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Seven Oaks Enterprises, L.P. v. Devito

Court of Appeals of Connecticut

October 23, 2018

SEVEN OAKS ENTERPRISES, L.P., ET AL.
v.
SHERRY DEVITO ET AL.

          Argued January 29, 2018

         Procedural History

         Action to recover damages for, inter alia, breach of contract, and for other relief, brought to the Superior Court in the judicial district of Stamford-Norwalk, where the named defendant filed a counterclaim; thereafter, the court, Hon. Taggart D. Adams, judge trial referee, denied the motion to dismiss filed by the defendant Robert DePaolo; subsequently, the court, Hon. Taggart D. Adams, judge trial referee, denied the defendants' motion to reargue; thereafter, the action was withdrawn as to the defendant Robert DePaolo; subsequently, the matter was tried to the jury before Lee, J.; verdict for the plaintiffs on the complaint and the counterclaim; thereafter, the court, Lee, J., denied the named defendant's motions to set aside the verdict and for judgment notwithstanding the verdict, and rendered judgment in accordance with the verdict, from which the named defendant appealed to this court. Reversed in part; judgment directed.

          Ridgely Whitmore Brown, with whom, on the brief, was Benjamin Gershberg, for the appellant (named defendant).

          Ryan O'Neill, with whom, on the brief, was Mark Sherman, for the appellees (plaintiffs).

          Lavine, Alvord and Beach, Js.

          OPINION

          BEACH, J.

         The defendant Sherri DeVito[1] appeals from the judgment of the trial court rendered, after a jury trial, in favor of the plaintiffs, Seven Oaks Enterprises, L.P. (SOE), and Seven Oaks Management Corporation (SOM), on two counts alleging breach of contract and one count alleging breach of the implied covenant of good faith and fair dealing. The jury awarded $1.325 million in damages to the plaintiffs. On appeal, the defendant claims that the trial court (1) abused its discretion in denying the defendant's motion to set aside the verdict and her motion for judgment notwithstanding the verdict because the plaintiffs did not produce the original note at trial, there was insufficient evidence that the note was lost, and the plaintiffs did not have the right to enforce the note; (2) incorrectly instructed the jury regarding SOM's right to enforce the note; (3) lacked subject matter jurisdiction over SOE because it did not have the legal capacity to commence and continue the action; and (4) abused its discretion in denying her motion for judgment notwithstanding the verdict and in refusing to set aside the verdict because neither plaintiff had a right to enforce the management contract, the alleged breaches did not cause any loss to the plaintiffs, and the jury could not determine with reasonable certainty the amount of damages sustained. We affirm the judgment as to SOE's claim regarding breach of the management contract and reverse as to SOE's claim of breach of contract regarding the note and all of SOM's claims.

         The following facts, which the jury reasonably could have found or are undisputed, and procedural history are pertinent to our decision. This dispute concerns a note and a management contract arising from the purchase of a limited liability company by the defendant. Prior to the events in issue, Murray Chodos had purchased a residential property located at 516 Round Hill Road, Greenwich, in 1999. A limited liability company, 516, LLC, had been created to own the property, and SOE was the sole owner of 516, LLC.

         SOM was the general partner of SOE and Chodos was the president and managing member of SOM. Chodos met the defendant and her husband in late 2005 or early 2006. Chodos helped the defendant and her husband obtain life insurance policies and referred the defendant to an attorney, who could draft trusts for their children. In October, 2006, Chodos agreed to sell 516, LLC, to the defendant. The defendant purchased 516, LLC, from SOE for $4 million. Payment consisted of $2.675 million in cash by wire transfer and the remaining $1.325 million by a promissory note (note), which listed property located at 516 Round Hill Road as collateral. The purchase agreement was executed by the defendant individually and by SOE. Chodos signed the purchase agreement on behalf of SOM, which in turn acted in its capacity as SOE's general partner. On the defendant's side, the note was executed by the defendant both as manager of 516, LLC, and individually.

         In addition, the purchase agreement provided that until the note was paid, Chodos was to be the comanager of 516, LLC, pursuant to a management contract, which was attached to and expressly incorporated into the purchase agreement. The defendant and Chodos personally executed the management contract, which included provisions that Chodos was not to be removed as comanager so long as any debt was owed to SOE, that Chodos was to be compensated for his services as comanager, and that he would have all powers available to the manager under the operating agreement of 516, LLC.

         On April 4, 2008, the defendant, unknown to Chodos or to the plaintiffs, unilaterally executed an amendment to the operating agreementof516, LLC. The amendment removed Chodos as comanager, provided Chodos with no voting rights, and provided no compensation to Chodos. On May 1, 2008, the defendant executed another amendment to the operating agreement. This amendment recognized a mortgage of $365, 000 in favor of Allied International Fund, Inc. (Allied), and placed the Allied security interest above SOE's note in priority.

         The defendant did not pay any of the $1.325 million owed on the note or anything to Chodos for compensation under the management contract. In April, 2010, the plaintiffs initiated this action against the defendant. On December 31, 2011, SOE executed a ‘‘Bill of Sale and Assignment'' (assignment), which assigned to SOM ‘‘any and all claims, rights and title to any and all defaulted loans and damages relating to the sale of 516, LLC.'' The plaintiffs alleged four counts: (1) breach of contract for the defendant's breach of the management contract; (2) breach of the implied covenant of good faith and fair dealing for the defendant's bad faith breaches of the management contract; (3) breach of contract regarding the defendant's failure to make payments on the note; and (4) reckless and wanton misconduct by the defendant. The defendant raised several special defenses and counterclaims. There are no claims on appeal regarding the special defenses and counterclaims.

         The trial commenced on January 23, 2015. The plaintiffs withdrew their claim of reckless and wanton misconduct before the jury was charged. On February 6, 2015, the jury returned a verdict in favor of the plaintiffs on all three remaining counts, as well as the defendant's special defenses and counterclaims. It awarded the plaintiffs $1.325 million in damages. The verdict did not attribute damages to any specific count or counts.[2] At the same time, the jury provided answers to a set of written jury interrogatories. On February 23, 2015, the defendant filed a motion for judgment notwithstanding the verdict and a motion to set aside the verdict, which motions the court denied on August 21, 2015. This appeal followed. Additional facts will be set forth as necessary.

         On appeal, the defendant claims that the trial court abused its discretion in denying her motion to set aside the verdict and her motion for judgment notwithstanding the verdict because the plaintiffs did not produce the original note at trial, there was insufficient evidence that the note was lost, and the plaintiffs did not have the right to enforce the note; that the court incorrectly instructed the jury regarding SOM's right to enforce the note; that the court lacked subject matter jurisdiction over SOE because SOE did not have the legal capacity to commence and continue the action; and that the court abused its discretion in denying her motion for judgment notwithstanding the verdict and in refusing to set aside the verdict because neither plaintiff had a right to enforce the management contract, the alleged breaches did not cause any loss to the plaintiffs, and the jury could not have determined with reasonable certainty the amount of damages required. We consider the claims in a different order for the purpose of clarity, and, in light of our conclusions, it is not necessary to address several of them.

         We begin with our standard of review. ‘‘The proper appellate standard of review when considering the action of a trial court in granting or denying a motion to set aside a verdict is the abuse of discretion standard. . . . In determining whether there has been an abuse of discretion, every reasonable presumption should be given in favor of the correctness of the court's ruling. . . . Reversal is required only [when] an abuse of discretion is manifest or [when] injustice appears to have been done. . . . [T]he role of the trial court on a motion to set aside the jury's verdict is not to sit as [an added] juror . . . but, rather, to decide whether, viewing the evidence in the light most favorable to the prevailing party, the jury could reasonably have reached the verdict that it did. . . . In reviewing the action of the trial court in denying [or granting a motion] . . . to set aside the verdict, our primary concern is to determine whether the court abused its discretion . . . .'' (Internal quotation marks omitted.) Rendahl v. Peluso, 173 Conn.App. 66, 94-95, 162 A.3d 1 (2017).

         ‘‘The standards for appellate review of a directed verdict are well settled. Directed verdicts are not favored. . . . A trial court should direct a verdict only when a jury could not reasonably and legally have reached any other conclusion. . . . In reviewing the trial court's decision [to deny the defendant's motion for a directed verdict] we must consider the evidence in the light most favorable to the plaintiff. . . . Although it is the jury's right to draw logical deductions and make reasonable inferences from the facts proven . . . it may not resort to mere conjecture and speculation. . . . A directed verdict is justified if . . . the evidence is so weak that it would be proper for the court to set aside a verdict rendered for the other party. . . . The foregoing standard of review also governs the trial court's denial of the defendant's motion for judgment notwithstanding the verdict because that motion is not a new motion, but [is] the renewal of [the previous] motion for a directed verdict.'' (Citation omitted; internal quotation marks omitted.) Bagley v. Adel Wiggins Group, 327 Conn. 89, 102, 171 A.3d 432 (2017).

         I

         We first consider various issues regarding the third count of the operative complaint, which alleged nonpayment of the note. The jury indicated in its answers to interrogatories that it had found that SOE and the defendant originally had been the parties to the note, that SOE possessed the note when it was lost, that the note nonetheless had effectively been assigned to SOM, and that the defendant failed to make payments on the note. A note, of course, is a form of contract, and principles of contract construction are used to interpret its language. Federal National Mortgage Assn. v. Bridgeport Portfolio, LLC, 150 Conn.App. 610, 620, 92 A.3d 966, cert. denied, 312 Conn. 926, 95 A.3d 523 (2014). ‘‘The standard of review for contract interpretation is well established. Although ordinarily the question of contract interpretation, being a question of the parties' intent, is a question of fact . . . [when] there is definitive contract language, the determination of what the parties intended by their . . . commitments is a question of law [over which our review is plenary].'' (Internal quotation marks omitted.) Meeker v. Mahon, 167 Conn.App. 627, 632, 143 A.3d 1193 (2016). ‘‘In ascertaining the contractual rights and obligations of the parties, we seek to effectuate their intent, which is derived from the language employed in the contract, taking into consideration the circumstances of the parties and the transaction. . . . We accord the language employed in the contract a rational construction based on its common, natural and ordinary meaning and usage as applied to the subject matter of the contract.'' (Internal quotation marks omitted.) Welch v. Stonybrook Gardens Cooperative, Inc., 158 Conn.App. 185, 197, 118 A.3d 675, cert. denied, 318 Conn. 905, 122 A.3d 634 (2015). ‘‘Furthermore, [i]n giving meaning to the language of a contract, we presume that the parties did not intend to create an absurd result.'' (Internal quotation marks omitted.) South End Plaza Assn., Inc. v. Cote, 52 Conn.App. 374, 378, 727 A.2d 231 (1999).

         A

         Prior to the transfer of the note, which occurred after this action was initiated, SOE was clearly entitled to enforce the note, as the parties to the purchase agreement, which referenced the note, were the defendant and SOE, [3] and the parties to the note were, as lender, SOE, and, as borrowers, 516, LLC, the defendant, and a guarantor.[4] Prior to the transfer of the note, then, SOE[5] was the only plaintiff able to enforce the note. The plaintiffs do not claim to the contrary.

         Approximately one year after the action was commenced, SOE transferred the note to SOM. The next question is whether SOE, SOM, or both entities retained the power to enforce the note. The assignment provided in pertinent part that SOE ‘‘does hereby grant, convey, sell, assign, and transfer over to [SOM] all [SOE's] right, title, and interest in and to . . . any and all claims, rights and title to any and all defaulted loans and damages relating to the sale of 516, LLC.'' The note was referenced in the purchase agreement, and the note itself referenced 516, LLC. Where no interest in the assigned property is retained or the assignment is otherwise qualified, the assignment extinguishes all of the assignor's rights in the assigned matter. Bozelko v. Milici, 139 Conn.App. 536, 539, 57 A.3d 762 (2012), cert. denied, 308 Conn. 914, 61 A.3d 1101 (2013). The first paragraph of the note specified that the defendant ‘‘acknowledges that [SOE] may transfer this [n]ote . . . .'' The assignment clearly stated that SOE was assigning its ‘‘claims, rights and title to any and all defaulted loans and damages relating to the sale of 516, LLC.'' SOE's assignment of the note to SOM extinguished all rights SOE had to enforce the note. Therefore, from December 31, 2011, onward, SOE lacked the ability to enforce the note.[6]

         B

         The jury reported in its answers to interrogatories that SOE transferred the note to SOM, and apparently concluded that SOM was entitled to enforce the note. The trial court determined, in its memorandum of decision dated August 21, 2015, on the defendant's motion for judgment notwithstanding the verdict, that ‘‘[t]here was sufficient evidence for the jury to have found that, in accord with General Statutes § 42a-3-309, SOE was in possession of the note when it was lost, its whereabouts are unknown, and the entity is entitled to enforce the note. The jury further found that SOE transferred the right to enforce the note to SOM. Again, the jury could have reasonably and legally reached the conclusion that the ...


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