Preview:

****************************************************** The ``officially released'' date that appears near the beginning of each opinion is the date the opinion will be published in the Connecticut Law Journal or the date it was released as a slip opinion. The operative date for the beginning of all time periods for filing postopinion motions and petitions for certification is the ``officially released'' date appearing in the opinion. In no event will any such motions be accepted before the ``officially released'' date. All opinions are subject to modification and technical correction prior to official publication in the Connecticut Reports and Connecticut Appellate Reports. In the event of discrepancies between the electronic version of an opinion and the print version appearing in the Connecticut Law Journal and subsequently in the Connecticut Reports or Connecticut Appellate Reports, the latest print version is to be considered authoritative. The syllabus and procedural history accompanying the opinion as it appears on the Commission on Official Legal Publications Electronic Bulletin Board Service and in the Connecticut Law Journal and bound volumes of official reports are copyrighted by the Secretary of the State, State of Connecticut, and may not be reproduced and distributed without the express written permission of the Commission on Official Legal Publications, Judicial Branch, State of Connecticut. ******************************************************

19 PERRY STREET, LLC v. THE UNIONVILLE WATER COMPANY ET AL. (SC 18344)
Rogers, C. J., and Norcott, Katz, Palmer, Vertefeuille, Zarella and McLachlan, Js. Argued October 20, 2009--officially released February 2, 2010

Michael J. Donnelly, with whom was Genea O. Bell, for the appellants (defendants). Eric M. Grant, with whom, on the brief, was George G. Mowad II, for the appellee (plaintiff).

Opinion

NORCOTT, J. The defendant, The Connecticut Water Company,1 appeals2 from the judgment of the trial court, which found that the defendant had breached its lease agreement (lease) with the plaintiff, 19 Perry Street, LLC, and ordered immediate possession of the leased premises in favor of the plaintiff. On appeal, the defendant claims that the trial court improperly: (1) interpreted paragraph five of the lease, as amended in 1990, as providing for cash payments as the only form of rent; (2) found that the defendant had breached the lease because it had failed to tender rent to any person in any form once payments became due under paragraph six of the lease; and (3) determined that the defendant was not entitled to retain possession under the doctrine of equitable nonforfeiture. We agree with the defendant's third claim and conclude that the trial court improperly determined that the defendant was not entitled to retain possession of the premises under the doctrine of equitable nonforfeiture. Accordingly, we reverse the judgment of the trial court and remand the case for further proceedings. The record reveals the following relevant facts found by the trial court, and procedural history. The named defendant, The Unionville Water Company (Unionville Water), and the defendant, are specially chartered Connecticut corporations created by special acts of the General Assembly. Their purpose is to create exclusive service areas in which to conduct certain activities, including the taking and distribution of water for the public water supply. On February 20, 1975, Unionville Water entered into a ninety-nine year lease with Chas. W. House & Sons, Inc. (House), of a well field located at 19 Perry Street in the village of Unionville in the town of Farmington. Pursuant to the lease, Unionville Water installed five wells and extracted groundwater from the aquifer under House's property for treatment and public distribution. House previously had maintained a manufacturing facility at the site, and it had used water purchased from Unionville Water to carry out its operations. In accordance with this scheme, House and Unionville Water agreed that Unionville Water's rent payment would be directly proportional to House's water cost. The original version of paragraph five of the lease set the rent at 33 percent of House's average annual water cost, payable monthly.3 Paragraph six of the lease set out a formula for calculating rent that was to be used ``[i]n the event that House shall change its operations so as to substantially reduce its average annual water consumption . . . .''4 Paragraph six was never amended. Paragraph five was, however, amended twice. On November 30, 1978, House and Unionville Water amended paragraph five to clarify the formula for calculating rent and to require that Unionville Water pay rent

``by deducting the amount due quarterly from House's bill each quarter.''5 This resulted in House receiving credit on its water bills in lieu of rental payments in cash and, according to the defendant, House would then tender to Unionville Water the net balance of the bills. On February 12, 1990, House and Unionville Water again amended paragraph five by increasing the rent to 74.1 percent of House's actual water bill, and by deleting the sentence requiring that the rent be paid through deductions from House's water bills.6 The 1990 amendment also, however, instituted a quarterly payment schedule, but continued timing such payments to coincide with House's established billing cycle. On January 25, 1995, a mortgage deed was executed by House in favor of Liberty Bank for the premises. The mortgage deed was recorded promptly on the Farmington land records, and identified Unionville Water's otherwise unrecorded lease as an encumbrance.7 The leasehold interest created by the 1975 lease as amended, thus, predated the 1995 mortgage deed. The plaintiff is a limited liability company that was created for the acquisition of the premises. In the fall of 2003, Dwayne Crisco, a principal of the plaintiff, telephoned David L. Radka, manager of water resources and planning of the defendant, which had acquired Unionville Water in 2002. See footnote 1 of this opinion. Crisco informed Radka that the plaintiff was interested in purchasing the mortgage on the premises from Liberty Bank. Crisco also inquired about the defendant's lease with House, and specifically about House's highest annual water usage. Beginning on March 17, 2004, the plaintiff and the defendant exchanged a series of letters in which they attempted to negotiate a sale of the portion of the premises under the lease if and when the plaintiff became the record owner. In the first of these letters, dated March 17, 2004, the plaintiff, through Joseph P. Yamin, one of its principals, acknowledged the defendant's lease and stated that, if a sale went forward, the plaintiff would be ``responsible for delivery of the premises free and clear of all existing tenants, except [the defendant's] present tenancy.'' (Emphasis added.) On March 29, 2004, Radka replied with a letter containing the terms and conditions under which a purchase would be feasible for the defendant. Yamin responded on April 13, 2004, with a letter again acknowledging the defendant's lease with House and offering to sell the portion of the premises covered by the lease, but without changing the terms of its initial offer. The negotiations failed and communications ended with the defendant's April 15, 2004 letter, in which Radka stated that the defendant was unable to agree to the terms of the proposed sale and, further, that it would ``continue to operate under its lease agreement.''8 The plaintiff did not respond to this letter, although Frank Ruocco, another principal of the plaintiff, acknowledged receiving it.

On December 23, 2003, Liberty Bank assigned all of its interest in the mortgage deed for the premises to the plaintiff for $600,000. Subsequently, the plaintiff foreclosed on the mortgage. Neither the defendant nor Unionville Water was a party to the foreclosure proceedings. Title became absolute in the plaintiff on March 30, 2005. The plaintiff filed a certificate of foreclosure in the Farmington land records on April 13, 2005. In the meantime, by early 2004, House had ceased its operations. House made its final water payment in January, 2004. Thereafter, House did not pay water invoices; instead, these invoices were returned to the defendant as undeliverable. Around this time, the defendant also learned that House's telephone service had been disconnected, and the defendant was thus unable to contact House either by telephone or mail, with no indication from House as to its status. Subsequently, the defendant instructed its attorney to make periodic searches of the land records to determine whether, and to whom, the premises had been sold. The defendant's searches did not reveal the plaintiff's certificate of foreclosure, although it had been recorded in April, 2005. No notice was given by the plaintiff to the defendant as to the former's gaining title to the premises until April, 2007, when the plaintiff served the defendant with a notice to quit. Despite the plaintiff's failure to contact the defendant, the defendant began to set aside funds in late 2004, in the event that the owner--whether House, the plaintiff, or another entity--notified the defendant that rent would be payable in cash. On April 17, 2007, the plaintiff served the defendant with a notice to quit, instructing it to quit possession or occupancy of the premises on or before May 18, 2007, for, inter alia, ``[nonpayment] of rent . . . .''9 Shortly after receiving the notice to quit, Radka telephoned George Mowad, counsel for the plaintiff, offering to make payments to bring the lease current. Mowad informed Radka that, in the plaintiff's view, the lease was not valid and that the plaintiff would not accept rental payments from the defendant. From March 30, 2005, when title became absolute in the plaintiff, until the trial in April, 2008, the defendant, having remained in possession of the portion of the premises identified in the lease, had not made any rent or use and occupancy payments to the plaintiff. At the time of the trial, the defendant was pumping approximately 1,500,000 to 2,000,000 gallons of water each day from the wells on the premises. This amounted to approximately one half of the village of Unionville's daily water supply requirement. After serving the notice to quit, the plaintiff brought this summary process action. After a trial to the court, the trial court rendered judgment of immediate posses-

sion of the premises in favor of the plaintiff. In finding for the plaintiff, the court noted that, after paragraph five had been amended in 1990, the conduct of both House and Unionville Water, namely, in continuing the practice of tendering rent via water bill credits, was in direct violation of the clear and unambiguous language of paragraph five, which provided for cash payments as the only form of rent. Further, the trial court noted that, when the defendant became aware that House had ceased operations in 2004 and, accordingly, no longer was using the defendant's water resources, paragraph six in the lease was ``trigger[ed]'' as this occurrence reflected a ``substantial reduction in House's annual water consumption [as] contemplated in paragraph six,'' requiring rental payments in the amount of 74.1 percent of House's `` `highest average annual consumption used in computing the rent for any month prior to the reduction in consumption.' '' In response to the defendant's argument that paragraph six was not triggered because previous fluctuations in House's quarterly water charges--for instance, from over $4000 in 2000 to less than $300 in early 2004--were ``acceptable to the parties without resort to paragraph six,'' the trial court stated that the drop in water use to zero when House ceased operations in 2004 was clearly the ``substantial reduction'' contemplated in paragraph six, as ``a more obvious example of a substantial reduction in water consumption is difficult to contemplate.'' Moreover, the trial court found no obligation imposed, either by statute, in case law or contractually, that the plaintiff, as landlord, had an affirmative duty to notify the defendant that paragraph six had been triggered. Thus, the trial court noted that, because paragraph six was triggered, the defendant was required to tender rent in the form of cash payments to the plaintiff when the latter acquired title to the premises in March, 2005. Because the defendant had failed to tender rent in accordance with paragraph six, the trial court found that the defendant had breached the lease. The defendant filed numerous special defenses, including invocation of the doctrine of equitable nonforfeiture. With respect to this special defense, the trial court determined that the defendant had failed to satisfy the relevant test set forth in Cumberland Farms, Inc. v. Dairy Mart, Inc., 225 Conn. 771, 778, 627 A.2d 386 (1993), because its: (1) conduct was wilful and grossly negligent; (2) injury was not wholly disproportionate to that of the plaintiff; and (3) failure to pay rent was not in a good faith effort to comply with the lease, or in a good faith dispute over the meaning of the lease. In so concluding, the trial court distinguished the present case from Cumberland Farms, Inc., by noting that in that case, once the former landlord began returning the tenant's rental payments, the tenant ``initiated contact with the party whom it knew to be in the process of becoming the current landlord, if not already, in order

to verify that the payments under the lease were owed to the plaintiff and to determine how to address future payments.'' See Cumberland Farms, Inc. v. Dairy Mart, Inc., supra, 773

Download Perry Street, LLC v. Unionville Water Co..pdf

Connecticut Law