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Advance Release Opinions - Review and Analysis

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Analysis and Impact of Connecticut Appellate Level Opinions Involving Contract Issues

Strict Compliance with Home Improvement Act Unnecessary

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A Connecticut appeal confirms that contractors do not have to strictly comply with the Home Improvement Act. The advance release opinion becomes official on March 1, 2016.

The homeowners in Ippolito v. Olympic Construction, LLC hired a contractor to repair some water damage to his home. They terminated the contract before the contractor completed the work. Contractor commenced an arbitration to recover its lost profit. Homeowners claimed that contractor could not enforce the contract because it did not comply with the Home Improvement Act. Specifically, homeowners asserted that the contract did not comply with the notice of the right to cancel provision of CGS § 20-429(a)(6) or specify starting and completion dates as required by § 20-429(a)(7).

Arbitrator found for contractor. Homeowners moved to vacate the award in Superior Court. Contractor moved to confirm the award. “[Homeowners] claimed that the award violated the clear public policy of this state because it contravened the previously described provisions of the [Home Improvement Act], and that the arbitrator, by not strictly enforcing those statutory provisions, had manifestly disregarded the law.” The trial court rejected homeowners claims, denied their motion to vacate the award, and granted contractor’s motion to confirm it.

Homeowners appealed. The Connecticut Appellate Court affirmed.

Homeowners’ Main Arguments on Appeal

“[Homeowners] argue[d] … that the location of the cancellation notice within the contract does not comply with § 20-429(a)(6), and that the contract does not contain a starting date and completion date, as required by § 20-429 (a)(7).”

Appellate Court Confirms Strict Compliance with Home Improvement Act is Unnecessary

Quoting Supreme Court authority, the Appellate Court noted that “‘[t]o determine whether an arbitration award must be vacated for violating public policy, we employ a two- pronged analysis. . . . First, we must determine whether the award implicates any explicit, well-defined, and dominant public policy. . . . To identify the existence of a public policy, we look to statutes, regulations, administrative decisions, and case law. . . . Second, if the decision of the arbitrator does implicate a clearly defined public policy, we then determine whether the contract, as construed by the arbitration award, violates that policy.'”

The court “first turn[ed] to the [homeowners’] claim that the contract violates public policy because it does not comply with the notice of cancellation requirements of § 20-429(a)(6), which requires that a home improvement contract include notice of the homeowner’s cancellation rights in accordance with the provisions of the [Home Solicitation Sales Act. The [homeowners] do not dispute that the parties’ contract contains a notice of their cancellation rights, nor do they argue that the language or typeface of that cancellation notice is in any way deficient. Instead, they argue that the location of the notice within the contract documents does not comply with General Statutes § 42- 135a (1) … of the [Home Solicitation Sales Act].”

“Section 42-135a (1) of the [Home Solicitation Sales Act] requires, inter alia, that the seller include a cancellation notice ‘in immediate proximity to the space reserved in the contract for the signature of the buyer . . . .'” The contract in this case incorporated by reference another document [AIA document A201–2007, General Conditions of the Contract for Construction] directly above one of the homeowner’s signature lines. That other document consisted of thirty-nine pages. The notice of cancellation provision was on pages thirty-eight to thirty-nine.

“Although our Supreme Court has recognized that compliance with § 20-429 (a) is mandatory, it has not required perfect compliance.” “The arbitrator in this case found that the cancellation notice complied in substance with the requirements of the [Home Improvement Act], because, even though it was set forth on pages thirty-eight and thirty-nine of a separate document that had been incorporated into the contract by reference, the incorporated document itself was referenced in close proximity to the signature line on the contract. Here, then, because the [homeowners] have not demonstrated that the cancellation notice was missing from the contract, or that the language or typeface or any other aspect of the cancellation notice was deficient in such a way as to deprive them of notice of their cancellation rights under the [Home Improvement Act], we cannot conclude that enforcement of the contract against the homeowners violated an explicit, well-defined and dominant public policy of this state.”

The Court “turn[ed] next to the [homeowners’] claim regarding § 20-429 (a) (7), which provides that: ‘No home improvement contract shall be valid or enforceable against an owner unless it . . . (7) contains a starting date and completion date . . . . ‘ The plaintiffs claim that the contract does not comply with that provision because it does not contain specific calendar dates for starting and completing work under the contract.”

The arbitrator found that the contract defined the starting and completion dates by references to events rather than actual dates and that this was sufficient. “In this matter, the start dates and the completion date can be readily adduced by looking at the entire contract . . . .” “[T]he [trial] court expressly noted that the plaintiffs could not provide any case law that held that ‘the starting date and/or completion date need to be fixed calendar dates rather than dates to be determined upon the occurrence of certain events. (E.g., the completion of plans; issuance of a building permit; notification of closing on construction financing.)'”

The Appellate Court concluded that, for these reasons, “the [homeowners’ ] claim on appeal fails, for even if strict enforcement of the starting date and completion date requirement of the statute were an explicit, well-defined, and dominant public policy of this state, the contract here at issue does not violate that requirement or the public policy it is designed to promote.”

Other Things to Note

Homeowners also claimed on appeal that “the arbitrator’s enforcement of a contract that is noncompliant with § 20-429 (a) (6) and (7) of the [Home Improvement Act] demonstrates a manifest disregard of the law, and thus that the award should be set aside pursuant to § 52-418 (a) (4).” The Appellate Court rejected this argument because the deviation from the Home Improvement Act in respect of the notice of cancellation was “minor and technical” and the contract did provide start and completion dates.

Homeowners also claimed on appeal that contractor failed to comply with the Home Improvement Act, via § 42-135a(2) of the Home Solicitation Sales Act, because the contractor did not attach two blank notices of cancellation to the contract. “Although the [homeowners] argued in the trial court that the contract violated § 42-135a (2), the trial court’s decision did not reference that claim and … [t]he [homeowners] never filed a request for articulation to receive a ruling on their claim under § 42-135a (2). Moreover, the [homeowners] have failed to adequately brief their claim as to § 42-135a (2) by failing to set forth how the contract here at issue violates that subdivision. Thus, we decline to review the plaintiffs’ claim to the extent that it asserts a violation of that subdivision.”

The court footnoted its “decline to review” discussion, as follows: “We are aware that Practice Book § 61-10 was recently amended to include subsection (b), which provides in relevant part that ‘[t]he failure of any party on appeal to seek articulation pursuant to Section 66-5 shall not be the sole ground upon which the court declines to review any issue or claim on appeal. . . . ‘ The commentary for § 61-10 provides, however, that ‘[t]he adoption of subsection (b) is not intended to preclude the court from declining to review an issue where the record is inadequate for reasons other than solely the failure to seek an articulation . . . .'”

The lesson is that, if you don’t seek articulation, you better brief the tar out of the issue.

Buyer Loses his Deposit

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house-for-sale-signA buyer loses his deposit when he declines a mortgage contingency clause and then doesn’t obtain financing that he likes, according to a Connecticut Appellate Court opinion to be officially released on February 16, 2016.

In Tsiropoulos v. Radigan, plaintiff entered into a contract to buy defendant’s residential property. He made a $30,000 deposit but not have a mortgage contingency clause. When he didn’t get the financing he wanted, he told defendant he couldn’t close and encouraged her to sell the property to someone else. Three weeks later defendant did just that, for $4,000 more than plaintiff was going to pay. Plaintiff demanded his deposit back. Defendant declined to return it, relying on the liquidated damages provision of the contract. The liquidated damages provision said that seller gets to keep the deposit if buyer is unwilling or unable to perform.

Plaintiff commenced an action for breach of contract and unjust enrichment. Defendant asserted the special defense of wilful termination, among others, and a counterclaim to retain the deposit.

The trial court found that the liquidated damages clause was enforceable and rejected defendant’s breach of contract and unjust enrichment claims. The trial court also found that plaintiff wilfully breached the agreement and ordered that defendant keep the $30,000 deposit. Plaintiff appealed. The Appellate Court affirmed.

Plaintiff’s Main Arguments on Appeal

Plaintiff claimed that the trial court erred in finding (i) the liquidated damages clause enforceable; (ii) plaintiff wilfully terminated the contract; and (iii) defendant was not unjustly enriched.

Appellate Court Concludes Buyer Loses his Deposit

The Appellate Court noted that a liquidated damages clause is not an unenforceable penalty “if three conditions are satisfied: (1) The damage which was to be expected as a result of the breach of the contract was uncertain in amount or difficult to prove; (2) there was an intent on the part of the parties to liquidate damages in advance; and (3) the amount stipulated was reasonable in the sense that it was not greatly disproportionate to the amount of the damage which, as the parties looked forward, seemed to be the presumable loss which would be sustained by the contractee in the event of a breach of the contract.”

The court concluded that the liquidated damages clause met the three conditions. In doing so, it rejected plaintiff’s argument that defendant was not damaged because she promptly sold the property, and for $4,000 more than plaintiff was going to pay.

As to willfulness of the breach, the Appellate Court noted that “[t]he contemporary view is that the court must consider not only the deliberateness of the breach, but also other factors in determining whether to apply the court’s equitable jurisdiction. . . . These factors include, among others, the degree of innocence of the breach, the amount of the detriment to the breaching party and the amount of the benefit conferred upon the nonbreaching party.”

The court rejected plaintiff’s argument that he terminated the contract because he couldn’t obtain financing, which was not wilful on his part. The court concluded that plaintiff’s wilfulness didn’t derive from not obtaining financing. Rather, plaintiff “wilfully waived a financial contingency [i.e., the mortgage contingency clause] that put not only him, but also the defendant, at financial risk.” In other words, plaintiff wilfully assumed the risk that he would lose his deposit if he didn’t get the financing he wanted and that’s exactly what happened.

The Appellate Court didn’t say much about plaintiff’s final argument that defendant was unjustly enriched. It noted that “[i]t was the plaintiff’s burden to ‘demonstrate that the property could, at the time of [his] breach, have been resold at a price sufficiently higher than [the] contract price to obviate any loss of profits and to compensate the seller for any incidental and consequential damages.'” The Appellate Court couldn’t say that the trial court’s conclusion that defendant was not unjustly enriched was clearly erroneous.

Other Things to Note

Defendant claimed her attorney’s fees pursuant to a contract provision and the trial court awarded them. The parties stipulated to the amount of $20,000.

About the Photo

It’s for a property in Georgia — that’s not haunted.

Standing is Slippery Subject Matter

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standing is slippery subject matterStanding is slippery subject matter, as made clear in the Connecticut Appellate Court’s decision in R.S. Silver Enterprises, Inc. v. Pascarella, to be officially released on February 9, 2016.

The essence of this dispute was that plaintiff, a real estate brokerage, invested $1,250,000 in defendant’s real estate project in exchange for a share of the project’s profits. Plaintiff later transferred its brokerage assets to a new company and ceased operating. Apparently, plaintiff’s principal later realized that defendant never paid plaintiff any share of profits. Plaintiff sought and obtained reinstatement as a corporation from the Secretary of State. It then sued defendant for breach of contract, breach of fiduciary duty and an accounting.

Defendant asserted twenty-two special defenses, including two that called plaintiff’s standing into question. The twenty-first special defense challenged plaintiff’s standing with a claim that plaintiff had assigned its rights under the contract it claimed defendant breached when it transferred its brokerage assets to the new company. The sixth special defense challenged standing on the ground that the Secretary of State should not have reinstated plaintiff as a corporation.

On plaintiff’s motion to strike, the trial court struck the twenty-first and sixth special defenses, and eighteen others. The case was tried to the court, who ultimately (more on that later) found for plaintiff on the breach of contract claim and awarded damages.

Defendant appealed. The Appellate Court remanded to the trial court for determination of the twenty-first special defense, presumably because it implicated standing. The Appellate Court retained jurisdiction over defendant’s other claims pending the trial court’s decision. The trial court conducted an evidentiary hearing and determined that plaintiff had not assigned its interest in the contract it had with defendant.

Because the trial court rejected the twenty-first special defense, the case returned to the Appellate Court for review of that determination as well as defendant’s other claims on appeal.

The Appellate Court affirmed.

Arguments on Appeal

Defendant maintained that plaintiff lacked standing because it had assigned its contract interest to the new company and “lacked the legal capacity to bring this action because it should have been
barred from reinstatement as a Connecticut corporation before this action was commenced.”

Defendant also argued that the trial court should not have struck its second and fourth special defenses which alleged that public policy precluded plaintiff from pursuing this matter because plaintiff (i) obtained reinstatement through a fraud on the Commissioner of Revenue Services; and (ii) engaged in bankruptcy fraud when it entered into the contract at issue and thus had unclean hands.

Defendant also argued that the trial court’s judgment was ‘‘ineffective because it was issued 966 days after the completion of trial in violation of . . . General Statutes § 51-183b [which requires a court to issue a decision on a matter heard by it within 120 days from the date of the end of the proceeding].’’

Appellate Court’s Conclusions

The Appellate Court agreed with trial court that the contract pursuant to which plaintiff transferred assets to the new company unambiguously transferred only brokerage assets. Plaintiff’s interest under the contract with defendant was not a brokerage asset and was not listed in the schedule of assets transferred. So, plaintiff still owned the contract interest.

Next, defendant based its “lack of legal capacity” argument on its claim that plaintiff obtained corporate reinstatement from the Secretary of State through a fraud on the Commissioner of Revenue Services. The court noted that defendant already had brought a separate action on this fraud issue against the Commissioner of Revenue Services, the Secretary of State and plaintiff. The trial court in that separate action dismissed it, finding that defendant did not have standing to challenge plaintiff’s reinstatement because defendant was not aggrieved by plaintiff’s reinstatement. Aggrievement is an element of standing. The Appellate Court affirmed and the Supreme Court denied certification. Since defendant did not have standing to raise the issue in a separate action, it did not have standing to raise it as a defense in this action.

The court rejected defendant’s first public policy argument for the same reason: defendant lacked standing to challenge plaintiff’s reinstatement. The court also rejected defendant’s bankruptcy fraud-unclean hands public policy argument. Fleshing it out a bit more, defendant’s  claim was that plaintiff was in bankruptcy when it invested with defendant and had promised the investment funds to its creditors as part of the bankruptcy. The court first noted that the special defense said nothing about unclean hands. Even if defendant’s allegations could be read as asserting that defense, the unclean hands must have some relation to the activities at issue in the instant case. The possibility that the investment funds should have gone to plaintiff’s creditors does not change the fact that the investment funds actually went to defendant. If plaintiff’s hands were unclean, they were unclean as to its bankruptcy creditors, not as to defendant.

The Appellate Court agreed with the trial court’s conclusion as to defendant’s “timeliness of decision” argument.  As its decision deadline approached after the trail and post-trial briefing, the trial court had asked for an extension of its time to decide. All parties consented and no party placed any limitation on its consent. The trial court found for plaintiff on the breach of contract claim but only as to liability. It reserved decision on the accounting claim because it was unclear whether plaintiff, having prevailed on the breach of contract claim, still wanted an accounting. It also reserved decision on the amount of damages for the breach of contract claim because the amount could be affected by an accounting if there was going to be one. The court asked the parties to submit additional briefing on those issues, which they did. Defendant later initiated motion practice essentially claiming that its consent was to a “reasonable” extension and the court had taken too long. The trial court denied the motions on the ground that defendant’s unconditional consent to the court’s requested extension was a waiver of any time limit on the court’s decision. The trial court ultimately issued a final judgment denying the accounting claim and awarding damages on the breach of contract claim.

Impact

This decision tells me that standing is slippery subject matter. First on my list of things that confuse me is that it is well-settled that standing is an aspect of subject matter jurisdiction, which cannot be waived. The law also is clear that plaintiff has the burden of proof on standing. For these reasons, a defendant does not have to raise lack of standing as a special defense. Though I didn’t mention it above, the court ascribed the burden of proof on the standing issue to defendant. It seems to me that plaintiff should have had that burden. It probably would not have changed the outcome but I like to have clarity.

Next, the reinstatement question is really one of capacity to sue. It seems to me that if plaintiff obtained its capacity to sue (i.e., corporate reinstatement) through fraud, it never really obtained capacity to sue. If a plaintiff who lacks capacity to sue also lacks standing, the court’s focus should have been on whether plaintiff lacked capacity to bring the instant action, not on whether defendant lacked standing to raise the issue as a plaintiff in a separate action. In other words, defendant’s aggrievement, or lack of it, is irrelevant to whether plaintiff lacks standing.

Lastly, if you don’t want the court to have as much time as it wants to decide something, you have to limit your consent to an extension of time.

Collateral Estoppel and Party Mutuality

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old truck

Lack of party mutuality does not bar collateral estoppel. That’s what the Connecticut Appellate Court concluded in Pollansky v. Pollansky, which will be officially released on January 26, 2016. The Appellate Court cited two Connecticut Supreme Court decisions from the 1990s for the propositions that “the mutuality requirement has … been widely abandoned as an ironclad rule” and “important notions of judicial economy are served by abandon[ing] … the doctrine of mutuality.” That surprised me a little, but I’m getting ahead of myself.

Intra-family disputes drag me down and this one is no different. Mom and Dad bought some property in the ’60s and began operating a sand and gravel business on it. Son worked with Dad in the business from Son’s teenage years through Dad’s retirement in 1992. After Dad retired, Mom and Dad let Son and his wife use the property for their own businesses. Dad died in 2010 and Mom became the property’s sole owner.  That’s when the problem started. Mom, then in her eighties, needed some additional retirement income. She wanted to sell or rent the property, which meant that Son and his wife would have to vacate. Son refused to do that, maintaining that Dad had promised him the property.

Mom commenced a summary process action to evict Son. Son claimed in a special defense that Dad had granted Son an ownership interest in the property. The trial court entered a judgment of immediate possession for Mom. Son appealed and the Appellate Court affirmed.

Son then commenced an action against Mom and others alleging breach of contract, unjust enrichment, quantum meruit and adverse possession. The trial court determined that res judicata barred Son’s breach of contract claim and collateral estoppel barred his other claims.

Arguments on Appeal

Son argued that res judicata did not apply to his breach of contract claim because it was not litigated in the summary process action. He provided two reasons. First, he claimed that when the summary process court asked, the parties were in agreement that Son’s property ownership claim was not before the court notwithstanding Son’s special defense. Son quoted a portion of the summary process transcript where the court and counsel discussed a “property” claim. Second, Son claimed that two of the defendants in this case were not parties to the summary process action so there was no mutuality of parties. (The opinion doesn’t explain whether these two other defendants are family — I’m assuming they are Son’s aunts or sisters).

Son also argued that many of the issues in his other counts were not fully and fairly litigated in the summary process action and thus not precluded by collateral estoppel.

Appellate Court’s Conclusions

Even though it received relatively little attention, I’m starting with the mutuality of parties issue because I think it is the most interesting aspect of the opinion.  The Appellate Court first noted that the trial court did make a mistake in concluding that res judicata barred the contract claim against the non-Mom defendants. The Appellate Court said it’s actually barred by collateral estoppel. The record showed that the substance of the contract claim was fully and fairly litigated in the summary process action and the summary process court’s denial of Son’s ownership special defense was necessary to its judgment.

With those elements out of the way, the court turned to mutuality and said lack of party mutuality does not bar collateral estoppel in Connecticut. It cited Torres v. Waterbury, 249 Conn. 110 (1999) and Aetna Casualty & Surety Co. v. Jones, 220 Conn. 285 (1991) for the proposition that the mutuality requirement has been abandoned because it promotes judicial inefficiency. So, it didn’t matter that the non-Mom defendants were not parties to the summary process action.

As for Son’s other claimed reason for the inapplicability of res judicata — that his contract claim expressly was not before the summary process court, the Appellate Court consulted the transcript. It noted that colloquy outside the snippet Son quoted confirmed that the “property” issue that the summary process court did not decide was a personal property issue, not a real property issue. Son’s counsel conceded this point in oral argument before the Appellate Court.

The Appellate Court also concluded that Son was collaterally estopped to assert his other claims against Mom.

Impact

I think abandoning the mutuality requirement is fine, as long as it is mutual. I wouldn’t like to see Plaintiff 2, who could have, but didn’t, join with Plaintiff 1 in an action against Defendant, be permitted to bring a new action against Defendant after Plaintiff 1 loses.

About the Photo

I used this photo because I thought the truck in the photo looked like a truck that might have been used in Dad and Mom’s sand and gravel business in the ’60s.

Interpreting Collective Bargaining Agreements

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Snow

Arbitrators have wide latitude in interpreting collective bargaining agreements according to a new Appellate Court opinion to be officially released on January 26, 2016.

In Burr Road Operating Company II, LLC v. New England Health Care Employees Union, District 1199, the parties asked the arbitrator to determine whether an employment discharge was for just cause and, if not, the appropriate remedy. The employer-plaintiff had terminated the grievant (union member) for failing to timely report a claim of abuse of a nursing home patient. The employer had previously issued “final warnings” to the grievant for unrelated conduct. Two other employees were aware of the claim but did not report it. They were not discharged. The grievant grieved her termination and the union took the termination to arbitration pursuant to the collective bargaining agreement.

The arbitrator found there was no just cause because, of the three people that were aware of the claim, only the grievant actually reported it. Though she was late in doing so, the other two employees did not come forward at all. The arbitrator reinstated the grievant.

The employer filed an application to vacate the award and the union filed an application to confirm the award. The trial court denied the employer’s application and granted the union’s. The Appellate Court reversed the reinstatement, finding it contrary to public policy. The Supreme Court reversed and remanded to the Appellate Court to determine whether the trial court improperly denied the employer’s application to vacate the award. The January 26, 2016 decision is the opinion on remand.

Arguments on Appeal

The employer argued that the arbitrator improperly (i) failed to give dispositive weight to the employer’s “final warnings”; and (ii) added a term to the collective bargaining agreement by considering the grievant’s report of the incident a “mitigating factor.”

The employer also had a third argument that the arbitrator improperly added a procedural requirement to the collective bargaining agreement by refusing to consider grievant’s voicemail messages.  The opinion doesn’t really discuss the details. Apparently, the grievant left voicemail messages that the employer claimed contained damaging admissions. The arbitrator declined to consider the messages because the employer didn’t investigate them. The Appellate Court concluded that the third argument involve the same issue as the second argument and did not separately address it.

Appellate Court’s Conclusions

The issue that really was in dispute was whether the arbitrator changed the collective bargaining agreement by interpreting the collective bargaining agreement. The answer, of course, is “no.”

The court noted that the arbitrator was obliged to interpret and apply the agreement, subject to the prohibition on adding, deleting or modifying any of its terms. The court’s review was limited to whether the arbitrator showed “patent infidelity” to his obligation. The court will confirm the award if it “draws its essence” from the agreement.

The agreement permitted termination for “just cause.” But the agreement did not define just cause. Nor did the agreement define “final warning” or require discharge for an employee’s infraction while under a final warning.

Since the agreement didn’t provide the essential definitions, the arbitrator had to provide his own. There was no patent infidelity to the agreement in concluding that it was unjust to discharge an employee for meeting a reporting requirement, albeit untimely, where other employees entirely failed to meet the requirement — and were not discharged. It was not improper for the arbitrator to reject a “final warning” as dispositive because the agreement did not provide for it or make it dispositive.

Impact

If an employer wants a “final warning” to be a dispositive basis for a just cause discharge, it has to be spelled out in the employment agreement.

About the Photo

I finished this post on January 23, 2016, when it was snowing, a lot.