Summary
In Harwill Homes, Inc. v. Plainbridge, LLC, supra, 40 Conn. L. Rptr. 311, the court held that a "no lien" provision in a contract was prospective in nature and, therefore, void and unenforceable pursuant to General Statutes § 42-158l.
Summary of this case from Milone MacBroom v. WinchesterOpinion
No. CV-05-4002685
November 4, 2005
MEMORANDUM OF DECISION RE MOTIONS FOR SUMMARY JUDGMENT
This is a declaratory judgment action brought by the plaintiff Harwill Homes, Inc. seeking determination that the lease agreement entered into between the plaintiff and the defendant Plainbridge, LLC ("Plainbridge") was materially breached by Plainbridge and that the plaintiff therefore has legally terminated the lease and Plainbridge's interest or rights thereunder. Plainbridge denies any breach and seeks judgment in its favor for that reason. Alternatively, Plainbridge avers that if there was a breach it was (a) not material; and/or (b) cured by Plainbridge as provided for under the lease. Best Buy, L.P., ("Best Buy") the sublessor of the property, seeks the same relief sought by Plainbridge. For the reasons set forth below, the plaintiff's motion for summary judgment is DENIED. The Motions for Summary Judgment filed by Plainbridge and Best Buy are GRANTED.
Additional issues include whether the purported notice of the breach was sufficient and whether termination of the lease would result in an unfair forfeiture for Plainbridge.
Facts
The facts in this case, though stretching back almost 30 years, are not in dispute. All parties agree that the events outlined below are accurate.
The plaintiff owns certain property located at 330 Connecticut Avenue, Norwalk, Connecticut. In 2004, the property was leased by defendant Plainbridge pursuant to a written lease agreement dating back to 1977. The original lease was for a term of 25 years, with a renewal option included.
The lease itself was entered into by entities of predecessor interest to both parties in this case. The predecessor in interest to Harwill Homes, Inc. was Pantlin Chananie Development Corp. The original lessee in 1977 is identified as K-Mart which subsequently assigned its interest in the lease to Supermarkets General Corp. which in turn became Pathmark Stores, Inc. which in turn transferred its interests in the lease to its wholly owned subsidiary Plainbridge. There is no issue as to whether the lease pertains to the parties here.
The Lease Agreement, at paragraph 21, permits the lessee to sub-let the premises or assign its interests under the Lease Agreement. This provision also contains a covenant that in event of a sublease, the lessee (Plainbridge) will remain liable to the lessor (Harwill Homes) under the terms of the Lease Agreement. Presently, the property is leased by Plainbridge to Best Buy, LP. Best Buy pays Plainbridge at a monthly rate substantially above the rate paid by Plainbridge to Harwill Homes. Therefore, Plainbridge is able to generate a similarly substantial annual profit by subletting its leasehold interest in the property.
The Lease Agreement, at paragraph 15, gives the lessee the right to perform improvements and construction on the property. In connection with this right, the last line of paragraph 15 provides: "In the event any work is performed pursuant to this Article 15, the same shall be under a no-lien agreement properly recorded." There are alternative explanations offered for what the term "no lien agreement" references and each will be discussed in greater detail below. One type of "no-lien agreement" is essentially a prospective agreement from a contractor performing work on property that the contractor would not file any liens against the property in connection with the work performed and payment therefore.
In 1999, the legislature declared certain "no lien agreements" illegal by passage of Conn. Gen. Stat. § 42-1581 which provides in pertinent part:
Clauses waiving right to claim mechanic's lien or claim against a payment bond void. (a) Any provision in a construction contract or any periodic lien waiver issued pursuant to a construction contract that purports to waive or release the right of the contractor, subcontractor or supplier engaged to perform services, perform labor or furnish materials under the construction contract to (1) claim a mechanic's lien or (2) make a claim against a payment bond, for services, labor or materials which have not yet been performed and paid for shall be void and of no effect.
Prior to 1999 and during the time that the Lease Agreement was negotiated, prospective "no lien agreements" were legal and enforceable under Connecticut law. Following the passage of Conn. Gen. Stat. § 42-1581, no discussion was held between the parties regarding modifying the terms of the lease on this issue.
In 2003, Best Buy began construction at its retail store on the property. The general contractor for the work was IBEX Corporation. While it could not, and therefore did not, obtain a prospective "no lien agreement" from IBEX or the subcontractors performing that work, it did require contractors and subcontractors to sign an agreement not to place any liens on the property in view of an acknowledgment that payment had been received. These agreements, referred to herein as "lien waivers" were executed by IBEX and subcontractors in connection with periodic payments while the construction was ongoing.
In January 2004, Berlin Steel, a contractor doing work, providing services or materials to the project, placed a lien upon the property as a result of monies allegedly owed for services rendered to Best Buy. The lien indicates that the work or services performed, or materials provided spanned the time period August through October 2003, and that payment had not been received for said services, work or materials. Thereafter, in September 2004, Berlin Steel sought to foreclose this lien and served a writ, summons and complaint, upon, among others, the plaintiff as the owner of the property.
On January 7, 2004, notwithstanding that the lien had been filed, Berlin Steel signed the "lien waiver" described above in which it acknowledged payment for, and agreed not to file liens related to, services or materials provided for the period up to and including February 1, 2004.
On September 7, 2004, the plaintiff notified Plainbridge that it considered Plainbridge in default under the Lease Agreement. The notice included a copy of the summons and complaint which had been served on the plaintiff and provided: "The enclosed summons constitutes a default under the Lease" between plaintiff and Plainbridge. The notice did not specify which provision of the Lease Agreement was purportedly violated. However, citing paragraph 24 of the lease, the notice did purport to give Plainbridge 30 days to cure the default and citing paragraph 28 of the lease demanded indemnification for any attorneys fees incurred as a result of the lawsuit.
Thereafter, on October 14, 2005, the plaintiff notified Plainbridge that the 30-day cure period had expired and therefore, it was terminating the lease. Thereafter, on November 12, 2004, the suit involving Berlin Steel was resolved and the action withdrawn.
By filing of a writ, summons and complaint, on December 20, 2004, the plaintiff commenced this action seeking a declaratory judgment that its termination of the lease was valid and that the defendants no longer have any interest in the property. In its complaint, the plaintiff cites paragraph 15 of the Lease Agreement and the "no lien agreement" provision as the covenant breached. While it is not entirely clear, the import of the complaint is that the breach occurred when Berlin Steel filed a lien against the property. Plainbridge denies that any breach of the Lease Agreement occurred and seeks summary judgment as well.
The plaintiff agrees to accept Best Buy as a tenant under the same terms and conditions of the lease it has with Plainbridge.
Discussion Standard of Review
A party seeking summary judgment has the burden of demonstrating the absence of any genuine issue of material facts which, under applicable principles of law, entitle him to judgment as a matter of law. PB § 17-44; Appleton v. Board of Education, 254 Conn. 205 (2000). Here, the material facts are not in dispute. All parties seek summary judgment based upon the agreed-upon facts set forth above.
The first question presented is whether Plainbridge breached the Lease Agreement with the plaintiff. The Court answers this question in the negative.
The Purported Breach of the Lease Agreement
The Lease Agreement is a written contract between the parties and is interpreted according to principles of contract law. See, Sippin v. Ellam, 24 Conn.App. 385 (1991); 12 Havenmeyer Place Co., LLC v. Gordon, 76 Conn.App. 377 (2003). First and foremost, the court must determine whether there was an act of default under the Lease Agreement.
The starting point, of course, is the claimed breach, a seemingly simple inquiry, but not so. The breach for which notice was given was the filing of a complaint against the plaintiff to foreclose the Berlin Steel mechanic's lien. However, according to the complaint, the breach is the filing of a mechanic's lien in violation of paragraph 15 of the Lease Agreement. In its papers, the plaintiff avers both: "Plainbridge allowed a lien to remain filed against the Property and allowed an action seeking to foreclose that lien to remain pending for more than 30 days after notice from Harwill."
Whether it is the filing of the lien which is the claimed breach or the filing of the lawsuit to foreclose on that lien is of no moment. Neither is a breach of the Lease Agreement.
"Although ordinarily the question of contract interpretation, being a question of the parties' intent, is a question of fact . . . [w]here there is definitive contract language, the determination of what the parties intended by their contractual commitments is a question of law." Tallmadge Bros, Inc. v. Iroquois Gas Transmission System., LP., 252 Conn. 479, 495 (2000), citing, Levine v. Massey, 232 Conn. 272, 277, 654 A.2d 737 (1995). Indeed, the Supreme Court has so held, in a variety of different contexts. Id., citing, Issler v. Issler, 250 Conn. 236 (1999) (interpretation of written separation agreement); Levine v. Advest, Inc., 244 Conn. 732 (1998) (arbitration agreement); Southeastern Connecticut Regional Resources Recovery Authority v. Dept. of Public Utility Control, 244 Conn. 280 (1998) (electricity rate contract); Peter-Michael, Inc. v. Sea Shell Associates, 244 Conn. 269 (1998) (lease agreement); Pesino v. Atlantic Bank of New York, 244 Conn. 92 (1998) (settlement agreement); Levine v. Massey, 232 Conn. 278 (1995) (royalty sharing agreement); Mulligan v. Rioux, 229 Conn. 740 (1994) (department of public works services contract); Bank of Boston Connecticut v. Schlesinger, 220 Conn. 158 (1991) (indemnity agreement); Thompson Peck, Inc. v. Harbor Marine Contracting Corp., 203 Conn. 131 (1987) (loan agreement).
Our case law, however, does not set forth a test by which to determine whether contract language is sufficiently definite to warrant its review as a question of law rather than as a question of fact. It is noteworthy that, in the majority of the cases considering contract interpretation a matter of law, the disputed agreement was a commercial contract between sophisticated commercial parties with relatively equal bargaining power. We noted the importance of that factor in Bank of Boston Connecticut, in which we stated that "[t]he defendants are effectively requesting that we rewrite their commercially sophisticated guaranty and indemnity agreement to require the plaintiff to exhaust the collateral securing the notes before pursuing its available remedy under the agreement. The parties could have written such an agreement, but they did not do so." (Emphasis added.) Bank of Boston Connecticut v. Schlesinger, supra, 220 Conn. 159.
Tallmadge Bros, Inc. v. Iroquois Gas Transmission Systems, L.P., supra, 252 Conn. at 496.
Although those factors will not be dispositive of the proper standard of review in every set of circumstances, we hold that they raise a presumption of definitiveness that, in this case, has not been rebutted by any other evidence in the record.
Id. At 496-97. As in the Bank of Boston case as well as the Tallmadge Bros., Inc. case, here, the Lease Agreement at issue is commercial in nature and was made by sophisticated commercial parties with presumptively equal bargaining power as well as the advice of counsel. Further, by cross motions for summary judgment, the parties themselves ask this court to interpret this Lease Agreement as a matter of law.
The language at issue is the last sentence of Paragraph 15, which provides: "In the event any work is performed pursuant to this Article 15, the same shall be under a no-lien agreement properly recorded." Alternative interpretations of this sentence are offered by the parties. Each will be discussed in turn.
"A contract must be construed to effectuate the intent of the parties, which is determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction . . . [T]he intent of the parties is to be ascertained by a fair and reasonable construction of the written words and . . . the language used must be accorded its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the contract . . . Where the language of the contract is clear and unambiguous, the contract is to be given effect according to its terms. A court will not torture words to import ambiguity where the ordinary meaning leaves no room for ambiguity . . . Similarly, any ambiguity in a contract must emanate from the language used in the contract rather than from one party's subjective perception of the terms. Lawson v. Whitey's Frame Shop, 241 Conn. 678, 686, 697 A.2d 1137 (1997)." (Internal quotation marks omitted.) Pesino v. Atlantic Bank of New York, supra, 244 Conn. 91-92.
Id. 252 Conn. at 498.
The first interpretation urged by Plainbridge and Best Buy is that this covenant required the tenant to obtain prospective agreements from contractors and subcontractors that no liens would be filed on the land records in connection with the construction project. In 1977, such agreements were not prohibited. With the above principles of contract interpretation firmly in mind, the Court finds that this is the correct and accurate interpretation of the parties' intentions when Paragraph 15 was drafted. In this regard, the Court finds the language wholly unambiguous.
Paragraph 15 requires that any work performed be performed "under a no lien agreement." This necessarily contemplates that before any work commences, the no-lien agreement must be in place. The work cannot be performed "under" an agreement that does not yet exist. Therefore, to the extent that the no lien agreement must be in place before work is performed, by necessity, it must be prospective in nature. The "no lien agreement" contemplated in Paragraph 15 is clearly an agreement that no liens will be filed in connection with a contemplated construction contract.
Having so found, this language cannot be the basis for a claimed default under the lease. With the passage of Conn. Gen. Stat. § 42-1581, this covenant became void and unenforceable. Alstom Power, Inc. v. Balcke-Durr, Inc., 269 Conn. 599 (2004) (Affirming trial court's determination that a prospective waiver of the right to file mechanic's liens was void and of no effect because it was dated after October 1, 1999). See also, Solomon v. Gilmore, 248 Conn. 769, 785 (1999) ("no court will lend its assistance in any way toward carrying out the terms of a contract, the inherent purpose of which is to violate the law."); 12 Havemeyer Place Co., LLC v. Gordon, 76 Conn.App. 377 (2003) ("Generally, agreements contrary to public policy, that is those that negate laws enacted for the common good, are illegal and therefore unenforceable.").
Without this last sentence of paragraph 15, the Lease Agreement is silent on the issue of what, if any, steps the lessee must take regarding protecting against liens by contractors and subcontractors. For this reason, the Court does not find that either the filing of the lien by Berlin Steel, the filing of a complaint by Berlin Steel or Plainbridge's alleged complicity in these actions is a violation of the Lease Agreement. There is simply no language in the Lease Agreement to support such a finding.
The second interpretation, offered in the alternative by Plainbridge and Best Buy is that the term "no lien agreement" might be interpreted, (either at inception or in view of the passage of CGS § 42-1581) to be either a prospective "no lien agreement" or a "lien waiver" as described above. Lien waivers, they argue, are the post-1999 mechanism used to reduce the likelihood of liens being filed upon the property, and in the event of such a lien, to provide a legal defense for the property owner. Because the Court has accepted the first proffered interpretation of paragraph 15, it necessarily rejects this argument. However, the Court finds in the alternative, that if this interpretation is the legally correct one, again, no breach of the Lease Agreement occurred.
"The mere fact that the parties [may] advance different interpretations of the language in question does not necessitate a conclusion that the language is ambiguous." United Illuminating Co. v. Wisvest-Connecticut, LLC, 259 Conn. 665, 670 (2002).
In its alternative argument, Plainbridge recognizes that where a contract is subject to two interpretations, one which is void or illegal and the other which is not, the Court must adopt the interpretation that makes the contract valid. See, Brown v. Slater, 16 Conn. 192, 195 (1844); Bassett v. Desmond, 140 Conn. 426, 431 (1953). Were this Lease Agreement executed after the passage of CGS § 42-1581, the Court would adopt this approach. However, insofar as the Lease Agreement was drafted at a time when prospective "no lien agreements" were valid and enforceable, the question as to intent at the time the contract was executed does not require this inquiry. As discussed above however, this distinction is of no import here, because even under this alternative interpretation, no breach of the Lease Agreement occurred.
Paragraph 6.3 of the contract between Best Buy and IBEX provides:
The contractor shall submit his lien waiver with each Application for Payment. The Contractor shall also submit lien waivers from Subcontractors and major material supplies covering prior payments with the second and each subsequent Application for Payment. In addition, the Owner may in its discretion require any lien waivers to be provided concurrently in exchange for payments to which they relate. The lien waivers shall state the dollar amount of all prior payments and shall be on a form acceptable to the Owner. One original of each lien waiver bearing notarized signatures shall be submitted.
Thus, to the extent the Lease Agreement is interpreted to require "lien waivers" in lieu of the now illegal prospective "no lien agreements," that covenant was complied with by Best Buy. Indeed, the lien filer at issue here, Berlin Steel, had executed a lien waiver and acknowledged payment for materials provided for the very time period identified in the lien which it subsequently sought to foreclose. That Berlin Steel filed a lien notwithstanding the lien waiver or subsequently filed a foreclosure action cannot visit a default upon Plainbridge.
In short, under either interpretation, the filing of a lien or foreclosure action by a contractor, subcontractor or material supplier is not identified as an act of default. Under either interpretation, the Lease Agreement unambiguously contemplates that the obligation of the lessee is to obtain a document, an agreement that can be duly recorded, with those engaged to perform construction services at the premises. Thus, paragraph 15 places an affirmative obligation on the lessee to include certain terms in its construction contract.
This affirmative obligation is vastly different from the obligation suggested under the third interpretation, which is offered by the plaintiff. Plaintiff argues that this language creates an obligation of the lessee to preclude a third party from acting in a fashion inimical to the interests of the land owner through the filing of a lien or commencement of a civil action. For the reasons stated above, the Court rejects the plaintiff's tortured interpretation of paragraph 15. This is not a "fair and reasonable" interpretation of the words used. According the language used its "common, natural, and ordinary meaning and usage" and sensibly applying that language to "the subject matter of the contract" does not result in such an expansion of the lessee's obligations.
It appears that plaintiff concedes that the intent of the parties in 1977 was to require the now illegal prospective lien waiver and is therefore asking this court to redefine the terms of paragraph 15 to include an obligation that Plainbridge preclude the filing of liens and foreclosure complaints. See, Plaintiff's Memorandum of Law, dated April 29, 2005 at 7-8 ("Though C.G.S. § 42-1581, enacted in 1999, made mechanic's lien waivers void and of no effect," the intent of the "no lien agreement" provision can, and must, be given effect to the extent the statute allows.) The plaintiff, in essence, asks this Court to approve its unilateral determination of a default for conduct other than that which was specifically provided for in the lease.
The plaintiff's reliance upon Elliott v. South Isle Food Corporation, 6 Conn.App. 373 (1986) is misplaced. Elliott did involve the termination of a lease as a result of mechanics' liens filed against the leased property. However, the lease agreement in that case included a specific covenant "to remove, within thirty days, any mechanic's liens which the defendant caused to be filed against the leasehold property." Indeed, this case is further support for the conclusion that if these sophisticated parties had intended to make the filing of a lien or commencement of a foreclosure action against the plaintiff an act of default, they could have done so. See, Tallmadge Bros, Inc. v. Iroquois Gas Transmission System, L.P., 252 Conn. 479, 496 (2000); Bank of Boston Connecticut v. Schlesinger, 220 Conn. 152, 159 (1991).
It is worth noting that even if prospective "no lien agreements" had not been rendered invalid by the legislature, and such a "no lien agreement" was negotiated between IBEX and Best Buy, nothing would have precluded IBEX, a subcontractor or material supplier from actually filing a lien or attempting to foreclose same. Under such a scenario, no possible claim of default could be advanced. Therefore, it is the passage of the statute which the plaintiff now turns to its favor seeking an alternative interpretation of what is clear and unambiguous language. In so doing, they ask this court to find an act of default where, absent passage of the statute, there could be none.
The Court also notes that notwithstanding that this portion of the lease became unenforceable, or in the alternative ambiguous, with the passage of CGS § 42-1581, no effort was made by either of these sophisticated parties to amend the lease language.
Because the Court has determined that no breach of the Lease Agreement occurred, it need not, and does not address the remaining issues raised.
The plaintiff's motion for summary judgment is denied. The motions for summary judgment by defendants Plainbridge and Best Buy are granted. The clerk is directed to enter judgment in accordance with the Practice Book.