Rafalowski v. Old County Road, Inc., No. Cv95 0555432s (Mar. 26, 1997)

[EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.]MEMORANDUM OF DECISION In this case, plaintiffs, condominium unit owners at 1000 Old County Circle, Windsor Locks, have brought suit against the defendant Old Country Road, Inc., ("Old County") developer of the subject property and declarant of a common interest community known as Old county Circle Industrial Park Lot No. 5-6 (hereinafter "Association.") In their 18 count complaint, plaintiffs allege that the Association consists of one building subdivided into sixteen units; that Old County owns various units, several of which are leased; and that at all material times, Old County and its officers, owners, or employees have been the sole officers of the Association and until March, 1995, have been the sole executive board members of the Association. CT Page 3058

Generally speaking, the complaint sets out three basic categories of allegations relating to assessments and fees; management; and maintaining common elements.

In Count I, it is alleged that pursuant to executive board resolution, an assessment for common expenses of the Association was levied upon all units at the rate of $1.01 per square foot at the time of the inception of the Association. It is also alleged that Old County has only paid 50 cents per square foot of the assessment for common expenses on units it owns that are not leased to third parties. Count I further alleges that despite demand, Old County has failed and refused to pay the full assessment of the units.

In subsequent counts, a wide variety of allegations are made relating to alleged mismanagement by Old County including a claimed CUTPA violation (Count XVIII). Plaintiffs seek monetary damages and various orders as relief, as well as attorney's fees and punitive damages.

Trial was held on November 19, 20, 21 and 26. Witnesses included the plaintiffs and Gary Pierce, 50 percent owner of defendant. Briefs and responsive briefs have been filed. Oral argument was held on March 24, 1997.

Having considered the full record and all of the arguments set forth, the Court concludes that judgment should enter for defendant on all counts except Counts II and XVIII, as to which judgment shall enter for plaintiffs.¹

LEGAL DISCUSSION

Preliminary, it should be noted that plaintiffs bear the burden of proof as to both liability and damages by a preponderance of the evidence.

Even if plaintiffs prove an allegation, they are not entitled to relief unless damages can be proven. Damages must be established with reasonable certainty, and not be based on speculation or surmise. Johnson v. Flammia, 169 Conn. 491 (1975). A plaintiff must prove damages with as much certainty as is possible. Southern New England Contracting Co. v. State,165 Conn. 644, 661 (1974). While mathematical exactitude is often impossible, the party claiming damages must nonetheless make a fair and sufficient estimate. Falco v. James peter Associates,CT Page 3059Inc., 165 Conn. 442, 445 (1973). It has been held that condominium unit owners could recover only nominal damages for another owners' breach of a condominium declaration absent evidence of decline in value of their units. Grey v. CoastalStates Holding Co., 22 Conn. App. 497, 507 (1990). At trial, plaintiffs offered no expert testimony, or other persuasive evidence, indicating that there had been a decline in the value of their units as a consequence of defendant's alleged actions.

COUNT I

Count I alleges as follows:

1. On June 22, 1989, Robert Lemanski, co-plaintiff, purchased a condominium unit at 1000 Old County Circle, units 110 and 111, Windsor Locks, Connecticut.

2. On July 18, 1989, Stanley Rafalowski, co-plaintiff, purchased a condominium unit at 1000 Old County Circle, units 105 and 106, Windsor Locks, Connecticut.

3. Steven Tripp, co-plaintiff, purchased a condominium unit at 1000 Old County Circle, unit 115, Windsor Locks, Connecticut.

4. Said condominium units were part of a common interest community known as Old County Circle Industrial Park Lot No. 5-6 (hereinafter "Association"). A declaration of condominium was recorded on June 14, 1989 in the Windsor Locks land Records in Volume 188 at Page 71.

5. Said Association consists of one building subdivided into sixteen units.

6. At all times material hereto, the Defendant, Old County Road, Inc., was the developer of the property, and the declarant of the Association.

7. At all times material hereto, the Defendant, or officers or employees of the Defendant, have been the sole officers of the Association, and until March, 1995, have been the sole Executive Board members of the Association. CT Page 3060

8. Pursuant to Executive Board action, an assessment for common expenses of the association was levied upon all units at the rate of $1.01 per square foot at the time of the inception of the Association.

9. The Defendant is the owner of units 98, 102, 103, 107, 108, 109, 112, 114, and, 116 several of which are leased. The total area of these units is 31,546 square feet.

10. Since the inception of the Association, the Defendant has only been paying $.50 per square foot of the assessment for common expenses of the Association on units it owns that are not leased to third parties.

11. Upon information and belief, the Defendant, as part of its lease agreements with third parties who are leasing units in the Association, has been collecting the assessment for common expenses from its lessees but not retaining it for the Association in full.

12. Despite demand, the Defendant has failed, refused, or neglected to pay the full assessment to the Association on units it owns or has owned.

Count I, in its essence, alleges that defendant has been paying only 50 cents per square foot of the assessment for common expenses, not the rate — initially $1.01, but subsequently lowered — that other unit owners are charged. Conceding that there are no Connecticut cases on point, plaintiffs cite to numerous out-of-state cases which, they contend, stand for the proposition that the defendant lacked the right to charge itself a lesser charge for common expenses. See, e.g., AluminumIndustries Corp. v. Camelot Trails Condominium Corp., 535 N.W. (Wisc. 1995); Pilgrim Place Condominium Homeowner's Associationv. Scott, 180 Ariz. 216, 883 P.2d 453 (1994); and other out-of-state cases cited by plaintiffs, all of which have been reviewed. Plaintiffs assert that the evidence showed that Gary Pierce testified that defendant was paying only 50 percent of the assessment on units 98, 102 and 116, and that defendant should have paid $153,591 more than it has paid from the period of July, 1989 to July, 1996.

Defendant makes a number of arguments. Preliminarily, defendant asserts that since from at least 1994, plaintiffs knew CT Page 3061 that the common expense rate for some units were different than for other. Defendant argues that the lesser assessments charged on some of the units was justified because the units were "unfinished" — having no ceiling, no interior walls, no finished plumbing or electricity, and part concrete and part sand floors.See Defendant's Exhibit G. As a consequence of their unfinished state, defendant argues, the unfinished units are less expensive to insure, less expensive to maintain, create no trash that must be hauled away, use no water or electricity billed to the Association, and the exterior rear area does not require snow removal with attendant costs. See Defendant's January 10, 1997, Post-Trial Brief at 2. Based on these factors, defendant contends the Executive Board felt justified in reducing the rate for unfinished units.

Having considered the full record, I conclude that defendant has the better argument and should prevail on Count I, for the following reasons:

First, as the parties agree, there is nothing in the declaration or the by-laws which either expressly permits, or expressly prohibits, defendant from charging itself at a lesser rate for unfinished units.² There is no controlling Connecticut authority which prohibits it. Nor is the practice prohibited by any statute brought to the court's attention. The out-of-state cases relied upon, while relevant to the analysis, are not controlling and are, in varying degrees, distinguishable either on their facts (for example, the Aluminum Industries case concerns assessments on units not yet constructed) or because they relate to a specific statutory scheme in another state. I agree that a relationship in the nature of a fiduciary relationship existed between defendant and plaintiffs. See, e.g.,Governor's Grove Condominium Association, Inc. v. HillDevelopment Corp., 36 Conn. Sup. 144, 154-55 (1980); Thanasoulisv. Winston Towers 200 Ass'n., 542 A.2d 900 (N.J. 1988). However, at issue in this case is not a residential condominium owner who is dealing with a significantly more sophisticated condominium owner. There is no claim of unconscionability in this case. The relationship between plaintiffs and defendant existed within the framework of an arms-length commercial transaction between reasonably sophisticated parties. The legal contours of the relationship were defined by the declaration and the bylaws, which plaintiffs, businessmen, had in their possession before they closed. Plaintiffs must be presumed to have understood that, pursuant to those documents, see Plaintiffs' Exhibits 6 and 7, CT Page 3062 defendant — who has at all times had a controlling interest — could choose to assert its control over the budgetary process. This is what defendant did. Fraud is not alleged, nor is there evidence in the record that defendant affirmatively acted to deceive or mislead plaintiffs on this issue. Compare, e.g.,Governor's Grove Condominium Assn., supra. Moreover, defendant had a fundamentally reasonable basis to assess the unfinished units at a lesser rate than other units. The record does not support the conclusion that the decision to charge lesser rates for unfinished units was either pretextual or fundamentally unreasonable. In the final analysis defendant was exercising the prerogatives which its controlling interest permitted under the declaration and bylaws, implicitly, if not explicitly.³

In summary, I conclude that in the absence of any statutory or caselaw authority prohibiting what defendant did, in the absence of anything in the bylaws or declaration preventing it, in light of the arms length, commercial nature of the transaction between the parties, in the absence of any evidence of deceit, and in light of the fundamentally reasonable basis for defendant to assess unfinished units at lesser rates, defendant must prevail on Count I. Consequently, judgment may enter for defendant on Count I.⁴

COUNT II

Count II alleges that defendant, at all relevant times the sole member of the Executive Board and the sole officer of the Association, breached its fiduciary duty to plaintiffs in five specific ways. Specifically, plaintiffs allege that defendant breached its fiduciary duty to plaintiffs in the following ways:

(a) in failing to hold any Executive Board meetings from the date of the inception of the Association until March of 1995 in violation of Section 2.8 of the Association's Bylaws.

(b) in failing to hold any annual meetings of the unit owners from the date of the inception of the Association until November 1994 in violation of Section 3.1 of the Association's Bylaws.

(c) in failing to hold any annual meetings to consider the adoption and ratification of the Association's budget from the date of the inception of the CT Page 3063 Association to the date of this complaint in violation of Section 18.4 of the Declaration.

(d) in failing to provide a summary of the budget to all unit owners since the date of the inception of the Association to the date of this complaint in violation of Section 18.4 of the Declaration.

(e) in failing to give notice of any meetings of the unit owners or of any meetings to consider the Association's budget or of any meetings to elect Executive Board members since the inception of the Association to the date of this complaint in violation of Section 3.5 of the Bylaws.

Plaintiffs' allegations were proven, in whole or in part.

With respect to (a), the evidence indicated that Executive Board meetings were not in fact held until March, 1995. The evidence also indicated that the business of the Association was conducted informally. However, required formalities were clearly not observed.

With respect to (b), the evidence supports plaintiffs' claims that annual unit owners' meetings were not held until 1994, as defendant concedes.

Turning to (c), the evidence indicates that formal budget meetings were not held. However, as defendant notes, the defendant corporation has never held less than 50 percent of the votes of the Association, and therefore no budget endorsed by the defendant could have been rejected.

With respect to (d), the evidence indicated that plaintiffs did not request budget information from defendant, and indicated further that when requested, defendant offered to open the financial records to audit or investigation.

As to (e) the evidence supports plaintiffs' claims.

Consequently, plaintiffs have prevailed on Count II.

However, there is no evidence in the record that these breaches harmed or financially damaged defendant in any discernible way, other than by violating the cited provisions of CT Page 3064 the declaration and bylaws and thereby depriving them of information and input to which they were entitled. Plaintiffs offered no evidence upon which the court could base an award of more than nominal damages. See Grey v. Coastal States HoldingCo., 22 Conn. App. at 507. Consequently, nominal damages of $1.00 are awarded to each plaintiff on this count. Judgment shall enter for plaintiffs on this count.

COUNT III

In Count III, plaintiffs allege that defendant breached its fiduciary duty to them by paying Gary Pierce $362.50 per month pursuant to an Interim Management contract, when the contract only called for $308.33 to be paid.

The evidence on this point is somewhat ambiguous. Defendant argues that Mr. Pierce testified that some initial documents mistakenly indicated a higher management fee than what was agreed to, but that this error was corrected. Defendant asserts that Mr. Pierce testified that, in fact, no increase in the agreed-upon management fee was obtained, and that his testimony on this point is uncontroverted.

I agree with defendant's argument that, notwithstanding the apparent confusion, Mr. Pierce's testimony that no increase was in fact received stands uncontroverted.

Consequently, judgment may enter for the defendant on this count.

COUNT IV

Count IV alleges, in substance, that defendant breached its fiduciary duty to plaintiffs by entering into the Interim Management Contract with itself and failing to provide reasonable and fair terms in the contract, "specifically, not having a termination date in the contract."

Plaintiff has failed to prove these allegations.

Moreover, paragraph 5 of the interim Management Contract, Plaintiff's Exhibit 11, provides that "This contract may be terminated by either party on sixty (60) days written notice to the other party." CT Page 3065

Judgment on Count IV may enter for defendant.

COUNT V

Count V alleges, in substance, that rain has been permitted to enter the building through a defective roof, causing damage, and that defendant has failed to remedy the defects.

The evidence showed that there had been some problems with leaky roofs. However, there was no evidence that, annoying as this was, it has interfered in any significant way with plaintiffs' ability to go about their business activities, as alleged. Moreover, the evidence showed that Mr. Pierce and Gene Simmons have taken reasonable if not fully successful efforts to remedy whatever problems existed.

Consequently, judgment on this count shall enter for the defendant.

COUNT VI

Count VI alleges that defendant breached its fiduciary duty by self-dealing, relative to various activities, including but not limited to the providing of snowplowing and lawn mowing services.

Plaintiffs' evidence that a company in which Gene Simmons is involved handled the snowplowing is insufficient to carry its burden of proof. So was the other evidence produced by plaintiffs.

Judgment shall enter for defendant on Count VI.

COUNT VII

Count VII alleges, in substance, that a portion of the building's rear concourse remains unpaved despite defendant having promised it would be paved within a "reasonable" time of plaintiffs' purchases.

The evidence indicated that plaintiffs knew this area was only partially paved when they purchased their units; that the final layer of paving had not been applied because a unit's rear entrance could be finished either as a drive-in or a loading dock; and that, because the units were not sold, the proper CT Page 3066 alternative could not be agreed upon. The evidence also indicated that, appearances aside, the area is useable.

While plaintiffs' displeasure is understandable, under the circumstances, I conclude that defendant's stated desire to complete the paving within a "reasonable" time was too vague, and subject to too many contingencies, to support plaintiffs' claim in Count VII.

Moreover, no discernible monetary damages have been proven.

Judgment shall enter for defendant on Count VII.

COUNT XIII

In Count XIII, the plaintiffs allege in substance that the defendant breached its fiduciary duty by failing to turn control of Old County Circle, a private road, over to the town, thereby obviating a need to expend Association funds on the road's maintenance, and by paying itself a "road fee" from association funds.

I concur with the arguments made by defendant as to this count.

Preliminarily, it should be noted that the declaration, Plaintiffs' Exhibit 6, states in section 18.1(e), that expenses are defined to include "Expenses for Old County Circle, a private road . . ." As defendant notes, Schedule A-5 of this same exhibit estimates that the association's share of the annual operating expenses of Old County Circle would be $5,715.00. The evidence indicated that the amount actually charged was $4,100. As defendant also notes, each of the plaintiffs testified that they had received a copy of the declaration in advance of their closings. The plaintiffs therefore were on notice that Old County Road was a private way and that they would share a portion of its maintenance costs as a common expense.

The evidence also showed that in 1996, a purchase of adjacent land owned by defendant occurred, and that the town accepted the road.

In light of the above, judgment shall enter for defendant on Count XIII. CT Page 3067

COUNT XVII

In Count XVII, plaintiffs Rafalowski and Lemanski allege that defendant violated its fiduciary duty to plaintiffs Rafalowski and Lemanski by collecting monies as initial fees and common expenses reserves and then failing to establish a reserve account. See Plaintiffs' Exhibit 6, Declaration, Article XXV.

The evidence supported the plaintiffs' allegations as to the reserve accounts.

However, defendant's counsel has represented that the sums collected for the reserve account have been repaid.

Judgment on this count shall enter for plaintiffs Rafalowski and Lemanski. Defendant is ordered to pay plaintiffs Rafalowski and Lemanski $1.00 each in nominal damages, and also to pay interest from the date the monies were collected, said amount to be agreed upon by counsel.

COUNT XVIII

Count XVIII alleges a violation of CUTPA, Conn. Gen. Stat. Section 42a-110 et seq., in connection with numerous alleged instances of mismanagement. However, these alleged activities are not a "trade" or "practice" and therefore do not come within the purview of CUTPA. See Glen Oaks Condominium, Inc. v. Glen OaksAssociates, Inc., 4 CSCR 378 (1989); Sargis v. Seventy Grove HillCondominium Association, Inc., 2 Conn. L.Rptr. 152, 154 (1990). (Neither claims of mismanagement of the unit owner's association, nor claims of corporate mismanagement, come within CUTPA); Hunterv. Turner, 10 Conn. L.Rptr. No. 9, 273 (1992) ("The Management of a condominium association does not constitute ``trade or commerce'"). Also see Judge Berger's discussion of this issue inWest Farms Condominium Association No. 1 v. Andrew G. Satell, 14 Conn. L.Rptr. No. 7, 214-215 (1995).

I am in agreement with these decisions. Moreover, plaintiffs have failed to prove an ascertainable loss of money or property, as required by C.G.S. Section 42-110g. See Rizzo Pool Co. v.DelGrasso, 232 Conn. 666, 684-685 (1995). Consequently, judgment may enter for the defendant on Count XVIII.

SUMMARY AND CONCLUSION CT Page 3068

For the reasons stated above, judgment shall enter for defendant on all counts other than Counts II and XVII. On Counts II and XVII, judgment shall enter for the plaintiffs as indicated.

Douglas S. Lavine Judge, Superior Court