisted living facilities. The matters were tried before the court over successive days with numerous witnesses and volumes of exhibits. The parties submitted trial memoranda and proposed findings of facts. Because of the intricacies in the litigation, while the court has tried to simplify for ease of understanding, it has borrowed generously from the proposed findings of facts. The plaintiff tried counts one through nineteen in the first titled matter. The defendants interposed several special defenses, some of which addressed all of the counts, others of which targeted specific counts. As to the second titled matter, the plaintiff tried counts one through three. And the defendants asserted numerous special defenses addressed to these counts. Because of the numerous claims the court will address the counts seriatim. Special defenses that address more than one count will be disposed of as to the multiple counts at one time for efficiency.
After the conclusion of the plaintiff's presentation of its case, the defendants moved to dismiss for failure to make out a prima facie case for counts three, four, five, six and sixteen of the first captioned case and certain aspects of the second case. Finally, the motion also sought a dismissal as to the following defendants: Health Care REIT, Inc., Capstone Capital Corporation, Apollo REIT, Fund III, LLP, Apollo REIT, Fund IV, LLP, Litchfield Hills Assisted Living, LLC, South Windsor Assisted Living, LLC, Granger Cobb, Melanie Werdel and Frank Tsai. The parties briefed the motion and opposition thereto and the court took it under advisement. Accordingly after the finding of facts, the court will first address this motion.
I. Findings of Fact
Plaintiff, The Zanker Group, LLC (either "Zanker Group" or "Plaintiff"), is a limited liability company formed under Connecticut law in January 1996 for the purpose of developing long-term care communities. At all times, the Zanker Group has been owned by two members, Dr. Theodore Zanker and his wife Ellen Zanker (collectively the "Zankers"). The Zanker Group was represented by Attorney Marc Wallman in all matters related hereinafter (with the exception of litigation).
Prior to forming the Zanker Group, the Zankers had been first involved in senior care ownership by developing a facility called Willows at Woodbridge. Through their wholly-owned company called Core Communities, Inc. they partnered with Health Care Retirements to develop the project. For that project Health Care Retirements was responsible for arranging the construction financing. It was originally envisioned that Core Communities would ultimately acquire the underlying real estate. Michael Zaccaro (Plaintiff's expert in the instant litigation) assisted the Zankers with their efforts to secure permanent financing to acquire the real estate but they were unsuccessful in what was described as a poor market at that time. As a result, the Zankers sold their interest in both Willows at Woodbridge and Core Communities to an investor in 1990.
For a period of time, Mr. Zaccaro and the Zankers maintained a social relationship and once vacationed together. In 2004 and 2005, the Zankers explored another business venture with Mr. Zaccaro to acquire another senior living facility in Newton, Connecticut, which did not come to fruition. See 9/20 Tr. A.M. before recess at 12.
In the mid-1990s, at the time they formed the Zanker Group, the Zankers were also exploring a new senior care venture in Stratford, Connecticut. Through the Zanker Group, the Zankers partnered with Atlantic Development and created Stratford Assisted Living. The Zanker Group and Atlantic Development subsequently partnered with Capstone Group, which acquired a 51% interest in the Stratford project. Following disagreements with Capstone Group over the competency of the management of the facility, the Zanker Group agreed to be bought out in 1999-2000.
Sometime in about 1996 or 1997, prior to the start of their relationship with Summerville (defined below), the Zankers, operating through the Zanker Group, began work on the development of a new assisted living facility to be constructed in Torrington, Connecticut. In connection with their efforts to develop an assisted living facility in Torrington, in or about April of 1997, the Zankers acquired an option to purchase real property located at 410-412 Goshen Road in Torrington, Connecticut. After the Zankers had made substantial progress in the planning and zoning process for the Torrington project, the Zankers were introduced to Arthur Heimbold ("Heimbold") and Russell Ragland ("Ragland") by a colleague. Heimbold and Ragland were the Chairman and President, respectively, of defendant Summerville Senior Living, Inc. (known at the time as Summerville Healthcare Group, Inc.) ("Summerville").
Summerville is a Delaware Corporation that originally was headquartered in Alexandria, Virginia but subsequently moved to San Ramon, California in 2001. The Zankers' introduction to Messrs. Ragland and Heimbold led to eventual negotiations of a joint enterprise between the Zanker Group and Summerville for the development and operation of the proposed Torrington assisted living facility, which became Summerville at Litchfield Hills, L.L.C. ("Litchfield Hills").
After several meetings between Heimbold, Ragland and the Zankers, the Zankers decided that the Zanker Group would affiliate with Summerville in the development of the new assisted living facility planned for Torrington. Initially, the parties contemplated a joint venture pursuant to which they would work together to develop a minimum of three (3) assisted living facilities, with a goal of five (5). In March of 1997, the parties entered into a letter of intent (the "Letter of Intent") that was drafted by Summerville's attorney, Scott Meza ("Meza") of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. ("Mintz Leven"), and reviewed by attorney Wallman, counsel to the Zanker Group.
Following execution of the Letter of Intent, attorney Meza drafted a series of agreements related to the parties' new joint venture to continue and complete development work on the Torrington facility previously begun by the Zankers and the Zanker Group. The documents included a development agreement, an operating agreement for a new limited liability company to be owned by the Zanker Group and Summerville, and a management agreement. All of these agreements were drafted by attorney Meza, and negotiated with attorney Wallman.
On or about June 1, 1997, the parties' negotiations led to the execution of the Litchfield Hills Development, Operating and Management Agreements. Pursuant to the terms of the Litchfield Hills Operating Agreement, Summerville owned 75, or 75% of the Common Units of Litchfield Hills, while the Zanker Group owned the remaining 25, or 25%, of the Common Units. Litchfield Hills had three (3) managers, two (2) appointed by Summerville and one (1) appointed by the Zanker Group. Upon formation of Litchfield Hills, the two managers appointed by Summerville were Heimbold and Ragland, while the manager appointed by the Zanker Group was Ellen Zanker.
Heimbold and Ragland served as Summerville's designated managers until they were replaced on July 14, 2000. Pursuant to the Management Agreement, Summerville was charged with obtaining the initial financing for the project, and was appointed the operational manager of the facility. (Pursuant to the Operating Agreement, neither the Zanker Group nor Summerville were required to contribute any funds to the operations of Litchfield Hills.) In accordance with the Management Agreement, Summerville obtained financing from Capstone Capital Corporation through a sale/leaseback transaction. Construction of the Litchfield Hills facility in Torrington, known as Summerville at Litchfield Hills, began in the fall of 1997. Construction was completed in the fall of 1998 and the facility began to operate at that time.
Unrelated to the earlier referenced Capstone entity.
During the construction of the Litchfield Hills facility, and in accordance with its obligations under the Litchfield Hills Operating Agreement, the Zanker Group set about identifying additional locations in Connecticut for possible joint development by Summerville and the Zanker Group. Throughout this period, the relationship between the Zankers and Summerville was cordial and cooperative.
Consistent with the terms of their original Letter of Intent and the Litchfield Hills Development Agreement, the Zanker Group, in 1998, identified a new project to be developed in South Windsor, Connecticut, which would be called Summerville at South Windsor. On April 30, 1998, the Zanker Group and Summerville executed Development, Operating and Management Agreements for the formation of South Windsor that were virtually identical to those used to form Litchfield Hills. As with the Litchfield Hills Operating Agreement, under the South Windsor Operating Agreement, Summerville owned 75, or 75%, of the Common Units of South Windsor, while the Zanker Group owned the remaining 25, or 25% of the Common Units. Furthermore, as with the Litchfield Hills Operating Agreement, Summerville was entitled to designate two (2) managers, while the Zanker Group was entitled to designated one (1) manager. Eventually, a dispute over the percentage ownership arose, in which Summerville denied that the Zanker Group had a 25% ownership interest. After litigation, a judgment entered which provided, inter alia, that Summerville held a 75% ownership interest and the Zanker Group held the other 25% ownership interest. As with Litchfield Hills, South Windsor was to be managed by Managers not the Members with an initial designation of three Managers, one of whom was to be appointed by the Zanker Group so long as it was a Member. The two managers appointed by Summerville were Heimbold and Ragland, while the manager appointed by the Zanker Group was Ellen Zanker. Heimbold and Ragland served as Summerville's designated managers until they were replaced on July 14, 2000. Likewise, daily management of the facility was vested in Summerville pursuant to the Management Agreement. Pursuant to that agreement, Summerville was charged with obtaining the initial financing for the project. As with Litchfield Hills, neither the Zanker Group nor Summerville were required to contribute any funds to the operations of South Windsor.
The dispute that spawned that litigation was a part of the demise of the business relationship between the parties.
Financing to acquire, develop and construct Summerville at South Windsor was arranged by Summerville via a sale/leaseback transaction with Health Care REIT, Inc. in accordance with a credit facility obtained by Summerville from Health Care REIT, Inc. in October of 1997. One of the terms of the credit facility was a security provision that required all leases under the facility to be cross-defaulted and cross-collateralized. This requirement was incorporated into the Health Care REIT, Inc. lease, which provided that the default on any indebtedness owed to Health Care REIT, Inc. by Summerville or any affiliate would be an event of default by South Windsor. A remedy for Health Care REIT, Inc. in such an event was termination of the lease and repossession by Health Care REIT, Inc. South Windsor was one of several initial facilities proposed to be developed under the financing. Including South Windsor, Summerville ultimately financed nine facilities using the Health Care REIT, Inc. credit facility.
Construction of the South Windsor facility, known as "Summerville at South Windsor," was completed on June 29, 1999, at which time the facility opened for business. Pursuant to the sale/leaseback transaction, Health Care REIT, Inc. acquired ownership of the real property associated with the Summerville at South Windsor facility, and leased it back to South Windsor pursuant to a written lease agreement dated April 30, 1998. The Health Care REIT, Inc. lease had an initial term of 13 years commencing on the conversion date which was May of 2000. The Health Care REIT, Inc. lease also included a 10-year extension option.
The lease included an option which granted South Windsor the right to purchase the real property associated with Summerville at South Windsor (the "South Windsor Real Estate") no earlier than 180 days, and no later than 90 days, prior to the expiration date of the initial lease term. Pursuant to the Health Care REIT Option, South Windsor had the right to purchase the South Windsor Real Estate for a price that reflected a discount from the fair market value of the property at the time the option was exercised (the discount assumed that the property appreciated during the term of the lease).
The relationship between the Zankers and Summerville began to deteriorate during 1998 and 1999 as the result of inter alia, tension between the parties related to the Zanker Group's identification and efforts to develop with Summerville a third assisted living project to be constructed in Bristol, Connecticut.
The 1999-2000 South Windsor Transaction (the basis for the "223" litigation).
In or around December 1999, Health Care REIT, Inc. approached Summerville about taking over the operations of seven assisted living communities previously operated by CareMatrix, which was having financial difficulties. The acquisition by South Windsor Senior Living Properties, Inc. ("SWSLP"), a wholly-owned subsidiary of Summerville created solely for the transaction of the South Windsor Real Estate, was part of a larger transaction between and among Summerville, CareMatrix Corporation, and Health Care REIT, Inc. which began in December 1999 (the "December 1999 Transaction"), pursuant to which Summerville, through a wholly-owned subsidiary, Summerville Assisted Living, Inc. ("SAL") assumed the management and operation of seven assisted living facilities (the "Chancellor Facilities") and one undeveloped parcel of property which were owned by Health Care REIT, Inc. and had until that time been operated by Chancellor and managed by CareMatrix Corporation.
Michael Zaccaro testified as to these matters.
In conjunction with the December 1999 Transaction, Summerville agreed to acquire five (5) properties owned by Health Care REIT, Inc., including the South Windsor real estate, in order to assist Health Care REIT, Inc. in (i) curing certain covenant defaults which resulted from Summerville's assumption of the management of seven other facilities from CareMatrix and (ii) improving Health Care REIT, Inc.'s liquidity. Summerville benefited from the December 1999 Transaction by increasing the number of facilities under its management to include the seven CareMatrix facilities.
The December 1999 Transaction increased the number of facilities which were cross-defaulted with South Windsor by the seven Chancellor Facilities, to at least fifteen. These properties were largely financially distressed. Summerville did not give notice to South Windsor or the Zanker Group that the Defendants intended to acquire the Chancellor facilities.
Summerville agreed to the concept of taking on the additional facilities and, in connection with the agreement, Health Care REIT, Inc. authorized a separate subordinated-debt credit facility for Summerville to draw upon to effectuate the purchases. In the case of South Windsor and Mentor, the sub-debt allocated towards their acquisition totaled $2,147,975. The SAL sub-debt facility attributed $1,064,000 of debt to South Windsor.
As part of the December 1999 Transaction, Health Care REIT, Inc. and South Windsor amended their lease by executing the Second Amendment. The Second Amendment created a "Special Option Period" and set the exercise price of that Special Option at Health Care REIT, Inc.'s "depreciated net book value," an amount determined at trial to be $10,727,000. South Windsor executed this Second Amendment without a meeting called of the managers or members of South Windsor or by action by the managers of South Windsor. This option was separate and apart from the end-of-term option contained within the Lease. Summerville was not legally obligated to purchase South Windsor by receipt of the special option. It was, as Cobb stated, a mechanism for the purchase of five properties from Health Care REIT, Inc.
In March 2000, Summerville acquired three of the five properties it had conceptually agreed to purchase as part of the December 1999 Transaction (the "March 2000 Transaction"). The March 2000 Transaction was financed by LaSalle Bank, which received personal guarantees capped at less than 100% of the debt as part of the transaction.
On or about April 13, 2000, Summerville made an application to Heller Financial, Inc. ("Heller") for a mortgage loan to finance a proposed combined acquisition of the South Windsor and Mentor real estate. The application identified a proposed financing of $20,700,000 whereas the acquisition price from Health Care REIT, Inc. was estimated at $21,581,000. The balance was to come from a draw down on the SAL sub-debt. It was to be this transaction with all of the accompanying transactions that became the focus of the first part of the instant litigation.
On May 5, 2000, Summerville employee Beth DeLucenay, wrote to the Zanker Group and provided financial statements for the period ending March 2000 for both South Windsor and Litchfield Hills. Ms. DeLucenay's correspondence, which was sent by overnight mail, also identified that "Health Care REIT, the property owner at South Windsor, is in the process of assigning their interest in the real estate to a Summerville subsidiary." Ms. DeLucenay advised that the transaction could "require an action in writing by the directors of the Summerville at South Windsor, LLC" and, if so, that Summerville employee Janie Bjork would send additional information "later in the week giving more detail." Summerville stated in the May 5, 2000 letter to the Zankers, inter alia, that the anticipated transaction "will not affect any of the terms and conditions of the loan. (sic)" Dr. Zanker acknowledged that the Zanker Group received this communication within a few days.
On May 10, 2000, the Zanker Group received a fax from Ms. Janie Bjork dated May 9th that attached a notice of special meeting of the managers of South Windsor. This notice indicated that a special meeting was going to be held on May 12, 2000 to "approve the refinancing of the facility operated by the Company [South Windsor] through a loan from Heller financial and the transactions and agreements required to be consummated in connection with the financing." The comments section of the fax coversheet indicated, in its entirety, as follows:
Hi Ellie! Hope all is well. Just to update you regarding the South Windsor financing transaction, as I believe Beth mentioned to you in her letter dated May 5. We just received committee approval from the lender HC REIT, is pushing to close quickly. The expected close date is May 15. The benefit to the LLC is that the loan will be cross-defaulted with only one other facility instead of eight. All other terms and conditions of the lease will remain the same. Attached is the notice of special meeting for consent of the transaction. Please let me know if you have any questions. Thanks — Janie
The Zanker Group received Ms. Bjork's fax. They responded to it later that same day with concerns. In their response, they posed a number of questions. The questions included the following: Which affiliate is involved? What are the terms of the proposed assignment? What entity will be cross-defaulted with ours? What loans are we currently cross-defaulted with? Who owns the affiliate that will purchase the real estate contract and what is it's [sic] structure, relationship to Summerville? How was this new contract negotiated?
Dr. Zanker asserted at trial that he did not understand that an affiliate of Summerville was buying the South Windsor property in the 2000 Transaction or that a Summerville subsidiary had in fact become the landlord until preparing for trial. He also testified that he did not understand the meaning of the word "purchase" in the very letter he drafted because Summerville had not used the word. The court after hearing all the evidence does not find this credible. While the questions demonstrate that Dr. Zanker had many gaps in the knowledge he was given of the overall transaction, at the same time they display his understanding of the basic nature of the matter: a refinance would be taking place and title to the real estate was being conveyed to a Summerville affiliate. After observing Dr. Zanker and listening to his testimony, the court does not find it believable that he did not have, at least, that basic understanding of the transaction by May 10.
The Zanker Group's letter also noted that less than the requisite three days' notice had been given for the meeting: Prior to sending this letter, the Zanker Group consulted with its attorney, Mark Wallman, regarding its position on these matters.
On May 11th, Ms. Bjork responded to the Zanker Group's May 10th communication with a fax letter. In it, Ms. Bjork noted that both she and Art — a reference to Arthur Heimbold — had left voicemail messages on the Zanker Group's business phone and the Zankers' home phone. (The Zanker family was in the middle of a move at or about this time which was not known by Ms. Bjork). Ms. Bjork further indicated that the special managers' meeting was being rescheduled for May 15, 2000 to address the timing objections raised by the Zanker Group. Finally, Ms. Bjork's May 11th fax attached a new notice of special meeting of the managers of South Windsor for May 15th. Its content was identical to the previous notice; only the date was changed.
On May 12th, Ms. Bjork sent a letter in which she responded to the Zanker Group's May 10 letter. Enclosed was a draft copy of the loan agreement for "the refinancing of South Windsor and Mentor," a copy of the Unconditional Guaranty of Payment and Performance, as well as a copy of the Health Care REIT, Inc. lease. She wrote that the South Windsor "lease terms and conditions will remain the same," and that the "real estate will be held in a Summerville wholly-owned subsidiary, South Windsor Senior Living Properties, Inc." The Zankers did not receive any of these materials until Saturday, May 13, 2000. This was two days prior to the date set by Summerville for the special meeting of the managers of South Windsor to approve the transaction. While there is a dispute between the parties as to what other documents were enclosed, the Zankers acknowledge receipt of this documentation.
South Windsor and Mentor were all identified as borrowers under the loan, and that SWSLP was to be the landlord of the South Windsor facility, that Heller would be the owner and that South Windsor was to be the tenant. Based on the documents received, the Zanker Group was informed that Heller was the lender, that South Windsor was to remain a tenant and that SWSLP was to be landlord, which inferentially made it apparent owner of the property.
Finally, Ms. Bjork forwarded a copy of the South Windsor lease agreement with Health Care REIT, Inc. In forwarding that document, Ms. Bjork noted that it contained a cross-default provision. Summerville asserts that the First and Second Amendments to the Health Care REIT, Inc. lease were sent to the Zanker Group at this time, though there is no documentary proof of the same. Ultimately the court cannot find either way.
On May 14, 2000, after consulting with its counsel, the Zanker Group responded to Ms. Bjork's letter. The Zanker Group's correspondence acknowledged that the Zankers had "received yesterday [May 13th,] the material Janie Bjork overnighted on 5/12 and did [their] first review of it." The fax letter to Heimbold and Ragland expressed the Zanker Group's dissatisfaction with the limited and insufficient information provided by Summerville to date concerning the proposed May 2000 transaction, requested further information, requested answers to additional questions, and objected to the meeting going forward until the Zanker Group's questions were answered. The various questions posed found their genesis in the financial information derived from the Heller Loan, such as the amount of "Funded Working Capital." The court draws this inference inasmuch as the specific information and other detailed references were not contained in any of the earlier written communications. In its letter the Zanker Group stated that it was prepared to vote against the financing should the meeting proceed as scheduled, due to "inadequate time and information to consider the proposal." The Zanker Group was silent as to SWSLP's acquisition of the South Windsor real estate — yet it showed its understanding that SWSLP, an affiliate of Summerville, was to acquire the real estate, when it questioned whether "any of the tax and depreciation benefits which will accrue to the Summerville affiliate as a result of the financing [will] be passed through to the Summerville project?"
Ms. Bjork's May 12th letter expressly stated that Summerville personnel would be available the morning of May 15th to discuss the financing transaction. The Zanker Group did not avail itself of that opportunity. Indeed, Dr. Zanker testified that the Zanker Group purposefully did not attend the meeting. As of May 15, 2000, the managers of South Windsor were Ellie Zanker, Heimbold and Ragland. (Although DeLucenay did eventually become a manager of South Windsor at Summerville's designation, she did not become a manager until July 14, 2000.) Proper notice was provided of the May 15, 2000 meeting. As Dr. Zanker acknowledged Ms. Bjork's May 11th fax provided more than the three-day minimum amount of notice required by the operating agreement.
In the afternoon of May 15, 2000, a special meeting of the managers of South Windsor was held and the Zanker Group, which chose not to attend, was notified by telephone that the meeting had taken place. This is further memorialized in Attorney Wallman's May 18, 2000, letter to Mr. Heimbold and Mr. Ragland in which he wrote that on May 15th, Mrs. Zanker "received a voicemail message from [them] indicating that the meeting had been held" that afternoon. Indeed, in an earlier lawsuit between the Zanker Group and South Windsor and Litchfield Hills, Dr. Zanker testified that the meeting took place in the Zanker Group's absence. The court finds that proper authorization for the May 2000 transaction was voted for by the managers from Summerville at that meeting. At no time did Ellie Zanker of the Zanker Group consent to South Windsor's participation in this transaction. The Zanker Group asserts that the transaction is covered by the following provision found in section 9.4 of the South Windsor Operating Agreement. Normally a majority vote of a quorum of the Managers was sufficient for the Managers to take corporate action; however:
(b) Without the consent of the Members who own a number of Common Units representing more than 90 percent of the aggregate number of votes entitled to be cast by the holders of all of the outstanding Common Units, the Managers shall have no authority to enter into any transaction or agreement with [Summerville] or any of its subsidiaries or affiliates unless that transaction is based on good faith, fair exchange of value or was negotiated on an arm's length basis . . .
This provision was incorporated to protect the Zanker Group from a "situation where the majority members might take advantage of us by use of affiliate organizations and transactions." The defendants claim throughout these proceedings that the May 2000 transaction involving the financing arrangement and title transfer between Heller and Summerville, SWSLP and South Windsor and Mentor, did not fall within section 9.4(b) for it was a fair exchange of value and negotiated at arm's length. Technically, the transaction that occurred was (1) a transfer of title from a third party, Health Care REIT, Inc., to a Summerville affiliate, SWSLP (2) a refinance of the Health Care Loan, taking it out, with debt to Heller from South Windsor (3) an assignment of lease from Health Care REIT, Inc. to SWSLP, which meant that South Windsor now had a Summerville affiliate as a landlord. These transactions were done as a global package which had to have resulted from agreements which were with a Summerville affiliate. Therefore, the court finds that it was a 9.4(b) transaction. The question remains whether it was "based on good faith, fair exchange of value or was negotiated on an arm's length basis." The court finds that the transaction with Heller was for value received and at arm's length. South Windsor received benefit: it was able to take out the Health Care REIT, Inc. debt which was due, having been extended several times and it was able to reduce the number of facilities it was cross collateralized to. The latter may not have been a state of the business affairs of which the Zanker Group had approved, but a benefit still accrued to South Windsor in the transaction. Dating back to the 1997 financing, it was contemplated that South Windsor would be cross-collateralized. To reduce the cross-collateralization to one other property was a real and tangible benefit to South Windsor.
The defendants point to the adverse occurrences to the other properties that South Windsor was cross collateralized with. That however, of course, is the benefit of 20/20 hindsight. The benefit was in place regardless of what the market produced.
Based on Ms. Bjork's May 9th fax, the Zanker Group was aware that Health Care REIT, Inc. was looking to "close quickly," with a then-expected closing date of May 15th. The transaction closed on May 17th. The Health Care REIT, Inc. lease was assigned to SWSLP, as landlord. There was no change in the Lease terms. SWSLP took over title to the South Windsor lease rate. Among the documents executed on or about May 17, 2000 was a statutory form Quitclaim Deed, which Health Care REIT, Inc. used to convey the South Windsor real property to SWSLP and an Assignment of Lease that was recorded on the South Windsor land records on June 13, 2000. The Quitclaim Deed was executed by Health Care REIT, Inc. on May 11, 2000. The Quitclaim Deed and the Assignment of Lease conveyed the South Windsor lease agreement, including amendments, from Health Care REIT, Inc. to SWSLP. This public document specifically indicated that there was a First, Second and Third Amendment to the Lease. There is no evidence that Summerville attempted to hide the existence of these documents from the Zanker Group.
The Zanker Group never attempted to review the land records to determine what filings might have been recorded in or after May 2000.
Separate and apart from the Managers' action taken on May 15th, South Windsor was not in a financial condition as of that date to acquire for itself the South Windsor real estate. As of April 30, 2000, South Windsor's balance sheet reflected that it had cash assets of only $500 and, in addition to other liabilities, owed approximately $920,000 to Summerville for advances that Summerville made to sustain South Windsor's operations. Although the balance sheet identified a sum of approximately $270,000 as "Restricted cash," that amount was advanced by Summerville as the security deposit required by the Health Care REIT, Inc. lease and was an additional sum due to Summerville. Mr. Cobb verified that the April 2000 balance sheet was accurate.
The pay-off amount due to Health Care REIT, Inc. to purchase the South Windsor real estate was $10,727,604. Both Dr. Zanker and Mr. Zaccaro testified that South Windsor's balance sheet was insufficient to support a financing in excess of $10,000,000. Whether the financing need was $10,727,604 or actually only $9,850,000 (as he viewed it), Mr. Zaccaro conceded that even the latter amount could not be financed consistently with applicable loan covenants, based on South Windsor's financial condition in May 2000. The court is constrained to agree.
Inasmuch as pursuant to section 5.6 of the South Windsor Operating Agreement, neither the Zanker Group nor Summerville was required to lend funds to South Windsor, and the Zanker Group had expressed no desire to put money into the project as of that date, as a practical matter South Windsor could not have provided the funds to support the refinance in the middle of 2000. That does not mean that Summerville should not have first inquired of the Zanker Group whether they would participate financially with Summerville in a plan for South Windsor to acquire the real estate through some entity. Had that inquiry been made, the Zanker Group today would not have been in a position to later claim foul.
SWSLP's acquisition of the South Windsor real estate was accomplished through additional borrowings by Summerville. When combined with Mentor, $21,479,752 was needed to pay-off the Health Care REIT, Inc. debt for these two facilities. The Heller financing was $20,880,000. Approximately $600,000 more was needed to pay-off the debts. The Heller financing also contained an "interest accrual holdback" of $500,000. Summerville therefore needed to pay $1,100,000 plus sundry costs expenses on top of the Heller loan proceeds to pay off Health Care REIT, Inc. Summerville made up for the shortfall with additional borrowing from the Health Care REIT, Inc. subordinated-debt. Summerville allocated $1,080,000 of this to South Windsor.
Events Subsequent to the 2000 Transaction.
On May 18, 2000, at the Zanker Group's instruction, Attorney Wallman wrote to Messrs. Heimbold and Ragland concerning the Zanker Group's concerns and questions about the Heller financing. In his correspondence, Attorney Wallman wrote that he and the Zankers understood that the special meeting might have taken place. In addition to raising questions about the acts leading up to the meeting and how it was noticed, Attorney Wallman's letter also raised the issue of delinquent distributions to the Zanker Group. Attorney Wallman also stated that he believed the transaction constituted a breach of contract and fiduciary duty by Summerville and that the Zanker Group was "being damaged by these actions."
On June 9, 2000, Ms. DeLucenay advised the Zankers that Summerville's attorney, Scott Meza, would be responding to Attorney Wallman's letter. On June 9, 2000, DeLucenay, on behalf of Summerville, wrote to the Zankers acknowledging receipt of Wallman's letter of May 18, 2000. She also informed the Zankers that Ragland was no longer with Summerville, that Granger Cobb ("Cobb") was now President and CEO of Summerville, and she sought to schedule a joint venture board meeting between the Zanker Group and Summerville for some time in July 2000.
On June 19th, Ellie Zanker, on behalf of the Zanker Group, wrote to DeLucenay in order to reiterate the Zanker Group's prior requests for information concerning the proposed May 2000 Transaction, and to indicate that the Zankers were prepared to attend a joint venture meeting on July 14th. Attorney Meza corresponded with the Zanker Group on June 27, 2000 and Dr. Zanker acknowledged that the Zanker Group saw this letter shortly thereafter. In his letter, Attorney Meza chronicled the notices leading up to the May 15th meeting, the information provided to the Zanker Group and the opportunities afforded to the Zanker Group to ask questions about the proposed transaction. Attorney Meza noted that the Zanker Group had declined the offers to speak with Summerville personnel about the transaction and had further opted not to attend the meeting, which he indicated "took place on May 15, 2000 as noticed." Attorney Meza advised that the loan had been approved at the May 15th meeting and that pursuant to the "new financing with Heller, the South Windsor facility is only cross-defaulted with one other facility . . ." This unambiguous language clearly informed the Zanker Group that the financing had been undertaken. Nothing in the letter discussed the transfer of title to the real estate or the lease assignment by Health Care REIT, Inc. to the Summerville affiliate SWSLP. There is no evidence that Attorney Wallman or the Zanker Group responded to this letter or ever asked additional questions about the transaction. Attorney Meza's June 27th letter also addressed the Zanker Group's continued demands for payment of various contractual distributions which became the subject of separate litigation.
Summerville had advanced money to South Windsor and Litchfield Hills facilities to sustain their operations and Cobb informed the Zankers of this fact. Attorney Meza's June 27th letter in response to the Zanker Group's demand for funds due it references those communications: as he noted that Summerville, from the inception of operations, had been subsidizing "the operating losses of both Connecticut projects out of its own pocket." The court finds this statement was clear notice to the Zanker Group that Summerville was advancing funds to both South Windsor and Litchfield Hills.
Ms. DeLucenay once again wrote to the Zankers in furtherance of Ms Bjork's and Attorney Meza's communications. In addressing questions posed by the Zanker Group, she responded that "The terms of the assignment are the same as the terms under the previous financing." She further wrote that, "The loan is now cross-defaulted with only one community — Summerville at Mentor — in Mentor, Ohio." She also wrote, "The real estate contract was assigned from Health Care REIT, Inc. and was not renegotiated." Both of these statements are in the past tense thus affirming that the transactions had occurred. The language that the REIT's real estate contract was assigned is an error (we now know) because it was a deed of conveyance with a lease assignment. The court finds this language sufficiently indicative that a transaction of some kind involving the real estate occurred.
This answer, together with other communication discussed above, should also have put the Zanker Group on notice that the transactions that the questions about posed in their May 10th letter in fact occurred. Ms. DeLucenay ended her letter by noting that Ms. Bjork would be available "to answer any additional questions [the Zanker Group had] on the refinancing" at the July 14, 2000 Members meeting. There is no evidence that the Zanker Group responded to any portion of this letter or that it questioned whether the transaction had been completed.
The annual meeting of the Members of both Litchfield Hills and South Windsor was held as scheduled on July 14, 2000 in Alexandria, Virginia. Dr. and Mrs. Zanker attended, accompanied by Attorney Wallman and Mr. Sridhar Srinibasan, the Zanker Group's financial advisor at that time. During this meeting, Summerville replaced its two designated managers of Litchfield Hills and South Windsor, Heimbold and Ragland, with DeLucenay and Janet Knotts. Also during the July 14th meeting, the parties addressed, but did not resolve, Summerville's position that the Zanker Group had forfeited 625 Common Units in both companies, and therefore had only an 18.75% interest in Litchfield Hills and South Windsor, as well as the Zanker Group's complaints concerning its unpaid fees.
This, of course, was resolved in the litigation before Judge Berdon, where he found for the plaintiff in what he described as "very favorable and generous contractual rights" in favor of the Zanker Group.
During the July 14th meeting, the Zanker Group reiterated its request for additional financial information, pertinent to the two properties. Summerville indicated that it would provide the requested information and promised to keep the Zanker Group fully informed. During the July 14th meeting, Cobb informed the Zankers that Summerville was experiencing serious cash flow problems. The draft minutes prepared and circulated by Ms. DeLucenay reflect that the discussion focused on payment of various distributions and how any deferral of those sums would be reflected on the financial statements. The draft minutes made no reference to discussions about the May 2000 transactions. On August 5, 2000, DeLucenay sent a fax letter to the Zankers with the draft minutes. In response, Dr. Zanker wrote back to DeLucenay on August 9, 2000 in order to point out various matters included in the draft minutes that were not discussed at the July 14th meeting and to point out matters that otherwise were inaccurately recited in the draft minutes that accompanied DeLucenay's letter of August 9th, including:
Finally, the minutes should reflect the fact that at the beginning of the meeting, the Zanker Group indicated that it had not waived its previously noted objections to the previous meeting at which the South Windsor project was refinanced with another Summerville project in Ohio.
During the pendency of that lawsuit the Heller Loan, which had a two-year term, was extended for additional terms prior to maturity. On or about May 17, 2002, Heller, SWSLP, South Windsor, Summerville and Mentor amended Note A and Note B (the "First Loan Amendment") in order to, inter alia, extend the maturity date of the Heller Loan from May 17, 2002 to January 1, 2003.
On or about December 31, 2002, Heller, SWSLP, South Windsor, Summerville and Mentor again amended Note A and Note B (the "Second Loan Amendment") resulting in a further extension of the Heller Loan from January 1, 2003 to January 1, 2004. On or about December 31, 2004, the same entities amended Note A and Note B (the "Third Loan Amendment") for a third time in order to extend the maturity date of the Heller Loan from January 1, 2004 to June 30, 2004. These were both recorded on the land records.
SWSLP and Mentor collectively paid $522,000 in fees for these maturity date extensions. South Windsor did not pay any portion of the extension fee and the sum was never charged back to it. These extension fees were attributable in part to the South Windsor property and in part to Mentor property. In total, SWSLP paid approximately $295,000 in extension fees over the course of its ownership of the South Windsor real estate
II. The Defendants' Motion to Dismiss for Failure to Make out a Prima Facie Case.
At the close of the plaintiff's presentation of its case in chief, the defendants orally and in writing presented the court with a motion to dismiss for failure to make out a prima facie case. The motion is addressed to various counts as well as to certain defendants as to all counts against them. The court addresses the motion as it pertains to the individual defendants. The balance of the claims in the motion as to counts 16 and three through six of the complaint ending in docket number 223 are disposed of as a part of the entire memorandum and judgment in this matter. The motion to dismiss as to the second complaint tried as a part of the proceedings, ending in docket number 567 is similarly disposed of infra.
The Defendants Health Care REIT, Inc., Capstone Capital Corporation, Apollo REIT, Fund III, LLP, Apollo REIT, Fund IV, LLP, Litchfield Hills Assisted Living, LLC, South Windsor Assisted Living, LLC, Granger Cobb, Melanie Werdel and Frank Tsai. The plaintiff's complaint as to the two Apollo defendants is found in count six of the first filed action (ending in docket number 223). The complaint against all of these defendants alleges that they participated in a fraudulent transfer. The court having reviewed all of the evidence adduced by the plaintiff in the light most favorable to the plaintiff finds that it has failed to make out a prima facie case against these two defendants, Apollo REIT, Fund III, LLP and Apollo REIT, Fund IV, LLP. Therefore, the court orders a dismissal of the case as to them.The last two defendants who have moved for dismissal in the 223 action are Health Care REIT, Inc. and Capstone Capital Corporation. The plaintiff has introduced no evidence as to its allegations against them. The motion is therefore granted as to them.
In the later filed action, the defendants, Granger Cobb, Melanie Werdel and Frank Tsai, Litchfield Hills Assisted Living, LLC and South Windsor Assisted Living, LLC have also moved for dismissal. No evidence has been adduced as to them. The motion therefore is granted as to them.
Claims as to South Windsor in Complaint ending in 223. Third Count (Fraudulent transfer as to SSL and South Windsor-General Statutes § 52-552e).
The plaintiff claims in this count that, at the time of the May 2000 transaction, South Windsor transferred its "primary assets and real and personal property" to SWSLP with the actual intent to hinder, delay, or defraud the plaintiff. Based upon the evidence presented at trial, the court can discern no basis for concluding that a "transfer" of property occurred, as that term is defined by CUFTA.
The definition of transfer can be found at § 52-552b(12): "'Transfer' means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease and creation of a lien or other encumbrance."
The plaintiff does not address this claim of fraudulent transfer (or for that matter those also found in counts four through six) in its post-trial memorandum of law, and presented no evidence in support of this claim at trial. Therefore, the court concludes that the plaintiff has not met its burden of proof with respect to this claim.
Fourth Count
In this count the plaintiff makes identical allegations to those set forth in the Third Count, but here bases its claim on General Statutes § 52-552f. For the reasons articulated above with regard to the Third Count, the court concludes that the plaintiff has not met its burden of proof with respect to this claim.
Fifth Count
Like the Third Count, this count is based upon General Statutes § 52-552e. The plaintiff alleges in this count that on or about May 17, 2000, the South Windsor Lease was subordinated to the GE first mortgage (the Heller mortgage) to the detriment of South Windsor. The above referenced definition of "transfer," while broad, does not include subordination of a leasehold interest. Therefore, the court concludes that the plaintiff has failed to meet its burden of proof as to this count and it fails as well.
Sixth Count
In this last count alleging fraudulent transfer, this time under § 52-552f, the plaintiff avers that harm was visited upon Summerville at South Windsor as a result of a purported conveyance of a second mortgage on the South Windsor property on January 20, 2001 to two Apollo entities (III and IV) by SSL. It also claims that personal property was so conveyed to the detriment of South Windsor. The plaintiff has not met its burden of proof that on January 20, 2001 South Windsor was a creditor of SSL; nor has the plaintiff satisfied its burden of proof as to the other substantive allegations of this count.
Seventh Count
In this count, the plaintiff seeks a finding of the court, that as to counts two through six, the corporate veil of SSL should be pierced as a result of SSL's claimed total domination of the South Windsor policy and business practice. Inasmuch as the court has found that the plaintiff has failed to satisfy its burden of proof as to any of these counts, the claims here are not reached and the court finds for the defendant on this count.
Sixteenth Count
Count sixteen claims that the defendants have fraudulently concealed facts necessary to the plaintiff's legal complaints and/or intentionally concealed the facts for the purpose of delaying the plaintiff's filing of the lawsuit. Specifically, the plaintiff claims that the defendant SSL actively concealed its self-dealing and usurpation of a corporate opportunity from the plaintiff by failing to make a full and fair disclosure of the transactions that occurred in May 2000.
The defendant has also pled the statute of limitations (C.G.S. § 52-577) as a special defense to the second count (South Windsor-SSL's Breach of Fiduciary Duty), the ninth count (South Windsor-Defendant SSL's Breach of Duty of Good Faith, C.G.S. § 34-141), the eleventh count (South Windsor's Breach of Fiduciary Duty), the fourteenth count (Tortious Interference with Beneficial Interest-SSL), the fifteenth count (Tortious Interference with Beneficial Interest-SWSLP), the seventeenth count (conversion by SWSLP), eighteenth count (conversion by SSL) and the nineteenth count (conversion by South Windsor). All of these counts sound in tort. The plaintiff has claimed (though not actually pled in avoidance) that the statute of limitations tolled because the defendant SSL fraudulently concealed the actionable terms of the May 2000 transactions from it. Therefore, if the plaintiff is successful in count 16 claiming fraudulent concealment, then the defendant will not prevail on this special defense. Conversely, if the plaintiff fails to meet its burden of proof of fraudulent concealment, then the defendant will be found to be successful on its statute of limitations special defense as to counts 2, 9, 11, 14, 15, 17, 18 and 19. For the reasons stated hereinafter the court finds that the plaintiff has failed to meet its burden of proof as to fraudulent concealment.
Second Count
The court first addresses the allegations in the second count. The allegation is that SSL excluded the plaintiff from participation in management of South Windsor, SSL used its management control of assets of South Windsor to SWSLP for less than reasonably equivalent value, and SSL utilized its majority control to transfer assets, including cash, to SSL itself and other entities. To the extent that these allegations refer to the May 2000 transaction they are time barred for the reasons stated hereinafter. The plaintiff in its post-trial memorandum fails to marshall any claim as to this count. Therefore, the court cannot read the tea leaves to infer whether the plaintiff intended to have the count cover post-May 2000 behavior. To the extent that SSL was paid back funds that it infused into South Windsor, the plaintiff failed to prove that constituted a breach of fiduciary duty.
Ninth Count
The plaintiff claims that SSL owed it a duty of good faith under the Operating Agreement and C.G.S. § 34-140. The plaintiff claims that this duty was breached as alleged in counts 2 through 7 and 11 through 15. The court has previously found, supra, that the plaintiff has not met its burden of proof as to counts three through seven and the defendant has prevailed on its statute of limitations defense as to count 2. Accordingly, as to those allegations of this count the plaintiff's cause fails. As discussed below, the defendant has likewise prevailed on its special defense of the statute of limitations as to counts 11 (except as to breach of contract claims), 14 and 15. Therefore, as to these portions of the ninth count, the plaintiff cannot prevail.
Counts 12 and 13 are breach of contract actions. As to the claim of breach of the duty of good faith referencing these counts and that portion of count 11 the court finds that for the defendant as stated hereinafter.
Eleventh Count
As the court has just found, the allegations of the eleventh count are time barred with the exception of the breach of contract portion of the complaint.
In paragraph 84(d) of this count, plaintiff alleges a usurpation of corporate opportunity. As recited by the court in Cribbin v. Allied Color, Inc., 1998 Ct.Sup 12440, 12449, 23 Conn. L. Rptr. 263 (1998), the court noted that this cause of action is a tort. Accordingly, it is time barred.
Twelfth and Thirteenth Counts
Both of these counts sound in breach of contract. The twelfth count claims that SSL breached the operating agreement when the May 2000 transaction was consummated. The heart of the claim is that the transaction is covered by § 9.4(b) of the operating agreement because it is a transaction with a Summerville affiliate and, therefore, all of the documentation declaring that the transaction was consummated with the authority provided for in the Operating Agreement is false since no authority was granted by the Zanker Group representatives as required by § 9.4(b). Defendant argues that the transaction is not covered by § 9.4(b) because (1) it is not a transaction with a Summerville affiliate as defined by the Operating Agreement, and (2) if it is such a transaction, it is an arms length transaction and therefore falls within the exception provided for in that provision.
The provision of the Operating Agreement that is at issue provides:
Without the consent of the Members who own a number of Common Units representing more than 90 percent of the aggregate number of votes entitled to be cast by the holders of all the outstanding Common Units, the Managers shall have no authority to enter into any transaction or agreement with SHG or any of its subsidiaries of affiliates unless that transaction is based on a good faith, fair exchange of value or was negotiated on an arms length basis. The foregoing provisions of this subsection (b) shall not apply to purchases of additional Preferred Units by SHG or its subsidiaries or affiliates in accordance with the terms of this Agreement or the making of loans by SHG or its subsidiaries or affiliates pursuant to one or more subordinated promissory notes substantially in the form attached hereto.
The first determination for the court is whether the transactional events in May 2000 constitute South Windsor entering into a transaction or agreement with an affiliate of Summerville. Summerville's affiliate SWSLP entered into a transaction (a mortgage) with Heller (GE) and it entered into two transactional agreements with Health Care REIT, Inc., an agreement to buy the South Windsor real estate and assignment of lease. SWSLP, as discussed in the findings of fact above, is a Summerville affiliate. Essentially by the deeds of conveyance, the Summerville affiliate SWSLP took over all of the positions previously held by Health Care REIT, Inc. The transactions then are not those of South Windsor, which is just the tenant, "with" an affiliate.
"Agreement," however, is a broader term. The court finds that the broad contours of the entire May 2000 transaction constituted an agreement between South Windsor and an affiliate of Summerville. Merriam-Webster's Legal On-Line Dictionary defines an agreement to include, "an expression (as a settlement, covenant or contract) of the intent or willingness of two or more parties to bind at least one to terms usu. determined by negotiation." Broadly stated the decision to involve both entities in the transaction would not have occurred absent Summerville orchestrating and voting for it on behalf of both South Windsor and SWSLP.
The court must then go on to consider whether the transaction was based on a good faith, fair exchange of value. SWSLP purchased the property at the Special Option price of $10,727,000, which was a right that was owned by South Windsor. Moreover, it is apparent that the second and third amendments were done for the purpose of the exercise of the option. This option is not the same option as that included with the original lease. However, it was for the same price for South Windsor as the original option. The plaintiff argues that since the right of purchase and the purchase price were set as part of the original deal in the December 1999 transaction, all that Summerville was doing was executing a legal obligation it had already negotiated for, and no new terms came about as a result of the May 2000 transaction. Plaintiff points to the testimony of Granger Cobb that Summerville was obligated to purchase the South Windsor property. The court does not find that as a fact, having been provided no evidence of the same. The plaintiff failed to prove this fact through Mr. Cobb. He never affirmatively answered that question and, his testimony, as seen through the lens of the written exhibits, leads the court to infer that it was expected that Summerville would purchase the properties, including South Windsor, but it was not proven to the court that they were bound to do so. Finally, the court has before it irrefutable evidence that additional consideration for this special option was paid by way of the extension fees. There would be no reason for these fees to be paid to preserve the option if South Windsor or Summerville was already contractually obligated to purchase the South Windsor real estate.
The plaintiff's analysis also fails to recognize that South Windsor did gain value from the transaction. The 1997 Health Care REIT, Inc. credit facility had placed no limits on the entities to which South Windsor would be cross-defaulted and cross-collateralized. With the Heller refinance, they were no longer cross-collateralized with any Summerville properties other than Mentor. That in itself is a good and sufficient additional benefit to South Windsor. The terms of South Windsor's lease remained the same. It had previously been a guarantor of the financing from Health Care REIT, Inc.; it remained a guarantor, now of the financing from Heller.
Arm's length transactions have been characterized by the court as transactions "lacking a relationship of dominance and dependence, or the parties were not engaged in a relationship of special trust and confidence." Biller Associates v. Peterken, 269 Conn. 716, 724, 849 A.2d 847 (2004). The court finds that Summerville and its affiliate SWSLP operated at all times at arm's length with Heller and Health Care REIT, Inc.
The wrong that befell the plaintiff as a member of South Windsor was really its loss of the opportunity to participate in the ownership of the real estate, as it was prematurely appropriated by Summerville to itself, thus to the exclusion of the Zanker Group. This wrong, however, does not find itself vindicated in these breach of contract claims. Instead it remains unsatisfied as the result of the Zanker Group failing to file claims for the same within the time periods provided by law. The court cannot conjecture its reasoning. It is quite clear that the Zanker Group at most of the vital timeline was concerned with its management fees being unpaid, and with the dispute over its percentage of ownership. That said, the breach of contract claims that inferentially raise a breach of fiduciary duty cannot survive inasmuch as it is a tort claim. The court finds the plaintiff failed to satisfy its burden of proof as to the twelfth and thirteenth counts.
Fourteenth and Fifteenth Counts
These counts claim tortious interference against SSL and SWSLP in regard to the plaintiff's claim of a beneficial interest in the option as a result of the May 2000 transaction. As discussed below, once again, these claims are time barred; the court concludes that the defendants have prevailed on this special defense.
Seventeenth, Eighteenth and Nineteenth Counts
These counts all sound in conversion, which is a tort, for conduct of SSL and SWSLP relating to the May 2000 transaction. They therefore suffer the same fate as the other time-barred tort claims, as discussed above and below.
General Statutes § 52-595 provides, "If any person, liable to an action by another, fraudulently conceals from him the existence of the cause of such action, such cause of action shall be deemed to accrue against such person so liable therefore (sic) at the time when the person entitled to sue thereon first discovers its existence." The statute restates the previous equitable rule. See Phalen v. Clark, 19 Conn. 421, 438 (1849). In Martinelli v. Bridgeport Roman Catholic Dioceses, 196 F.3d 409, 427 (2nd Cir. 1999) the court held that "because the statute provides that, after tolling, 'the cause of action shall be deemed to accrue . . . at the time when the person entitled to sue thereon first discovers its existence,' there plainly can be no effective tolling for a plaintiff who was aware of the existence of his or her cause of action from the time the claim originally accrued . . . [T]he plaintiff must be ignorant of the facts that the defendant has sought to conceal for the statute of limitations to toll." "This appears to comport with the general law to the effect that: 'There can be no concealment which will prevent the running of the statute of limitations where the cause of action is known to the plaintiff there is a presumption of such knowledge.' 51 Am.Jur.2d § 148, p. 720." Ortiz v. Bridgeport Hospital, Superior Court, judicial district of New London at New London, Docket No. 547104 (September 27, 2000, Corradino, J). In addition, equitable tolling only permits a plaintiff to avoid the bar of the statute of limitations if despite all due diligence, he is unable to obtain vital information bearing on the existence of his claim. (Citation omitted.) (Emphasis added). Gallop v. Commercial Painting Co., 42 Conn.Sup. 187, 192, 612 A.2d 826 (1992) ( 6 Conn. L. Rptr. 9). When a plaintiff learns of information that would lead to discovery of a cause of action through due diligence, the statute of limitations runs even if there has been fraudulent concealment. 54 CJS "Limitations of Actions,"§ 89, p. 128."
Weiner v. Clinton, 2006 Ct.Sup 19352 (Oct. 19, 2006) (Keller, J.)
The court finds that based upon the evidence adduced at trial that the plaintiff was on notice as to all of the significant aspects of the May 2000 transaction. Specifically, the plaintiff was informed that the deal would involve the transfer of the South Windsor real estate to a Summerville affiliate. Further, the plaintiff was informed that the property would be cross-collateralized with another Summerville facility (namely Summerville of Mentor).
On May 5, 2000 Beth DeLucenay of Summerville sent an overnight memorandum to the plaintiff which enclosed the March 2000 income statements for both the South Windsor and Litchfield Hills properties. The memorandum stated, as well "I wanted to advise you that Health Care REIT, the property owner at South Windsor, is in the process of assigning their interest in the real estate."
The plaintiff also received correspondence from Janie Bjork of Summerville that said "the real estate will be held in a Summerville wholly-owned subsidiary South Windsor Senior Living Properties, Inc." The letter enclosed a draft copy of the loan agreement relating to the transaction. Paragraph B of the loan agreement referenced SSW as Landlord and stated, "SSW Landlord is or on the Closing Date will be the owner of Summerville at South Windsor located in South Windsor, Connecticut." Dr. Zanker acknowledged that he understood this to mean that Summerville's affiliate would own the South Windsor real estate.
From inquiries back to Summerville by principals of the plaintiff, it is clear to the court that they understood these composite parts of the transaction, for they were inquiring as to the tax effects and other various particulars of the transaction.
After the transaction closed, on June 13, 2000 the defendants recorded all of the documents affecting the title to the real estate on the land records of South Windsor. Those documents included the quit claim deed conveying title in the real estate from Health Care REIT, to SWSLP and the assignment of the original lease from Health Care REIT to SWSLP. That assignment, as recorded, included the lease and the three amendments thereto which were specifically referred to in the Assignment Document.
Meanwhile plaintiff's counsel had sent a letter on May 18, 2000 to Summerville at South Windsor, with attention to Messrs. Heimbold and Ragland, in which he stated, inter alia,:
This letter is to formally notify you that Ms. Zanker and her husband, Theodore Zanker consider the meeting to have been improperly held and that therefore any determinations made by the Managers at the meeting are invalid. Further, we wish to advise you that any steps by the Managers to increase the amount of the loan to the Summerville facility and to link it with a loan to any other facility in which Summerville has an ownership interest without the consent of the Zankers is not only improper but would require full disclosure of the terms of such proposed transaction prior to its submission to the Managers (this did not occur) and the consent of the Zankers.
Then, after raising the Zanker claim for monies due under the terms of the agreements between the parties, Attorney Wallman goes on to conclude that Summerville consider that "all these matters raise extremely serious concerns of a breach of your fiduciary obligations to the Zankers."
The plaintiff asks this court to find that the option that had been conferred upon South Windsor to purchase the real estate was effectively exercised by SWSLP as an affiliate of SSL when SWSLP took title, and that was never disclosed to them. When SWSLP took title from Health Care REIT, Inc. the option that belonged to South Windsor was not exercised. The plaintiff claims, at the same time, that these facts rendered the option useless. That however, is irrelevant to the statute of limitations special defense. Once the plaintiff knew that SWSLP, or any Summerville affiliate, was taking title to the real estate, as experienced business people, the plaintiff's principals were then aware of the facts that could support a tortious claim for the same.
Throughout his testimony, Dr. Zanker protested that he did not understand what the transactions were about and that Attorney Wallman misspoke in his correspondence. The court finds that the plaintiff received sufficient disclosure of the salient aspects of the May 2000 transaction such that, as experienced business people represented by counsel, the Zanker Group had sufficient notice of information that required them to exercise due diligence by, at the very least, examining the land records of the Town of South Windsor. The court did not find Dr. Zanker credible when he continually protested that they (the Zanker Group) did not understand the transaction. In his testimony he was inconsistent, one minute acknowledging they were told title to the real estate was being conveyed, and the next minute stating that he did not understand what he was being told in the memoranda from Summerville's representatives.
The statute of limitations will not be tolled where the plaintiff's counsel shows knowledge of sufficient facts to claim a breach of fiduciary duty, and the plaintiff's representatives are proven to have actual receipt of the essential nature of the transaction. The fact that the consequences of the transaction with respect to the option were not disclosed does not obviate the plaintiff's awareness of details of the transaction including the conveyance of the real estate. At that point, the plaintiff was aware of sufficient information to support its causes of action. Its subsequent protest that they believed the transaction had been impermissibly executed only serves to disclose their knowledge of their right to pursue legal action.
Assuming, arguendo, that the plaintiff was not on notice of the existence of the basis for the tort causes of action, the court concludes that the plaintiff has not satisfied its burden of proving the applicability of General Statutes § 52-595. The plaintiff claimed as its sixteenth count fraudulent concealment under § 52-295. That statute, however, does not give rise to an independent cause of action. Instead it statutorily codifies the common law as stated above. The Supreme Court recently restated the law as it pertains to fraudulent concealment in the course of examining a vexatious litigation claim made by the plaintiff there, Falls Church, against a law firm. "Under our case law, to prove fraudulent concealment, the law firm would have been required to show that Falls Church: (1) had actual awareness, rather than imputed knowledge, of the facts necessary to establish the plaintiffs' cause of action; (2) intentionally concealed these facts from the plaintiffs; and (3) concealed the facts for the purpose of obtaining delay on the plaintiffs' part in filing a complaint on their cause of action. Bartone v. Robert L. Day Co., 232 Conn. 527, 532, 656 A.2d 221 (1995). Moreover, the law firm would have been required to prove that Falls Church had concealed the cause of action by the more exacting standard of clear, precise, and unequivocal evidence. (Citations omitted.)" Falls Church Group v. Tyler, Cooper and Alcorn, LLP, 281 Conn. 84, 105 (2007).
The court finds that the plaintiff and defendants are sophisticated parties. As the Supreme Court stated in Falls Church, "The relationship between sophisticated partners in a business venture may differ from the relationship involving lay people who are wholly dependent upon the expertise of a fiduciary." Id. at 108. Therefore, given the sophistication of the plaintiff, the court finds that the defendant Summerville discharged its duty to disclose the material facts of the transaction. The plaintiff has failed to prove by clear and unequivocal evidence that the defendants concealed the pithy components of the May 2000 transaction. Further, the plaintiff failed to prove that the nondisclosure by the defendant of the effect of the transaction on the South Windsor option was intentional.
Similarly, under the third Falls Church element, the plaintiff has not met its heightened standard of proving that the nondisclosure of this was done to obtain the plaintiff's delay in filing its cause of action. Accordingly the plaintiff has failed to prove fraudulent concealment under the established standard articulated in Falls Church. These counts, therefore, are time barred.
The plaintiff argued in its brief that the matter was not time barred because the Ventas 2004 transaction was a part of a continuing course of conduct. The court finds the Ventas transaction a separate and distinct business event.
First, Eighth and Tenth Counts
These counts are addressed to Litchfield Hills. The first count claims breach of fiduciary duty as to Litchfield Hills in the transfer of its assets to a Summerville affiliate. Specifically it claims it excluded the plaintiff from participation and management in Litchfield Hills, caused the transfer of Litchfield Hills' primary assets and cash assets for less than adequate value and not at arm's length to a Summerville affiliate, and Summerville mismanaged Litchfield Hills to depress its assets to avoid paying management fees to Zanker and to avoid paying the full purchase price for the entity. While the allegations are not specifically referenced in time, this latter claim must be relating to the 2004 transactions.
There is no evidence that was presented to the court of mismanagement of Litchfield Hills. Further, the plaintiff was paid in full its management fees, as it has acknowledged. There is no evidence that Zanker was excluded from participation in management of Litchfield Hills. Pursuant to the operating agreement, Summerville was charged with the operations of the facility. Revenues were down and beds were empty when Litchfield Hills did not pay rent for 4 months. Though this may have been an event for which a default could have been claimed, Summerville worked with Health Care REIT, Inc so that it could be paid back over time from cash flow and with the amounts unpaid rolled into the note which was ultimately paid off. The REIT never put the entity into default. That cash flow was poor enough to create this situation is not in itself evidence of mismanagement. Plaintiff protests it was not involved because it was not told of this until a subsequent meeting. Had a default been claimed, then the plaintiff would have had the right to assert this. They were told at the next meeting that Litchfield Hills was working on the cash flow problem with the landlord. Based upon Cobb continually telling the plaintiff that there were cash flow problems and asking for forbearance in the payment of plaintiff's own management fees, coupled with the reports given to Zanker was notice enough of the situation. There is no evidence that Summerville intentionally suppressed the value of Litchfield Hills. Although the plaintiff presented evidence that a similar facility charged higher rates, there was no evidence before the court that Litchfield Hills' rates were intentionally suppressed. A myriad of market factors influence the setting of rates. When it came to pass that the plaintiff and Summerville had different management goals the company was dissolved. This is not mismanagement. That the majority owner could exercise this power was contemplated in the operating agreement. The only question that remains is whether the forgiveness of the debt as consideration for the transfer in July 29, 2004 was adequate consideration. The court will address this in the context of the claims of the second complaint. As to the matters pled in this complaint, the plaintiff has not met its burden of proof on this count.
The tenth count claims a breach of duty of loyalty to the plaintiff by self-dealing with Apollo III, IV, and/or SSL. The claims as to SSL are duplicative of count one as the evidence has been presented. The court has received no evidence of self-dealing as to Apollo III and IV as to the Litchfield Hills project. The plaintiff did not meet its burden of proof as to this count.
The eighth count seeks to pierce the corporate veil claimed as to the Litchfield Hills project. This is not a free standing cause of action. Inasmuch as counts one and ten have failed this count must fail as well.
As to all counts of the first complaint, judgment enters for the defendants.
The second complaint ending in docket number 567
In this second action the plaintiff has brought the complaint in eight counts. The first count claims a breach of fiduciary duty by SSL as the majority owner. The second count also claims a breach of fiduciary duty under C.G.S. § 43-141.
The third count claims a breach of fiduciary duty as to Cobb, Werdel and Tsai. No evidence has been adduced in support of this count. Judgment is granted for these three defendants on this count.
The fourth and fifth counts are addressed to SSL and claim breach of the duty of loyalty and the covenant of good faith and fair dealing.
The sixth, seventh and eighth counts seek equitable relief as to all defendants, claiming injunctive relief and seeking a declaratory judgment nullifying the transactions that occurred from 2004 forward.
The following additional facts are found.
On January 9, 2004 special telephone meetings of the managers of South Windsor and Litchfield Hills were held. The three managers appointed by Summerville wanted approval to hire an appraiser to value the assets of each entity "in order to consider the possible sale of all or substantially all of the assets of the [entity] in one or a series of related transactions . . ." The Zanker Group's manager objected.
Cobb offered to have South Windsor pay for an appraisal to be performed by an appraiser of the Zanker Group's choosing if they picked one within 30 days. Ellie Zanker appeared to have accepted the offer of Cobb, but no appraisal was ever forthcoming from that point forward from anyone on behalf of the Zanker Group.
South Windsor and Litchfield Hills retained Valuation Information Group ("VIG") to perform appraisals. On February 13, 2004, VIG issued appraisals valuing the Litchfield Hills leasehold interest at $0 and valuing the South Windsor leasehold interest at $2,610,000
Cobb and Tsai acting as managers once again issued notice of special meetings of the Members and Managers of South Windsor and Litchfield Hills to vote upon a sale of the leasehold assets for the values determined by VIG. The notices specified that the purpose of the meetings was to approve: (1) the sale of all or substantially all of the assets of the entities to Summerville affiliates; (2) the dissolution and winding up of the entities; and (3) the filing of articles of dissolution with the Connecticut Secretary of State. The notices were clear that the meetings were being conducted pursuant to Sections 9.7 and 11.2 of the respective operating agreements.
For South Windsor, the consideration was to be the $2,610,000 valuation derived by VIG. In the case of Litchfield Hills, the consideration was to be the forgiveness of loans of $4,580,663 that Summerville had advanced to fund the working capital of Litchfield Hills. Each of the meetings was held as noticed on June 25, 2004 the Zanker Group objected to the resolutions. Summerville took the position that the resolutions were passed by the remaining members. However, it did not then act upon the resolutions.
The Zanker Group had raised various questions and requested additional information at the meetings. Summerville subsequently provided some information, including recent balance sheets and copies of the proposed leasehold asset purchase agreements, as well as an updated appraisal performed by VIG in response to the Zanker Group's criticism that the February appraisal was out-of-date.
Meetings of the two companies were once again noticed. They were held on July 2, 2004 as noticed and proceeded. They considered the same resolutions as the June 25, 2004 meetings had. Over the Zanker Group's objections, the resolutions passed. The transactions still did not proceed.
On July 22, 2004 Summerville, constituting a Majority of Interest of the Members, voted to dissolve both South Windsor and Litchfield Hills pursuant to section 13.1(a) of the respective operating agreements.
Summerville then noticed a special meeting of the members and managers for July 29, 2004 to approve a plan of liquidation for both South Windsor and Litchfield Hills. The plans of liquidation called for South Windsor and Litchfield Hills to "liquidate and reduce to cash [their] assets" by, in part, executing Leasehold Asset Purchase Agreements with SW Assisted Living and LH Assisted Living respectively. Although the value assigned was intended to be based upon the VIG appraisals, a second component of the plans of liquidation was the retention of another independent appraiser to value the leasehold interests of South Windsor and Litchfield Hills. This approach called for a possible third appraisal depending upon the size differential between the VIG appraisals and the second appraisal. In the case of South Windsor, if the second appraisal was ten percent higher than the VIG appraisal, a third appraisal would be performed, but if it was less than ten percent, the higher of the two appraisals would be utilized as the sale price. In the case of Litchfield Hills, the second appraisal had to exceed $1,000,000 to trigger any modifications. The Zanker Group was offered input into the selection of the appraisers. These plans of liquidation and these terms were provided by Summerville and its representatives. The result of this plan put forth by the Summerville representatives was the sale price for South Windsor was to be at least $2,610,000, subject to any increase that might result from the supplemental appraisal process. The consideration for Litchfield Hills was to be the forgiveness of $1,000,000 of outstanding debt subject to any modification that might result from the supplemental appraisal process. The plans of liquidation also provided for the distribution of any excess assets to the Members.
On July 29, 2004 the special meetings of the Members and Managers were held for each of South Windsor and Litchfield Hills. The Zanker Group and its representatives participated in the meetings. The Zanker Group declined to participate in the process of selecting a second appraiser and stated that it intended to retain its own appraiser. No evidence was offered that the Zanker Group ever obtained its own appraisals. Summerville retained CB Richard Ellis to perform new appraisals of both South Windsor and Litchfield Hills Those appraisals were completed on or about August 30, 2004. The South Windsor appraisal reached a value of $2,700,000, which became the sale price to SW Assisted Living. The Litchfield Hills appraisal concluded that Litchfield Hills had a value of $0.
Following the July 29th meeting, Summerville caused the South Windsor and the Litchfield Hills leasehold interests were conveyed to SW Assisted Living and LH Assisted Living respectively for the consideration agreed upon in the plans of liquidation. The Zanker Group subsequently received distributions of its share of the South Windsor sale totaling $675,000 being 25% of the $2,700,000 of the CB Richard Ellis appraisal value.
In the case of Litchfield Hills, no funds exchanged hands. Summerville took the position that its forgiveness of $1 million of the approximately $4.6 million that it had advanced to sustain Litchfield Hills' operations and never been repaid was adequate. The plaintiff seeks a finding of the court that these and the South Windsor advances from Summerville were improper and were given a priority ahead of the sums due to the Zanker Group under the judgment in its favor for fees. The plaintiff, however, in the course of the trial has acknowledged that it received funds in full satisfaction of its judgment.
While the funds were advanced over time by Summerville without meetings of the managers, the periodic statements of the operation of Litchfield Hills showed that it was operating at a significant deficit. The plaintiff did not prove that Litchfield Hills was mismanaged; no evidence was adduced as to the same. As was the case for both Litchfield Hills and South Windsor, the Zanker Group never performed or requested an audit and there is no evidence that the funds advanced over the years to sustain the operations were improper.
In the case of South Windsor, SWSLP became the landlord to South Windsor Assisted Living and, on July 29th, those entities terminated the Lease Agreement. On that same date, SWSLP, along with Mentor, sold its interests which included both the real estate and the value of the leasehold to Ventas Realty, LP through a sale/leaseback transaction whereby the Heller loan was paid in full and South Windsor Assisted Living became the tenant of the South Windsor facility The sale price allocated to SWSLP was $14,900,000. (Also as part of the Ventas transaction, Mentor, an affiliate of Summerville, sold the Mentor Real Property to Ventas.) Because Ventas was a real estate investment trust (REIT,) and therefore could not acquire and operate an assisted living facility, it did not acquire the operating entity (South Windsor Assisted Living). Contemporaneous with Ventas' acquisition of the South Windsor real estate, as a part of the sale/leaseback Ventas leased the South Windsor real estate back to SWAL pursuant to a written lease agreement. The Ventas transaction also included a purchase option which permits SWAL to purchase the South Windsor Real Estate for full market value. Upon such purchase, Summerville's investor, Apollo would be entitled to receive a finder's fee.
The plaintiff's complaint is premised on transactions contemplated by Summerville in June and early July 2004 that never occurred. The plaintiff objected to the transactions and they were effectively blocked. The defendant Summerville unilaterally dissolved South Windsor and Litchfield Hills. Thereafter, liquidation occurred as described above. The plan that Summerville had sought to effectuate was completed and the same date a sale/leaseback transaction was accomplished with Ventas. The plaintiff never amended its pleadings to reflect the July 29, 2004 litigation though it represented that it would. The defendants assert that the court should not therefore consider the plaintiff's claims that arise out of facts not pled. The plaintiff argues that the court is able to consider the transaction anyway; in its reply brief it argues that the events were inferentially covered by the pleadings. The court disagrees but will read the pleadings to conform to the evidence as the law stated herein authorizes.
The court can and will not consider the Ventas transaction as a part of the consideration of damages; i.e. was the plaintiff paid appropriately for its 25% interest in South Windsor and Litchfield Hills upon their respective liquidation. The real estate transfer from SWSLP to Ventas in itself is not actionable notwithstanding the plaintiff's claims. The plaintiff has no interest in the real estate and its claims regarding the benefit to SWSLP that accrued from this transaction have been disposed of in the first count on the basis of the statute of limitations.
First, Second, Third, Fourth and Fifth Counts
The plaintiff's counts one and two claims, under both the common law and C.G.S. § 34-141, allege that Summerville violated its fiduciary duty as the majority and controlling member of both South Windsor and Litchfield Hills in conspiring with the individual defendants Cobb, Werdel, Tsai to divest the plaintiff of its interest in both entities. The plaintiff adduced no evidence of a conspiracy. The court finds they have failed to satisfy their burden of proof as to count three.
Counts four and five claim breach of duty of loyalty, and breach of the implied covenant of good faith and fair dealing, respectively. These covenants, of course, are implicit in every contract. The claims herein are that the transfers to SWAL and LHAL were not supported by good faith and fair exchange of value. However, these transactions while contemplated before the dissolving of the two companies did not occur until after. The court has already found that Summerville had an absolute right to cause the dissolving of the two companies by its member votes, pursuant to the operating agreements. The plaintiff does not seriously dispute this. The plaintiff claims that because the transactions between Summerville and SWAL and LHAL were not at arm's length or for a fair exchange of value, the plaintiff was harmed. However, these transactions did not form the basis for the compensation to the plaintiff as a 25% owner of Litchfield Hills and South Windsor; that compensation was based upon the appraisals as related above. Consequently, the only question is whether the plaintiff was paid fair value for its interest in each of these two companies when they dissolved.
The court will consider the plaintiff's breach of fiduciary duty claims in counts one and two in the context of the liquidation notwithstanding the failure to amend the pleadings, inasmuch as the evidence was before the court and the parties were all aware that the plaintiff would assert its claims. "With respect to the lack of an amendment of the complaint, it is true that ordinarily a court may not grant relief on the basis of an unpleaded claim. Willametz v. Guida-Seibert Dairy Co., 157 Conn. 295, 302, 254 A.2d 473 (1968); ("a plaintiff may not allege one cause of action and recover upon another"); Malone v. Steinberg, 138 Conn. 718, 721, 89 A.2d 213 (1952) (same). That does not necessarily mean, however, that the absence of a particular claim from the pleadings automatically precludes a trial court from addressing the claim, because a court may, despite pleading deficiencies, decide a case on the basis on which it was actually litigated and may, in such an instance, permit the amendment of a complaint, even after the trial, to conform to that actuality." (Citation Omitted.) Stafford Higgins Industries v. Norwalk, 245 Conn. 551, 575, 715 A.2d 46 (1998).
The plaintiff half heartedly seeks to amend at p. 19 of its Reply Brief. The court will consider the claims but frowns upon this manner of practice of law. The amendment should have been filed and defendants should not have had to wait for the reply brief to find the request buried in page 19.
Inasmuch as the court has found no evidence of a conspiracy between Summerville and the individual defendants, the court will go on to consider the plaintiff's claim of breach of fiduciary duty. The statutory obligations imposed under C.G.S. § 34-l41 of a manager or member is the same as that imposed by the common law.
"[a] member or manager shall discharge his duties under section 34-140 and the operating agreement, in good faith, with the care an ordinary prudent person in a like position would exercise under similar circumstances, and in the manner he reasonably believes to be in the best interests of the limited liability company, and shall not be liable for any action taken as a member or manager, or any failure to take such action, if he performs such duties in compliance with the provisions of this section."§ 34-141(a).
The plaintiff in its brief states that the gravamen of this second complaint is that "defendants caused South Windsor and Litchfield Hills to transfer their respective property interests to entities wholly-owned by Summerville for substantially less than fair market value and without the requisite 90 percent approval required by section 9.4(b) of the llc's respective operating agreements," and that as a result thereof the plaintiff suffered damages. The court finds this provision of the operating agreements is inapplicable once the companies are dissolved pursuant to the operating agreements. The majority in interest managers of both entities determined to and voted to dissolve the companies pursuant to section 13.1 of the operating agreements. Section 13.3 provides that upon liquidation, the Managers are authorized to liquidate and reduce to cash the assets of the companies. Defendants argue that they did this and paid fair value to the plaintiff for its interests based upon the appraisals and the formulas related above in the finding of facts.
Sixth, Seventh, and Eighth Counts
In the Sixth Count, the plaintiff seeks an injunction enjoining the defendants from engaging in the transactions detailed above with regard to the transfer of the South Windsor and Litchfield Hills leasehold interests. In the Seventh Count, the plaintiff seeks a mandatory injunction to "unwind" the transactions. For the reasons stated hereinabove, the court has concluded that the defendants, in transferring those leasehold interests, acted within their rights pursuant to section 13.1 of the operating agreements. Therefore, the plaintiff has not proven a legal entitlement to injunctive relief.
For the same reasons, the court concludes that the Eighth Count of the plaintiff's complaint, which seeks a declaratory judgment nullifying the aforementioned transactions, must fail as well.
While the plaintiff maintains in its brief that it did not receive its management fees in full from the Berdon judgment, the court record shows the contrary, and his expert made no claim for such sums as an element of the plaintiff's damages.
The parties each presented evidence of damages as to valuation and the breach of fiduciary duty claims. While the principals testified as to these matters, most of the salient evidence was adduced through Messrs. Zaccaro and Bisssel.
Plaintiff expert Zaccaro's analysis of the South Windsor damages was based upon three categories: (1) excess rent, (2) going conceit value (value of the leasehold) and (3) real estate appreciation. Briefly put his calculation of damages for excess rent is based upon the premise that South Windsor should have owned the real estate as of May 2000. If it had owned the real estate it should have only paid the interest on the note rather than the rent on the lease. Zaccaro also provided calculations for damages for South Windsor that were based upon the premise that the real estate should have been purchased by South Windsor, and so accordingly the plaintiff was entitled to 25% of the real estate appreciation realized upon the sale to Ventas. The fundamental problem with the claims for damages for real estate appreciation and excess rent is that the court has found the plaintiff's claims arising out of the transfer of the ownership of the real estate in May 2000 are time barred. Therefore, the basic premise behind both of these damages claims are rejected by the court.
As another element of damages claimed at trial by the plaintiff, its expert asserts that plaintiff is entitled to its pro rat share of the payment at some time in the future of a finder fee to Apollo upon SWAL's exercise of its option. Besides being a part of the time barred claims regarding the real estate, this claim is also entirely speculative.
This leaves the court to consider whether the plaintiff was properly compensated for the going concern value of the South Windsor leasehold interest. The payment of $675,000 to Zanker was paid based on a value of $2,700,000 which was the highest of the appraisals of the South Windsor leasehold as discussed above.
The defendant's expert, Charles Bissell is an MAI, CRE accredited appraiser. The plaintiff attempted to undermine his credibility because his licensure in Connecticut had temporarily lapsed. The court rejects this as a basis for impeachment. The court found Bissell credible and ultimately found his reasoning more persuasive than that of Mr. Zaccaro on the matters over which they differed. The plaintiff's expert, Michael Zaccaro is not a licensed appraiser, and therefore, not MAI or CRE accredited. He is a businessman with significant knowledge and expertise in the assisted living industry.
Mr. Zaccaro opined that the Zanker Group was underpaid and that they should have been paid $1,320,000 which would have reflected a going concern value of $5,280,000 After crediting the plaintiff $675,000, there is a sum due of $645,000 for its 25%. His methodology builds off the CB Richard Ellis appraisal just as the defendant's expert does. Mr. Bissell's revised leasehold analysis concluded that the value of the leasehold (or going concern value) was $4,221,074. After crediting the plaintiff $675,000, there is a sum due of $380,268 for its 25%.
Both Zaccaro and Bissell agreed that several aspects of the Ellis appraisal were in need of adjustment. They differed over several points: Zaccaro asserted that Bissell should not have calculated the net present value as if the cash flow came in at the end of each year; instead, Zaccaro said it should be calculated using the midpoint of each year. This difference, Zaccaro maintained resulted in an understatement of the value of the leasehold by about $450,000. The court accepts the judgment of Bissell, the MAI and CRE accredited appraiser in this regard. The court has considered the other claims of error in Bissell's calculations, including interpolating the discount rate, utilizing the wrong lease term and overstating the annualized expenses. The court finds that the testimony of Bissell was more persuasive in these matters and accepts the value put forth by him for the leasehold.
Based upon the above, the court finds that the proper fair value for the South Windsor leasehold on dissolution was $4,221,074, of which 25% is $1,055,268.50. The plaintiff having already received $675,000 toward that sum is entitled to $380,268.50 from Summerville. The same is awarded as damages on the second complaint to the plaintiff.
Litchfield Hills
The plaintiff claims damages are due it for its interest in the Litchfield Hills Company on its dissolution. It was paid nothing. In Zaccaro's expert disclosure he assigned no specific value to Litchfield Hills; instead he asserted it had a positive cash flow and was therefore a valuable asset. At trial, he opined it had a value of $2,771,196. He then allowed for the $1 million debt forgiven at dissolution by Summerville and found a value less that sum. His testimony was based upon its improved performance that he calculated based upon its increase in rates from 2003 to 2004 and the increase he was informed of when he made inquiry prior to trial. His inquiry, while perhaps producing a reliable response was not straightforward — it did not disclose his real purpose. In any case, after receiving the information he assumed that Litchfield Hills would have a 8% growth rate yearly.
Zaccaro testified, notably, that when beds are full you can raise rates. The testimony acknowledged that Litchfield Hills rates were historically lower because they were not full; plaintiff had argued in another part of this litigation that Summerville had intentionally suppressed the rate-there was no proof of the same.
Bissell testified that Litchfield Hills did not reach positive value and therefore opined that no sums were due the plaintiff. Bissell assumed a 3% growth rate yearly in both income and expenses.
The court has found that Summerville advanced at least $4,500,000 to Litchfield Hills. Plaintiff was aware of it from, inter alia, statements from Cobb, correspondence from Meza to Wallman, and from financial information of the company. Dating from 2000 forward, plaintiff never objected to the cash infusions from Summerville. That they were not accomplished in exactly the form required is not sufficient basis for this court to conclude that these advances should be ignored. The plaintiff was paid its management fees due it under the agreement for Litchfield Hills. Equitably, the court will not require Summerville to 'eat' these funds it advanced because their form may not have been technically proper. This would be a wholly inequitable result.
While the court finds Zaccaro's value is based upon overly optimistic forecasting, it does not matter for even at that value, the plaintiff's interest has no value after consideration of the sums that remained due to Summerville on dissolution. The plaintiff is awarded no damages for the second complaint on account of the Litchfield Hills dissolution.
Defendants' Counterclaims
The defendants have counterclaimed in several counts claiming slander of title pursuant to C.G.S. § 47-33j and bringing a quiet title action as to the South Windsor and Litchfield Hills real estate. The defendants put on no evidence of money damages to support these actions.
As to the slander of title actions (First and Third Counterclaims), under C.G.S. § 47-33j the conduct of the plaintiff must be purposeful, that is intending to slander the title in order for the defendants to prevail. The court finds that the defendants have failed to prove that the plaintiff so acted. Accordingly these claims fail.
The defendants have also brought two counts (Second and Fourth Counterclaims) seeking to quiet title to the South Windsor and Litchfield Hills real estate. They seek injunctive relief quieting the titles and ordering a release of lis pendens. Inasmuch as the plaintiff has not prevailed on its claims that would have supported the filing of the lis pendens, as between the plaintiff and the defendants, to the extent that a lis pendens remains on the South Windsor or Litchfield Hills real estate, it is herby ordered discharged and the titles are quieted as between these parties only. No costs are assessed as to these counts.