Opinion
No. FST CV11-5013599S
September 23, 2011
Memorandum of Decision on Application for Prejudgment Remedy
Procedural/Factual Background
This is a case of home improvement contractor against homeowner for sums alleged to be due to the contractor. The following facts are undisputed.
The plaintiff Bennett Builders, LLC, a licensed home improvement contractor, entered into a written contract (the "contract") (Pl. Ex. 1) on or about April 30, 2009 to furnish materials and render services and labor in the construction of certain improvements at the Stamford home of the defendant Tarun Mehta. The work consisted of remodeling, alteration, modernization, improvement, and addition to the defendant's single-family home for a contract price not to exceed $446,900. The contract was basically a time and materials contract, with the plaintiff to prepare and submit monthly payment applications. The contract addendum at ¶ 2 provides for substantial completion of the project by October 30, 2009, subject to a liquidated damages charge of $100 per day if not substantially complete by that date. From April 30, 2009 through November 16, 2010 the plaintiff furnished materials and rendered services pursuant to the contract, and defendant paid plaintiff's monthly payment applications for those materials and services. On December 29, 2010 the defendant terminated the contact by sending to the plaintiff a one-sentence notice of termination (Def. Ex. B) pursuant to the cancellation without cause provision in addendum ¶ 9 of the contract. At the time of cancellation the plaintiff claimed — and defendant has not disputed — that the project was 80% completed. It is also undisputed that prior to plaintiff's cessation of services on November 16, 2010 defendant had made partial payments pursuant to plaintiff's monthly payment applications in the cumulative amount of $168,925.00 (Pl. Ex 2). On November 16, 2010 the plaintiff submitted an Application and Certificate for Payment in the amount of $5,046.43 (Pl. Ex. 2) which has not been paid. Following termination of the contract on December 29, 2010, plaintiff made a demand for payment (Def. Ex. A) in the amount of $31,754.94 consisting of the foregoing $5,046.43 plus $1,508.51 attributable to a Change Order of November 16, 2010, and $25,200 of earned profits, calculated at 80% of the $31,500 agreed profit and overhead for the project (which had by agreement been retained and not billed as part of the monthly payment applications). The defendant has failed to pay any part of that $31,754.94.
Plaintiff displayed at the hearing (but did not offer as an exhibit) plaintiff's current license as a home improvement contractor for the period 12/1/10 through 11/30/11. Mr. John Bennett, a member of plaintiff, testified that the current license replaced earlier licenses which had expired. He testified that plaintiff's license had lapsed in 2005, but he "reregistered" the plaintiff company the day after he signed the contract with the plaintiff, and before he pulled the building permit for this project. There is no reason to discredit this testimony in the absence of documentary evidence, and the court finds probable cause that the plaintiff was a licensed home improvement contractor as of May 1, 2009 and before obtaining a building permit for the renovations of the defendant's home.
This action has been commenced with a proposed writ, summons, and complaint (No. 100.32) sounding in three counts: (1) breach of contract; (2) quantum meruit; and (3) violation of the Connecticut Unfair Trade Practices Act. Now before the court is the plaintiff's application for a prejudgment remedy ("PJR") by placing a $32,000 attachment on the defendant's home. There was an evidentiary hearing on May 23, 2011. The defendant submitted his memorandum of law in opposition to the PJR application at the hearing. The plaintiff filed its memorandum in support of its PJR application on May 27, 2011.
For the reasons to be discussed, the court denies the application for prejudgment remedy.
Standard of Decision
The issue before the court is whether or not the plaintiff has established probable cause to support the validity of its claim. Conn. Gen. Stat. § 52-278e(e). Probable cause is defined as "bona fide belief in the existence of facts essential under law for the action and such as would warrant a man of ordinary caution, prudence, and judgment, under the circumstances, in entertaining it." Ledgewood Condominium Association, Inc. v. Lusk Corp., 172 Conn. 577, 584 (1977); New England Land Company, Ltd. v. De Markey, 213 Conn. 612, 620-21 (1990). "The hearing in probable cause for the issuance of a prejudgment remedy is not contemplated to be a full scale trial on the merits of a plaintiff's claim. The plaintiff does not have to establish that he will prevail, only to establish that there is probable cause to sustain the validity of the claim . . . The court's role in such a hearing is to determine probable success by weighing probabilities . . . Moreover, this weighing process applies to both legal and factual issues." (Citations and internal quotation marks omitted.) Bank of Boston Connecticut v. Schlessinger, 220 Conn. 152, 156 (1991).
If the evidence submitted at a PJR hearing, in light of the legal theories of recovery presented by the plaintiff, fails to establish probable cause to support such recovery, then the court should deny the PJR application. Furthermore, at a probable cause hearing, a good defense, such as infancy or the running of the statute of limitations, will be enough to show that there is no "probable cause that judgment will be rendered in the matter in favor of the plaintiff." Augeri v. C.F. Wooding Co., 173 Conn. 426, 429, (1977). Finally, the court should consider counterclaims or setoffs advanced by the defendant in deciding whether, and in what amount, to issue a PJR. Conn. Gen. Stat. § 52-278c(g).
Discussion
In this case the plaintiff has clearly established probable cause as to the affirmative elements of its breach of contract claim: that there was a contract, that it provided materials and services for which it was not paid under the terms of the contract, and that it was entitled upon termination under ¶ 9 of the contract addendum to receive a pro-rata portion of the retained profits earned, which have not been paid. The only contested issue presented by the evidence is defendant's claim of law that the plaintiff is barred of any recovery under the contract because the contact is invalid and unenforceable under the provisions of Conn. Gen. Stat. § 20-429, part of the Home Improvement Act ("HIA"), Chapter 400 of the Connecticut General Statutes. Section 20-429(a) lists nine required provisions which must be included in any "home improvement contract":
The court finds that the contract here at issue is a "home improvement contact" defined in § 20-419(8) as "an agreement between a contractor and an owner for the performance of a home improvement."
No home improvement contract shall be valid or enforceable against an owner unless it: ( 1) is in writing, ( 2) signed by the owner and the contractor, (3) contains the entire agreement between the owner and the contractor, (4) contains the date of the transaction, (5) contains the name and address of the contractor and the contractor's registration number, ( 6) contains a notice of the owner's cancellation rights in accordance with the provisions of chapter 740, (7) contains a starting date and completion date, (8) is entered into by a registered salesman and registered contractor, and (9) includes a provision disclosing each corporation [or other entity] which is or has been a home improvement contractor or a new home construction contractor . . . in which the owner or owners of the home improvement contractor are, or have been a shareholder, member, partner, or owner during the previous five years.
A contractor whose contract violates subsections (3), (4), (5), or (9) of § 20-429(a) may not prevail on a breach of contract claim, but there is nothing to prevent his recovery of the reasonable value of his services on a theory of quantum meruit if a court determines that denial of such recovery would be inequitable (§ 20-429f). See, Economos v. Liljedahl Bros, Inc., 279 Conn. 300, 310 (2006) ("Subsection (f) of § 20-429 allows quantum meruit recovery in certain cases of partial noncompliance with subsection (a) . . ."). But a contractor whose contract is in violation of one of the so-called "core provisions" of § 20-429(a), namely subsections (1), (2), (6), (7), or (8) (all underlined in the quotation above) is barred of recovery not only for breach of contract, but also "from the recovery of payment for work performed based on the reasonable value of services which were requested by the owner" ( Id.).
In addition to § 20-429(a)(6)'s requirement of a notice of the owner's cancellation rights under chapter 740 (the Home Solicitation Sales Act ("HSSA") Conn. Gen Stat. § 42-134a, et seq), Section 20-429(e) further provides that "[e]ach home improvement contract entered into shall be considered a home solicitation sale pursuant to chapter 740 and shall be subject to the requirements of said chapter . . ."
Pointing out that the requirements of HIA are mandatory and must be strictly construed, Rizzo Pool Co. v. Del Grosso, 232 Conn. 666, 680 (1995), defendant Mehta argues that the contract in this case is not enforceable, nor is quantum meruit available, because the contract does not have the HSSA homeowner cancellation clause required by HIA § 20-429(a)(6). HSSA provides, in § 42-135a that no agreement in a home solicitation sale shall be effective against the buyer . . . if the seller shall:
(1) fail to furnish the buyer with a fully completed receipt or copy of all contracts and documents pertaining to such sale at the time of its execution, . . . and [which contract] . . . shall show the date of the transaction and shall contain the name and address of the seller, and in immediate proximity to the space reserved in the contract for the signature of the buyer, . . . and in boldface type of a minimum size of ten points, a statement in substantially the following form:
YOU, THE BUYER, MAY CANCEL THIS TRANSACTION AT ANY TIME PRIOR TO MIDNIGHT OF THE THIRD BUSINESS DAY AFTER THE DATE OF THIS TRANSACTION. SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION OF THIS RIGHT.
(2) Fail to furnish each buyer, at the time such buyer signs the home solicitation sales contract, a completed form, in duplicate, captioned "NOTICE OF CANCELLATION," which shall be attached to the contract . . . and easily detachable, and which shall contain in ten-point boldface type the following information and statements in the same language as that used in the contract . . .
(5) Failure to inform each buyer, orally, at the time such buyer signs the contract . . . of such buyer's right to cancel.
Defendant argues that the contract between the parties is in violation of HSSA (as incorporated by § 20-429(a)(6) of HIA) primarily because it fails to include the HSSA notice of right to cancel, and also because there is no cancellation clause at all at the signature page of the contract (Pl. Ex. 1, page 17), because there is no evidence that the plaintiff informed the defendant orally of his right to cancel at the time he signed the contract; and because there is no evidence that the plaintiff provided the defendant with duplicate completed forms captioned "NOTICE OF CANCELLATION" to use if he decided to cancel the contract. There is also no notice of cancellation anywhere in the contract in capitalized ten-point boldfaced type. The court will focus on the absence of the HSSA notice of cancellation, since the other claimed defects are derivative of the absence of that provision, and since notice of HSSA cancellation rights is a core requirement of HIA which potentially is a complete defense to both Count 1 and Count 2.
The plaintiff's counter arguments are premised on the history of the contract formation and the inclusion in the contract addendum drafted by counsel for the defendant of a cancellation without cause provision (Addendum, ¶ 9) which is claimed to be more extensive than the HSSA right to cancel. The history of contract formation is that the plaintiff initially presented to the defendant a proposed seventeen-page contract which was basically the American Institute of Architects ("AIA") Document A107-1997 "Abbreviated Standard Form of Agreement Between Owner and Contractor for Construction Projects of a Limited Scope Where the Basis of Payment is a Stipulated Sum." Certain insertions and deletions had been made to the form contract, which is the first 17 pages of Plaintiffs' Ex. 1. The proposed form contract did include provisions for "Termination by the Owner" (§ 19.2.1-19.2.4) in the event of substantial breach of the contract by the Contractor. The proposed contract was dated at page one on an unspecified day in February 2009. It was taken for review by the defendant and his lawyer. About a month later the defendant proposed certain additional provisions in the form of an addendum which had been prepared by his attorney. The plaintiff agreed to the proposed additional provisions and the parties signed both the AIA form contract and the three-page addendum on April 30, 2009. A reference "See Addendum" was added to Article 20 of the AIA form contract under "Other Conditions or Provisions." The addendum specifies in ¶ 1 that "Section 2.1 of the Contract is amended to reflect that commencement date shall be April 30, 2009 . . ." The key provision of the addendum for purposes of this case is Addendum ¶ 9 which gives the Owner (defendant) the right "[n]otwithstanding any other provision of the contract . . ." to "terminate the contract without cause by giving ten days' prior written notice." The provision further provides that in the event of such termination the Contractor shall be entitled to receive (i) all costs incurred on account of the project prior to the earlier of the tenth day after notice of termination or the date the contractor leaves the job site, (ii) the costs of all materials ordered prior to that tenth day after notice of termination which cannot be returned plus any restocking fees charged to the Contractor, and (iii) the pro rata share of earned profits of $31,500 based on the percentage of completion at the time of termination.
From these facts, plaintiff argues that the absence of an HSSA termination clause should not bar recovery for breach of contract or under the doctrine of quantum meruit for three reasons. Plaintiff argues first that the right to terminate specifically drafted into the contract by defendant through his attorney did not result in lack of notice to the defendant of his right to cancel the contract within three days of signing, because Addendum ¶ 9 gives the defendant the right to terminate during those first three days, or the fourth or fifth day, or any day he wanted, without cause, which is far more protection than required by HIA, and the claimed violations of HIA and HSSA are therefore mere technical violations, the purpose of HIA having been satisfied by Addendum ¶ 9. Secondly, plaintiff argues that the inclusion of Addendum ¶ 9 by the defendant amounts to a waiver of his right to a cancellation clause in strict compliance with HIA/HSSA as it was the defendant and his attorney who chose to draft and insert into the contract a greater protection clause than that required by HIA/HSSA. Finally, plaintiff argues that by inserting Addendum ¶ 9 into the contract the defendant has acted in bad faith and has mislead the plaintiff thereby precluding the defendant from invoking the HIA defense. The court will address each argument.
A. "Mere Technical Violations"
Our courts generally require strict compliance with the mandatory requirements of HIA as a remedial statute. See Rizzo Pool Company v. Del Grosso, supra, and Barrett Builders v. Miller, 215 Conn 316, 326 (1990). But the courts also have recognized that:
"The aim of the statute is to promote understanding on the part of consumers with respect to the terms of home improvement contracts and their right to cancel such contracts so as to allow them to make informed decisions when purchasing home improvement services . . . While the purposes of the statute are advanced by an interpretation of the statute that makes compliance with the requirements of 20-249(a) mandatory, it does not necessarily follow that advancement of the purposes also requires that the mandatory compliance with each subsection be technically perfect . . . In light of our prior interpretations of § 20-249(a) and the legislative history of that subsection, we conclude that a construction that would require technically perfect compliance with each subdivision is inappropriate. Rather, an interpretation of that subsection that acknowledges and furthers the remedial purposes of the statute is in order" Wright Bros. Building v. Dowling, 247 Conn. 218, 231 (1998).
The Wright court held that providing one copy of a HIA/HSSA notice of cancellation to the homeowner and a second copy to her husband and agent (when the statute requires that two copies be delivered to the homeowner), and the failure to fill in the blank on the notice of cancellation for the date of the transaction (which could easily be gleaned from even the most cursory review of the contract) ". . . were of a minor and highly technical nature and did not result in a lack of notice to the defendants that they had a right to cancel the contract within three days of the contract's signing." Id. at 232.
Even though the defendant in this case had the plaintiff's proposed draft contract for review for about a month, and consulted an attorney during that period who drafted a contract addendum which included a provision for a right to terminate the contract without cause at any time, this court cannot agree that total absence of any notification of the statutory right to cancel within three days is a "minor and highly technical" defect. The addendum provision is not a substitute for the statutory notice of right to cancel within three days. The statutory form of Notice of Cancellation must state that: "YOU MAY CANCEL THIS TRANSACTION, WITHOUT PENALTY OR OBLIGATION, WITHIN THREE BUSINESS DAYS FROM THE ABOVE DATE." (Emphasis added.) Conn Gen Stat. § 42-135a(2). The right to cancel under Addendum ¶ 9 is not necessarily without penalty or obligation. Even if exercised within the first three days, the homeowner giving notice of termination under Addendum ¶ 9 could be obligated to reimburse the contractor for costs incurred during the notice period, for the costs of any pre-purchased materials that could not be returned, and for any restocking fees charged by suppliers. If the contractor actually did any work during those three days prior to notice of cancellation and reached a measurable percentage of completion, the terminating homeowner could also be liable for a pro-rata share of profits.
In the event of termination the homeowner is obligated to tender back any goods already delivered by the seller, but is not obligated to pay for any goods or any services provided by the seller. Conn. Gen. Stat. § 42-139.
In this case Mr. Bennett testified that work commenced on day one, April 30, 2009.
The HIA/HSSA Notice of cancellation actually allows a recission of the contract without any binding obligation. The Addendum provision is a right to terminate after the contact has become a binding obligation upon partial payment for value received. They are not the same thing, and the addendum provision cannot be considered an adequate substitute for the statutory right to cancel. Furthermore, because of the requirement of giving ten days' prior written notice, the homeowner could not possibly cause an effective termination of the contract with the three days allowed by HIA/HSSA.
The court therefore rejects the "mere technical violation" argument.
B. Waiver
Waiver has been defined as the voluntary relinquishment of a known right. It involves the idea of assent, and assent is an act of understanding. This presupposes that the person to be affected has knowledge of his rights. MacKay v. Aetna Life Insurance Company, 118 Conn. 538, 547-48 (1934). In Wadia Enterprises, Inc. v. Hirschfeld, 224 Conn. 240, 252 (1992) the Supreme Court rejected a claim of waiver of the HIA requirement of notice of right to cancel for lack of a showing that the defendants knew of their right to invalidate the contract. So also in this case there is no evidence that the defendant had knowledge of his right to cancel under HSSA as incorporated by HIA. He did not delete a proper statutory notice of right to cancel from the contract and replace it with a different specially negotiated right to terminate. The statutory right to cancel was never there. For this reason, and for the reasons discussed above in Part A, that the addendum right to terminate contract is not an adequate replacement for the HIA/HSSA right to cancel, the court rejects the argument that defendant has waived his statutory right to terminate, or his right to be advised of that right in the manner prescribed by statute.
C. Bad Faith
In Habetz v. Condon, 224 Conn. 231, 237 (1992) the Supreme Court affirmed a judgment on a counterclaim by a contractor who had failed to include a notice of right to cancel in a home improvement contract, by relying on a "bad faith exception" to the HIA requirement of § 20-429(a)(6). The holding was based on a "recognition that to allow the homeowner who acted in bad faith to repudiate the contract and hide behind the act would be to allow him to benefit from his own wrong and indeed encourage him to act thusly." Id. Although the parties had waived any review of the trial court's finding of bad faith, and the factual basis for that finding is not reported, the court, citing Black's Law Dictionary 5th Ed. 1979, did discuss generally the elements of bad faith:
Bad faith in general implies both actual or constructive fraud or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive. (Internal quotation marks omitted.) Habetz, supra, 137.
The first appellate application of the bad faith exception articulated in Habetz, occurs in the very next reported opinion in Volume 224 of the Connecticut Reports, Wadia Enterprises v. Hirschfeld, supra, 224 Conn. 240 (1992). In Wadia, the home improvement contract which failed to include a HIA/HSSA notice of right to cancel had been prepared by defendant-homeowners New York attorneys and architect. The defendant had made all the installment payments under the contract except they refused to pay the final $64,000 requisition for payment which had been certified by their own architect, asserting a claim that liquidated delay damages of $500 per day as stipulated in the contract should be offset from the final requisition for payment. They also defended on the ground that the contract failed to include a notification of right to cancel under HIA. The plaintiff argued that the court should apply the bad faith exception to the HIA requirement in that the defendants through their own representatives had prepared the defective agreement, and then had tried to enforce the agreement and then repudiated the contract for lack of the HIA notice of right to cancel. The Supreme Court affirmed summary judgment for the defendant, saying that "There is nothing dishonest or sinister about homeowners proceeding on the assumption that there is a valid contract, enforcing its provisions, and later, in defense to a suit by the contractor, upon learning that the contract is invalid, then exercising their right to repudiate it . . . As noted above, the plaintiff did not allege that defendant knew of the violation earlier or that they purposely drafted the contract in violation of the act to avoid their obligation to pay." (Citation omitted.) Wadia, supra, 249. See, also, Dinnis v. Roberts, 35 Conn.App. 253 (1994) (Summary judgment for defendant homeowners affirmed; plaintiff contractor failed to present the necessary factual predicate to raise a genuine issue as to defendant's bad faith).
This case is weaker than Wadia in at least one respect. The defendant's attorney here did not draft the whole contract. He only drafted an addendum to the AIA form contract prepared by plaintiff. The omission of the HIA notice of right to cancel occurred initially and primarily in the plaintiff's first draft of the agreement. As in Wadia there is absolutely no evidence that came out at the PJR hearing that the defendant or his attorney was aware of the HIA requirement of notice of right to cancel or that defendant or his attorney purposely drafted the addendum without the statutory notice of right to cancel in order to later avoid their payment obligation under the contract. It may be that upon proper pleading and a full trial on the merits that bad faith can be shown, but for purposes of this hearing on the evidence presented there is no bad faith shown, and the bad faith exception therefore does not apply.
The plaintiff in its proposed unsigned complaint has made no allegation of bad faith or facts indicative of bad faith.
D. Count Three — CUTPA
Plaintiff's claim against the homeowner defendant for an unfair trade practice in violation of the Connecticut Unfair Trade Practice Act (`CUTPA'), Conn. Gen. Stat. § 42-110a et seq. is fatally defective. While Paragraph three of the Third Count alleges that the defendant was engaged in trade or commerce, there was absolutely no evidence that defendant homeowner Tarun Mehta was engaged in the trade or business of home renovation or improvement. The undisputed evidence was his testimony that the property being renovated and improved by plaintiff was his family residence. CUTPA prohibits unfair or deceptive acts or practices "in the conduct of any trade or commerce." Conn. Gen Stat. § 42-110b(a). Absent evidence that the conduct at issue arises out of the defendant's primary business, there can be no CUTPA violation. McCann Real Equities v. Dave McDermott Chevrolet, Inc., 03 Conn.App. 486, cert. Denied 277 Conn. 928 (2006).
Conclusion
For all the foregoing reasons the court finds that the plaintiff has not shown probable cause that it will recover a judgment on Count One or Count Two in face of the defense of invalidity and unenforceability of the agreement between the parties for failure to provide notice of right to cancel as required by Conn. Gen. Stat. § 20-249(a). The Evidence fails to support by probable cause the "trade or commerce" element of the CUTPA violation alleged in Count Three. The Application for Prejudgment Remedy is therefore denied.